DOING THE RIGHT THING

Businesses are paying more attention than ever to ESG (Environmental Social and Governance) and many are becoming increasingly vocal in demonstrating that they are doing ‘the right thing’.

The message firms are receiving is that prioritising ESG, and importantly measuring and showing what they are doing and the positive impact it is having, can give them a competitive edge.

I took part in a recent roundtable debate organised by Lancashire Business View magazine. Attended by invited representatives from across the business community it discussed the rise of ESG.

The debate features in the current issue of the magazine and in it we explored the importance of businesses measuring impact on the environment, their social impact and governance and what getting it right can mean to their organisations.

The North West has a big manufacturing base and big construction businesses which, with better technologies, give us a bigger opportunity to make some easier wins as a region when it comes to sustainability and protecting the environment. Technologies are being advanced at faster and faster rates.

All businesses should look at ESG, and not just from a PR perspective but in terms of business planning and supply chain management. There are also pitfalls in ignoring the subject, particularly within those supply chains.

Many businesses are very cost conscious at the moment, quite naturally, and may see ESG as a secondary issue. However, it is important to stress they are not mutually exclusive.

ESG is a brilliant framework for looking at your risk analysis. It’s not just that you want your employees to be happy or you want to be able to report good green credentials. You want to be aware of what the risks to the business are.

To give an example, if you were heavily reliant on gas and had the foresight to look what was happening eight months ago in Ukraine you might have been thinking ‘let’s take steps now’ and asking what you could do with solar power.

So, it should be part of your risk analysis to develop a strategy which gives you long term competitive advantage.

A lot of small businesses need advice on governance and how to get the message out. It is easier for larger companies to report on this.

If you look at a set of accounts for the biggest companies it will be possibly 200 pages, of which maybe 10 per cent is accounting information and the rest is pretty much a brochure explaining what the company does.

It’s structured in a way defined by legislation but gives that opportunity to expand on ESG issues, explain to shareholders where the values are coming from, there’s plenty of opportunity.

Smaller companies have exemptions and it’s practical that they do because of the cost of producing that brochure, so there is that issue about getting their message out.

We also have to take care, because sometimes what we perceive to be environmentally friendly does nothing more than tick boxes and education is needed, especially for smaller businesses that can’t afford to have offices who just focus on this.

Beware of “rogue” R&D consultants

In recent years HMRC has identified and successfully challenged several false claims for Research and Development (R&D) tax credit relief made by purported R&D consultants.

Many of these claims have been for projects that did not satisfy the criteria for the tax relief and some included overstated expenditure and consequently were found to have been abusing the scheme.

The number of spurious claims has resulted in HMRC notifying some accounting firms that they are temporarily suspending repayments and requesting additional information to support the R&D claims.

And there have been reports that it has even started writing to companies alleging that their R&D claim may be fraudulent.

Following a review of R&D tax reliefs launched at the 2021 Budget, the government has announced several new reforms that will apply from April 1, 2023. HRMC has revealed they include moves to further tackle abuse and improve compliance.

It says that to tackle abuse of the reliefs, all claims – either for a deduction or a tax credit – will in future have to be made digitally, except from those companies exempt from the requirement to deliver a company tax return online.

These digital claims will have to break the costs down across qualifying categories and provide a brief description of the R&D. Each claim will need to be endorsed by a named senior officer of the company.

Companies will need to inform HMRC, in advance, that they plan to make a claim. They will need to do this, using a digital service, within six months of the end of the period to which the claim relates. Companies that have claimed in one of the preceding three periods will not need to pre-notify.

Claims will need to include details of any agent who has advised the company on compiling the claim.

Scope will be extended

To incentivise R&D using modern computational approaches, the government is extending the scope of qualifying expenditures to include the costs of datasets and of cloud computing.

And to further support cutting edge R&D, the government will make changes to the definition of R&D for the tax reliefs, to remove the exclusion of pure mathematics.

To ensure the maximum benefit to the UK from the ‘spillovers’ of R&D activity incentivised by the reliefs, relief for subcontracted work and the cost of externally provided workers will be limited to focus it on UK activity.

HMRC says there will be some “narrow exemptions” where factors such as geography, environment, population or other conditions that are not present in the UK are required for and where there are regulatory or other legal requirements for certain activities to take place in specific territories. The exemptions will not include cost, or workforce availability.

Several other changes will also be made to correct anomalies and ensure that the reliefs operate as intended.

The government says it has an ambitious target to raise total investment in research and development to 2.4 per cent of UK GDP by 2027.

And it adds R&D tax reliefs have a “key role in incentivising this investment” by reducing the costs of innovation. It is therefore important to ensure that the reliefs remain up-to-date, competitive and well-targeted.

How it works

R&D is a generous tax break. As a Small or Medium-sized Entity (SME), the expenditure qualifies for a tax deduction of 230 per cent of the amount spent which can then be traded in for a tax refund of 14.5 per cent where the company is loss-making.

Thus, £100,000 of qualifying R&D expenditure would potentially result in a tax refund to a loss-making company of £33,350 and many of these R&D consultants charge a fee based on the amount of the claim.

The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science – like economics – or a theoretical field – such as pure maths.

The project must relate to your company’s trade – either an existing one or one that you intend to start up based on the results of the R&D.

To get R&D relief you need to explain how a project:

● looked for an advance in science and technology
● had to overcome uncertainty
● tried to overcome this uncertainty
● could not be easily worked out by a professional in the field. For more details, see: Claiming Research and Development tax reliefs – GOV.UK (www.gov.uk)

  • Please contact us on 01772 430000 if you would like to discuss whether any of the projects carried out by your company potentially qualify for R&D tax relief.

Action needed to ‘stem the tide’

SMALL businesses are urging the government to act to “stem the tide” after producer price inflation hit a record high 22 per cent.

The latest gloomy figures on the economy have also revealed that the consumer price index has risen to 9.1 per cent, which is a 40-year high.

Responding to the news, Federation of Small Businesses (FSB) national chair Martin McTague has called for a package of action, including reversing hikes to national insurance contributions and cuts in business rates to small firms, along with the lowering of VAT rates.

He said: “The cost-of-living crisis starts with a cost of doing business crisis. Policymakers should act now to address rising consumer inflation at root, by taking pressure off the small firms that are doing all they can to absorb higher input, labour and energy costs, but can only absorb so much.”

Research has revealed that a fifth of small firms see input costs as their main concern. A similar number say they are struggling to source the right goods and services or have experienced supply chain disruption.

One in seven are struggling with labour shortages and one in ten are still not fully trading.

Mr McTague added: “On top of those worries are surging energy bills, travel disruption and the need to service debt, the cost of which is rising.

“As margins are eroded, leaving less and less for firms to invest in upskilling and innovation amid labour shortages and net zero targets, the government must use the tools at its disposal to help stem the tide.

“That means looking at reversing hikes to national insurance contributions, reductions in business rates for small firms, cuts to VAT, especially on energy, and targeted reductions in fuel duty – many businesses, especially in rural areas, have no choice but to use the roads.

“On energy, policymakers should extend the help that’s been issued to households through the council tax system to micro businesses through the rates system.

“Unless action is taken now, surging costs will continue to be reflected in anaemic growth, productivity and investment figures.

“The small business community shrank in size to the tune of 400,000 over lockdowns. If surging costs keep on unaddressed, we’re set to lose hundreds of thousands more.”

To discuss any issues raised by this article and how we can support your business please call me on 01772 43000

Is your estate planning up to date?

UK households paid an extra £100m in inheritance tax (IHT) in the first two months of the financial year, new figures from HMRC have revealed.

The total amount the government received in death duties hit £1.1bn across April and May – a 10 per cent rise on the previous year.

While IHT receipts are on the rise, people’s understanding of the system and how it could help them pass wealth onto their beneficiaries isn’t so high.

Older generations are also becoming increasingly worried about the financial future for their children and grandchildren, according to recent research.

Amid that concern there have been calls for changes to what remains a controversial tax. Its gifting rules have been described as “incredibly outdated”.

Experts say that the IHT gifting allowance would be more than £9,000 compared to the current £3,000 if it increased with inflation. The figure has remained unchanged since 1981.

In some quarters the idea of a temporary “gifting amnesty”, with the level increased to £10,000 for two years, has been mooted.

Whether that comes to fruition or not, and it seems unlikely, there are ways in which the existing IHT regime can currently benefit your own estate planning and ensure a fairer distribution of your assets through your family.

The £3,000 a year annual gift allowance is good place to start. So is reviewing your will and making sure your assets will be dispersed the way you wish.

The first question that you should be asking is: “Is my estate planning up to date?”

It is also worth stressing that the threshold for paying the 40 per cent inheritance tax, is £325,000 – a figure which hasn’t increased since 2009. And ongoing property price rises will continue to push more people above that threshold.

To discuss any issues around IHT or other tax issues please contact me on 01772 430000

Growing support for scaleups

Ambitious scaleup businesses in Lancashire are being invited to apply for a new programme designed to help them accelerate their growth.

The Scaleup Leaders Network, led by Two Zero, Lancashire County Council’s support service for the county’s scaleup businesses, aims to help business owners and managers to accelerate their expansion through sustained growth coaching and peer group learning with other high-growth business leaders.

The fully funded programme will be delivered by business growth consultancy Cube Thinking and is open to scaleups which can demonstrate strong potential to accelerate their growth.

Business leaders will access to up to 12 months of support and have been encouraged to apply as soon as possible to benefit fully from the programme.

The network aims to develop the leadership mindset and scaleup strategies of those on the programme through one-to-one coaching, group masterclasses on key topics and by providing facilitated peer learning to help them build long-lasting networks of likeminded business leaders.

The programme will help participants develop robust strategies for accessing finance and environment, social and governance (ESG).

They will also learn to develop and refine their overall scaleup business strategy and will receive a full business health check, with support to improve business performance throughout the programme.

Scaleup Leaders Network builds on the success of Two Zero’s Scaleup Resurgence programme, a six-month programme which helped around 20 scaleup businesses return from the pandemic to full strength quickly during the pandemic.

Lancashire businesses wishing to join the network must meet a selection criterion and demonstrate scaleup activity already taking place within their businesses.

Interested business owners can find out more by visiting www.twozerolancs.com

‘No jab – no job’ – beware the pitfalls

More than one in five employers in the North West plan to implement a Covid-19 “no-jab, no-job” policy in the year ahead for existing staff, according to a new report.

However, experts are warning it is a “very tricky area” of employment law and urge business leaders to get legal advice if they are thinking of introducing a vaccine policy.

Workplace experts, Acas, commissioned YouGov to ask senior decision makers in businesses in the region whether they plan to make it a requirement for staff to be vaccinated against Covid-19 as a condition of employment in the year ahead.

More than one in five of employers (22 per cent) said yes for existing staff and 21 per cent said yes when it came to new workers.

Terry Duffy, Acas North West area director said: “Most businesses in the North West have no plans to require staff to be vaccinated against COVID-19 in the year ahead but more than one in five do want to make it a requirement for existing staff.

“However, this is a very tricky area of employment law and it’s a good idea for employers in the North West to get legal advice if they are thinking of bringing in a vaccine policy.

“Acas advice is that it is always best to support staff to get the vaccine rather than insisting that they get it. We have free advice on how best to support staff and avoid conflict.”

There is currently no law in England, Scotland or Wales that says employees must have the vaccine. The government removed the previous requirements for care home, health and social care staff in March.

The advice from Acas is that it is best to support staff to get the Covid-19 vaccine rather than requiring them to get it.

If an employer feels it is important for staff to be vaccinated, then they should talk with staff or the organisation’s recognised trade union if they have one. Talking with staff can help to:

• Agree a vaccine policy that’s appropriate for both staff and the organisation
• support staff to protect their health
• keep good working relationships
• avoid disputes in the future

Acas says there are also some practical ways that employers could support staff, such as paying them their usual rate of pay if they are off sick with vaccine side effects instead of statutory sick pay.

Employers could also consider offering staff paid time off for vaccination appointments.

If someone does not want to be vaccinated, then the employer should listen to their concerns. Some people may have health reasons such an allergic reaction to the vaccine and some employees may have other reasons for not wanting to be vaccinated.

Acas adds that employers should be sensitive towards personal situations and must be careful to avoid discrimination.

Employment Allowance rise is welcome

A tax cut worth up to £1,000 for eligible businesses announced by chancellor Rishi Sunak in his Spring Statement has now taken effect.

The government says the increase in in Employment Allowance from £4,000 to £5,000 will benefit around 495,000 businesses – 30 per cent of all UK firms.

The move means businesses and charities who had employer National Insurance Contributions (NICs) bills £100,000 or less in the previous tax year will be able to claim up to £5,000 off their employer NICs bills

And it means a rise in the total number of businesses not paying NICs and the Health and Social Care Levy to 670,000.

The increase comes as small businesses face the growing challenge of rising costs.

Smaller businesses can benefit from the increased Employment Allowance from April 6, 2022.

This will either be through payroll software where this has been updated or through a payroll adjustment.

It is the third time the government has increased the Employment Allowance since its introduction in 2014.

And it means that businesses will be able to employ four full-time workers on the National Living Wage without paying employer NICs at all.

The government says that 94 per cent of businesses benefitting from the £1,000 increase are small and micro businesses.

And the sectors that will see the highest numbers of employers benefitting are the wholesale and retail sector (87,000); the professional, scientific and technical activities industry (63,000); and the construction sector (52,000).

The tax cut has been welcomed by representatives of small businesses, who say it will have a positive impact on work opportunities as well as training and investment.

Michelle Ovens, founder of Small Business Britain, said: “The chancellor’s move to increase the employment allowance is welcome, and will certainty play a role in helping those businesses with employees deal with the huge cost-of-living challenges they are currently facing.

“In particular, it is good to see the immediacy of this rise in employment allowance, which will go towards helping businesses asap.”

Protecting yourself against an HMRC investigation

An investigation into your tax return by HMRC is triggered for several reasons: a tip off, paying the incorrect amount of tax, late returns or simply working within a targeted sector to name a few.

The assumption when you’re selected for a tax investigation is that you have done something wrong. This is rarely the case.

However, random enquiries into tax affairs can and do happen.

Whether you’re an individual taxpayer or business owner, an investigation is possible, and nobody is exempt.

That brown envelope arriving on your doorstep is not to be ignored.

Any taxpayer can be targeted by HMRC, answering all its questions takes time and the enquiries often drag on for months and sometimes take years to conclude.

It can cost a lot to defend you, whatever the result. That is why it as important as it has ever been for you to protect against these costs.

What happens during an investigation?

Once HMRC decide to investigate you must comply with their requests.

HMRC will check your accounts, request a plethora of documentation, ask lots of questions and may even want to visit you in person.

No additional tax may be due, but you will still be left with enquiry fees which could cost thousands.

Investigations are costly, stressful, and an unwelcome distraction from day-to-day life; whether HMRC initiate a Full Enquiry of your tax history or an Aspect Enquiry into a specific area of your return, you will be liable for the professional costs to bring about a prompt resolution.

What can you do to protect yourself or your business?

The good news is there is help available. Tax Investigation Services, like the one WNJ offers clients, will protect you from accountancy fees associated with an HMRC enquiry, limiting the stress and uncertainty.

As a member of the service, in partnership with Croner-i Taxwise Protect, you can be safe in the knowledge that we will represent you in the event of an investigation and deal with HMRC on your behalf.

• To find out more about the service offered to WNJ clients please call 01772 43000

Making Tax Digital for VAT is here – are you ready?

Making Tax Digital for VAT has arrived, and the question remains: Are you ready for it?

As we have pointed out on several previous occasions, Making Tax Digital is mandatory for all VAT-registered businesses from April 1.

It is designed to help businesses eliminate common errors and save time managing their tax affairs.

Making Tax Digital for VAT is part of the overall digitalisation of UK tax. In a recent independent study of more than 2,000 businesses, 69 per cent reported experiencing at least one benefit from it.

These included preparing and submitting returns faster and increased confidence that they were getting tax right.

On top of that 67 per cent of businesses felt Making Tax Digital had reduced the potential for mistakes in at least one aspect of the record keeping, preparing and submitting returns process.

As of December 2021, nearly 1.6 million taxpayers had joined Making Tax Digital for VAT with more than 11 million returns successfully submitted.

Around a third of VAT-registered businesses with taxable turnover below £85,000 have voluntarily signed up ahead of April 2022, and thousands more are signing up each week.

Since April 2019, businesses with a taxable turnover above £85,000 have already been required to follow Making Tax Digital, keeping digital records and filing VAT returns using compatible software.

In July 2020, it was announced that all VAT-registered businesses must file digitally through Making Tax Digital from April 2022, regardless of turnover.

HMRC has reminded businesses below the £85,000 threshold of the steps which they need to take to be ready.

To sign up to Making Tax Digital VAT, businesses, or an agent on a businesses’ behalf, need to:

• visit GOV.UK and choose Making Tax Digital-compatible software
• keep digital records starting from 1 April 2022 or the beginning of their VAT period
• sign up and submit their VAT Return through Making Tax Digital

Joanna Rowland, HMRC’s director general for transformation, said: “Making Tax Digital is fundamental to the delivery of a trusted and modern tax system, making it easier for businesses to get their tax right and supporting the UK to go digital.
“By signing up for Making Tax Digital, we expect most businesses to experience long-term benefits, including reduced errors and time saved in managing their tax affairs.

“We encourage businesses to explore digital record-keeping for their VAT affairs and use this time to choose the right software to support their business needs.”
Businesses can find help and support on how to sign up for Making Tax Digital on GOV.UK.

Agents can sign up on behalf of a business, although businesses remain responsible for meeting their VAT obligations. Those who do not join may be charged a penalty for failure to do so.

Ensure that you sign up to Making Tax Digital at least five days after your last non-Making Tax Digital VAT return deadline date, and no less than seven days before your first Making Tax Digital VAT Return deadline date or you may pay for your VAT twice.

Businesses must keep digital records under Making Tax Digital. This can be done through software. Where a business chooses to use bridging software, digital links must be in place to ensure that records are kept digitally as information is transferred between different platforms.

Businesses need to have signed up to Making Tax Digital for their first VAT return starting on or after April 1. They may not be required to make their first submission via Making Tax Digital until Summer 2022.

• To discuss any issues raised by this article please get in touch with me on 01772 430000

NIC and living wage rise looms – are you prepared?

Businesses need to be prepared for hikes in National Insurance Contributions (NIC) and an increase in the National Living Wage (NLW), which will both come into effect in April.

The rises were announced by the chancellor Rishi Sunak in his last two Budget pronouncements.

As announced, NIC and dividend tax rates will increase by 1.25 per cent from April 1.

And the NLW will go up to £9.50 on the same date. This represents an increase of 59 pence or 6.6 per cent.

Looking at NIC From April 1, there will be a temporary 1.25 per cent increase in class 1 (employee) and class 4 (self-employed) national insurance contributions (NIC) paid by workers, as well as a 1.25 per cent increase in class 1 secondary NIC paid by employers (so 2.5 per cent in total).

The increase will apply to employed (include deemed employees) and self-employed individuals and partners earning above the class 1 primary threshold / class 4 lower profits limit (currently £9,568 in 2021/22).

Employers will pay the additional 1.25 per cent for staff earning above the class 1 secondary threshold (currently £8,840 in 2021/22).

Existing reliefs and allowances from employer’s secondary class 1 NIC will apply to the levy, including the £4,000 employment allowance, reliefs for employers of apprentices, newly employed veterans and new employees in freeports.

The government has also announced a 1.25 per cent increase in dividend tax rates from April 1, 2022.

That will take the rates to 8.75 per cent for basic rate taxpayers, 33.75 per cent for higher rate taxpayers and 39.35 per cent for additional rate taxpayers. The £2,000 dividend allowance will remain.

According to calculations, someone taking £45,000 per year in dividends will see their tax bill increase by £378, while someone receiving £75,000 in dividends will pay an extra £753.

Shareholders who hold their investments in a tax-free ISA will not be affected as they do not pay tax on dividend income.

The NLW is only available to those who are 23 years of age or older. They are in line to see the rate rise to £9.50.

Younger workers on National Minimum Wage (NMW), aged 16-22, will see smaller hikes to their pay rise, also this April.

• The 21 to 22-year-old rate will increase from £9.18 to £8.36. This represents a 9.8 per cent rise
• The 18 to 20-year-old rate will rise from £6.56 to £6.83. This represents a 4.1 per cent increase
• The 16 to 17-year-old rate will go up to £4.81 from its current £4.62 rate, which equates to a 4.1 percent rise

• To discuss any of the issues raised in this article please contact me on 01772 430000