‘Careless’ mistakes spark fines

The number of freelance workers and landlords fined for ‘careless mistakes’ in their tax returns spiked last year as HMRC worked to close the £32bn “tax gap”, according to a report in the Daily Telegraph.

It revealed there had been an 80 per cent rise in fines, with nearly 90,000 penalties in the 2021-22 tax year, up from 49,701 in 2020-21.

According to the report, many of those fines related to mistakes in self-assessment returns filed during pandemic lockdowns, when more freelancers and landlords completed the forms themselves rather than using an accountant.

The report’s authors, law firm Pinsent Mason, added that access to offices was limited which resulted in many individuals and businesses struggling to collect all the information they required to fill out tax returns properly.

Rosie Hooper, wealth management expert, told the national newspaper the rise in fines showed how HMRC was under pressure to close the “tax gap”, which is the difference between the total amount of tax that should be paid in a financial year, versus that which actually is.

She said: “The jump in issued penalties is a warning shot from HMRC.”

However, the figures also revealed that four out of five penalties issued to self-employed taxpayers were suspended, with warnings about future conduct given out rather than a fine.

Suspensions come with conditions that taxpayers must comply with during the period of suspension with guidance to avoid further penalties.

And business and individuals that received a suspended penalty need to be even more careful in future. Experts warn that if subsequent returns contain mistakes, they may face paying the suspended fine and a new one on top.

HMRC says: “We are committed to ensuring that everyone pays the right tax at the right time to help fund our vital public services.”

• To discuss any tax issues that you may have please contact us on 01772 430000

Recovery Loan Scheme is extended

The government has announced it is extending the Recovery Loan Scheme (RLS), which offers loans to small businesses, for a further two years.

The move has been described as a boost for businesses struggling in the current economic climate and has been widely welcomed by pressure groups that had lobbied for the extension to help firms weather the current economic storm.

A successor to the RLS is being introduced after figures revealed that it had offered more than £4.5bn of lending through more than 20,600 facilities for smaller businesses across the UK.

Applications to the new business loan scheme opened on August 1 and will run until June 30, 2024.

While the RLS was extended by six months to the end of June, concerns about the impact of shutting off the emergency measures as businesses face a difficult economic environment prompted a rethink.

In a statement, the Business Secretary Kwasi Kwarteng said that under the latest extension the requirement for businesses to certify that they have been affected by the Covid-19 pandemic will no longer apply.

To lend through the scheme, lenders will be required to certify that they would not have been able to offer a facility to the business on their normal commercial terms, or that they would have only been able to do so at a higher interest rate.

The maximum amount of external finance available will be £2million per business in Great Britain. Personal guarantees will be permitted, but not required, for facilities above £250,000, bringing the scheme in line with standard commercial practice in business lending.

The government’s flagship business loan scheme opened to applications in April 2021 to help businesses cope with the large amount of trade lost to the pandemic, with the government promising lenders it would guarantee 80 per cent of loans in the case of a default on payments.

Originally scheduled to run until December 31 that year, the government announced in the 2021 autumn Budget 2021 that the scheme would be extended by six months, albeit with some adjustments to its terms.

The government provided a guarantee of 70 per cent for loans made after January 1, 2022. The borrower remains 100 per cent liable for the debt.

Nearly 19,000 businesses have been supported since the scheme launched, with an average of £202,000 in support.

The Institute of Chartered Accountants in England and Wales (ICAEW) was among the bodies lobbying for the extension.

David Petrie, ICAEW’s head of corporate finance, said: “The RLS is a relatively small but important proportion of all bank lending and extending the scheme is a measure that we very much welcome. Extension of the RLS benefits both businesses and their banks, at a cost to the taxpayer.”

However, he also warned that at some point it would be necessary to return to business lending on open market terms.

He said: “That’s when new funding gaps will inevitably open up. The government and the British Business Bank should think now about how to deal with that because that will be the next problem. At some point the music will stop on this form of state support for certain businesses and their banks, but now is not the time.”

Catherine Lewis La Torre, British Business Bank chief executive, said it was committed to supporting smaller businesses in accessing the finance they need to grow sustainably.

She said: “Thousands of businesses in all sectors and from right across the UK have taken out loans under the Recovery Loan Scheme. This will better position them to confront both the challenges and opportunities that are ahead.”

• To discuss any issues arising out of this article please contact us on 01772 430000.

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

Businesses braced for late payment surge

Late payments are expected to grow significantly in the coming months, following rising inflation and interest rates, a new report is warning.

It has also revealed that UK businesses are less likely than their European peers to make growth a priority, amid fears that the economy could fall into ‘stagflation’ with inflation rising quickly with little to no growth.

The Institute of Chartered Accountants in England and Wales (ICAEW) has revealed around six in 10 companies say they are worried that the risk of late payments will grow this year.

The figure is taken from Intrum’s annual European Payment Report 2022, which surveyed 11,000 companies across 29 European countries.

A third of those businesses that took part said that late payments were prohibiting growth of the company.

Two out of three businesses said faster payments from their customers would help them improve their sustainability and six out of 10 said it would help them grow by allowing them to expand their products and services.

Eddie Nott, Intrum UK’s managing director, told ICAEW that more than half of businesses expected late payments to jump this year, but “a similar proportion say they do not have the in-house expertise needed to successfully manage the impact of inflation on their business”.

Meanwhile, respondents admitted they were struggling to manage the impact of inflation on their businesses, with more than half of UK businesses saying it was inhibiting growth (51 per cent), stopping them from meeting wage demands (57 per cent), and preventing them from paying suppliers on time (60 per cent).

Nott said: “UK businesses are battening down the hatches and are less likely to prioritise growth than their European peers.”

Also, almost six in 10 businesses said they were more cautious with their borrowing and spending plans, as they expect interest rates to rise more than once during the next 12 months.

ICAEW’s head of business, Simon Gray, said cash flow and working capital management remained top business priorities, according to feedback from its members.

He added: “With economic pressures mounting on businesses across multiple sectors, I expect to hear more on this as we move into the second half of the year.”

Half of the businesses surveyed report that they are financially weaker now than before the outbreak of the pandemic. At the same time, more than six in 10 say that the pandemic has motivated them to become better in managing risks related to late payments.

Gray said: “Due diligence on new customers and regular communication with existing will be critical. As price increases ripple across supply chains and the potential for a downturn in consumer discretionary spending looms, staying close to customers and effective cost control will be of increasing importance.”

To discuss any issues raised by this article please contact me on 01772 430000

AV business seals the deal with global giant

A specialist Lancashire audio-visual company has been acquired by a global communication services business in a deal that will allow it to accelerate its long-term growth strategy.

Pure AV, based in Preston, is now part of the Ricoh group. WNJ acted alongside and advised the Pure AV management team throughout the sale process to completion.

The company is an award-winning specialist AV integrator with specific expertise in higher education learning environments, as well as the commercial and hybrid technology markets. It has 72 employees operating across the UK, as well as on customer projects globally.

Ricoh, one of Europe’s largest AV and workplace integrators, has taken on Pure AV’s existing sites, including its premises in Preston. The entire Pure AV workforce has been retained as part of the acquisition.

Founded in 2003, the Pure AV team includes highly skilled designers, programmers, engineers, and sales specialists, who work together to deliver best in class solutions that drive communication and collaboration.

Customers of Pure AV include prominent UK universities, museums and galleries, as well as the public and private sector, healthcare, and corporate organisations.

Pure AV managing director Peter Sutton says the deal opens new opportunities for the business. He says: “We’re excited to start a new chapter that will allow us to accelerate our long-term growth strategy while delivering best-in-class solutions to our clients in the UK and Europe.

“Ricoh’s worldwide infrastructure and end-to-end managed services expertise, combined with the strength of our design, engineering, and support services, will enable us to deliver our solutions on a local and global scale.

“The marketplace is changing and looking at the whole digital workplace environment our specialism was a missing piece for Ricoh.

“This is a natural progression for their business, and we’ve got growth plans in place for the next four years as we look to continue to take it forward.

“Everyone in the business should be very proud that a global organisation has chosen to acquire a company based in Preston.”

He added: “The deal couldn’t have happened without WNJ. Running a business is one thing, going through due diligence is a completely different affair.

“WNJ brought all its experience and understanding of the process and what was needed, taking the pressure away from the management team.”

Edward Hamilton, vice president of communication services at Ricoh Europe, said: “Pure AV is a significant addition to Ricoh’s communication services delivery business, both within the UK and at a European level.

“Not only will it accelerate our organic growth in this sector, it will strengthen our technical design and delivery capability within the corporate, higher education and healthcare markets.

“Leveraging the specialist skills of Pure AV creates opportunities for lifelong learning and up-skilling of Ricoh’s existing employees, meaning our customers receive an even more diverse and extensive level of support.”

Pictured here after the completion of the deal are (left to right): Richard Lister, Pure AV, Phil Keoghan, Ricoh UK, Peter Sutton, Pure AV, Erica Whittle, Pure AV, David Mills, Ricoh Europe, Ed Hamilton, Ricoh Europe and Simon Truby, Ricoh UK.

For more details about Pure AV visit the company’s website: https://www.pureav.co.uk/

North West flying high in R&D tax relief league

The North West of England is one of the most innovative business areas in the UK, according to the latest figures.

The region sits third in a league table showing how much R&D tax relief their businesses are claiming, behind only the North and the West Midlands.

Almost 16 claims for R&D tax credits were made per 1,000 businesses in the North West in the latest year, well above the national average of 14.4 claims.

In sharp contrast, the South West — the region with the lowest proportion of businesses claiming for innovation — there were 11.5 claims per 1,000 companies, according to the analysis of official HMRC figures by innovation funding specialists Catax.

According to HMRC’s latest R&D tax credit figures, overall claims increased 16 per cent from the previous year — a sign of the progress that has been made in raising awareness of the tax break.

However, a Catax spokesman added: “There is always a lag with these figures, so they only cover up to March 2020, and we’ll need to wait another 12 months to see which regions were impacted the most by the pandemic and whether this momentum can be sustained.

“Ultimately, we need to see all UK regions building on this platform, as increased innovation can only be a positive thing for the UK at large, wherever the work is taking place.”

R&D tax relief was introduced by the government in 2000 to incentivise innovation, and results in either a reduction in a limited company’s corporation tax bill or a cash lump sum.

The relief is open to businesses from any industry and while there is a perception that the credits are just for young companies at the start of their development, that is certainly NOT the case.

And it is also worth stressing that your business may be entitled to a valuable R&D tax credit even if it doesn’t make a taxable profit.

The SME R&D relief currently available provides an enhanced deduction for tax purposes of an additional 130 per cent of qualifying revenue expenditure on qualifying R&D, in addition to the 100 per cent deduction already available for revenue expenditure under the normal tax rules.

Where the SME is loss making, alternatively, the SME may claim a tax credit up to 14.5 per cent of the surrenderable loss.

So, who is eligible for R&D tax relief under the present system? HMRC has set out some clear rules and guidelines.

It says your company can only claim for R&D tax relief if a “project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty” – and not simply an “advance in its own state of knowledge or capability”.

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.

And if your company or organisation is claiming tax relief under the SME scheme it must own any intellectual property that might arise from the project.

It is not enough to say that a product is commercially innovative. You can’t claim in respect of projects to develop innovative business products or services if they don’t incorporate any advance in science or technology.

You can’t claim R&D tax relief under the SME Scheme if you’ve been subcontracted to do the work on behalf of somebody else.

It is also worth pointing out that your project doesn’t have to be a success to qualify for the relief. The fact that it failed can be used to show that its work was genuinely pioneering.

However, if your company receives a subsidy or grant for an R&D project, it may affect how much tax relief you can claim.

Gaining this support can be an important part of a business’ decision whether to make an investment that can see very real benefits for its future.

The requirements of the scheme are broad. It can include creating new products, processes or services or changing or modifying existing ones.

To discuss if your business may be eligible R&D tax relief contact me on 01772 430000.

Lending to small businesses hits all-time low

The UK’s largest business group has warned that banks “pulling up the drawbridge” to small firms will further stifle economic growth.

The Federation of Small Businesses’ new SBI study ha revealed successful finance applications plunged over the first quarter of this year.

Fewer than one in ten (nine per cent) small firms applied for finance in Q1 2022, the lowest proportion since SBI records began. The share that saw applications approved (43 per cent) is also at a record low.

The number of respondents describing the availability of credit as “good” (19 per cent) has tumbled to its lowest point since 2016.

A minority (44 per cent) of successful applicants were offered a borrowing rate of up to four per cent in Q1 – the figure is down 32 percentage points on the same period last year.

Of the few firms that did manage to secure finance, four in ten plan to use credit to manage cashflow.

The majority (61 per cent) of small firms were impacted by late payment of invoices over the first quarter of this year. A quarter say the propensity for late payment is growing – close to one in ten experienced late payment for the first time in Q1 of this year.

Of those that applied for finance, the majority (61 per cent) sought traditional overdraft and/ or loan products.

A quarter (25 per cent) applied for asset-based finance, such as invoice finance, with smaller numbers seeking funds through peer-to-peer platforms (seven per cent) and/ or crowdfunding (five per cent).

Latest Bank of England figures show the annual growth rate of lending to SMEs at a record low, despite small firms making net debt repayments of close to £1bn in March alone. Lending to big corporates, by contrast, has increased significantly since the start of the year.

One in ten (11 per cent) small firms plan to close, sell or downsize their business over the coming year, equating to more than half a million businesses.
FSB national chair Martin McTague said: “Lenders pulling up the drawbridge for small firms will threaten our already faltering economic recovery.

“Businesses are born every day across the UK – many need funding to get off the ground, ensuring they reach a stage where they’re profitable and creating opportunities.

“A lot of those who’ve worked tirelessly to adapt, survive and thrive over lockdowns need finance too, empowering them to take their firms to the next level, driving our economic recovery and the transition to net zero in the process.

“A big chunk of what little finance is being accessed is being used to manage cashflow challenges as our late payment crisis worsens, rather than for much-needed investment and innovation.

“The government should accelerate delivery of our proposal to make audit committees directly responsible for supply chain practice to address this worrying trend.

“Culture change is what’s needed here – lenders taking an objective approach to small business finance and big corporates putting best supply chain practice at the heart of environmental, social and governance programmes.”

Please contact me on 01772 430000 to discuss any aspects of this article.

Cyber risks dominate directors’ liability fears

A volatile business environment sparked by the pandemic and geopolitical pressures has placed cyber-crimes at the top of directors’ liability risk lists.

Cyber attacks and data loss are perceived a presenting the biggest risks, with cyber extortion and the growth of ransomware attacks also flagged up as a significant source of financial or reputational risk, a new global study of directors has found.

According to the latest global ‘Directors’ Liability 2022’ survey, from insurance firm WTW and legal practice Clyde & Co, 65 per cent of respondents believe the risk of cyber-attack is very or extremely significant, while 63 per cent say the same of data loss.

The survey authors say concerns about cyber extortion, which ranked third on the risk list, were driven by the surge in ransomware attacks over the last 24 months, the majority of which have included the demand for an extortion payment.

“Ransomware has become a low-investment, low-risk and high-reward method of cyber-crime which organisations cannot ignore,” the survey report warns.

Despite the increased attention on climate change risks following COP26 and recent regulatory changes, it remains outside the top five risks among UK respondents.

However, Angus Duncan, executive director at WTW, believes a ramping up of reporting requirements will likely see climate change risk move up the list of liability concerns, against a backdrop of increasing pressure on financial institutions to make climate and ESG-related financial disclosures.

In the UK, mandatory climate disclosure requirements that will apply to a broader range of organisations came into force in April 2022.

These extend the Financial Conduct Authority’s requirements for listed firms to produce climate-related disclosures and wider ESG-related risks and opportunities on a comply or explain basis.

At the same time, a common global reporting framework from the recently announced International Sustainability Standards Board is afoot.

In the UK, reporting requirements were ranked as the highest climate-related risk for directors, when compared to transition and physical risk.

Three-quarters of directors in the energy and utilities sectors highlighted reporting requirements as the most significant climate-related risk.

The survey identifies the key risks for directors, with responses from more than 40 countries around the world.

Insurance cover is available, designed to protect businesses against the financial loss resulting from a range of cyber threats and exposures, including cybercrime, data breaches and system interruption.

Businesses should seek advice from a suitable qualified broker. Here at WNJ we can can put clients in touch with several brokers who are experts in this field.

Please contact me on 01772 430000 to discuss any aspects of this article.

Working to boost business resilience

A wide-ranging programme of support for Lancashire companies is looking to build business resilience and performance.

Dementia and wellbeing in the workplace are just two of the topics being covered by the initiative, which aims to help business leaders better understand the world around them and how it impacts their operations.

The Boost Resilience Programme is being led by Boost; Lancashire’s Business Growth Hub and funded by the Department for Business, Energy and Industrial Strategy.

It will cover key topics helping business leaders build a strong, motivated team while supporting owners and managers to develop their own leadership skills and mindset.

The programme will also help them to understand developing business issues such as social value and sustainability.

Boost is working with a range of private sector partners such as Age Concern, The Shared Value Business and The Wellbeing Farm. The support will include events, coaching and group training sessions.

In addition, Boost has commissioned a report on women in business leadership positions in the county as well as the creation of a women’s enterprise working group.

Andrew Leeming, programme manager, Boost, says: “The past two years have shown that building a sustainable and resilient business is among the key issues for business leaders in Lancashire.

“Boost helps company owners adapt to the changing business landscape by better understanding their own company. That includes addressing important topics which it may be uncomfortable for some to discuss.

“We’re partnering with some of the county’s best business support providers through this programme. Owners and managers who engage with our support will develop a company better able to handle future crises and one with a more motived staff and understanding working culture.”

Boost is Lancashire’s Business Growth Hub and is led by Lancashire County Council and the Lancashire LEP (Local Enterprise Partnership). It is supported by funding from Lancashire County Council, the European Regional Development Fund (ERDF) and the Department for Business, Energy and Industrial Strategy.

Boost is a fully funded service and helps business owners and leaders develop and achieve their growth plans, manage their business and develop their leadership

Business leaders looking for more information on the Boost Resilience Programme can visit: https://www.boostbusinesslancashire.co.uk/business-support/resilience-programme/

They can also call Boost’s Relationship Management team on 0800 488 0057 for advice on the Boost Resilience Programme and other funded services available through Boost or contact Boost’s team via the contact us page on the Boost website.

New VAT penalty regime is delayed

The new HMRC VAT penalty regime set to come into effect from April this year has been postponed until January 2023.

The move has been made to allow HMRC more time to make the necessary systems changes.

The reforms of the VAT penalty and interest regimes for late filing and payment were introduced in the 2021 Finance Act.

The aim of the reforms is to align interest charges for VAT with other major taxes. In the meantime, the existing default surcharge rules will continue to apply.

When they are introduced in January next year, the new late submission penalties will affect those who fail to meet their obligations to provide returns and other information requested by HMRC on time.

Taxpayers will no longer receive an automatic financial penalty if they fail to meet a submission obligation.

Instead, they will incur a certain number of points for missed obligations before a financial penalty is levied.

HMRC says the new points-based regime is designed to be proportionate, penalising only the small minority who persistently miss their submission obligations rather than those who make occasional mistakes.

The regime is designed for taxes with regular submission obligations. It will initially apply only to those taxpayers who have submission obligations for VAT and Income Tax Self Assessment (ITSA) with a regular frequency – for example, monthly, quarterly, or annually.

Taxpayers will receive a point every time they miss a submission deadline. HMRC will notify them of each point.

At a certain threshold of points, a financial penalty of £200 will be charged and the taxpayer will be notified. The threshold is determined by how often a taxpayer is required to make their submission.

When a taxpayer has reached the relevant threshold, as determined by their submission frequency, a penalty will be charged for that failure and every subsequent failure to make a submission on time, but their points total will not increase.

A taxpayer will be able to challenge a point or penalty through both an internal HMRC review process and an appeal to the courts – the First Tier Tax Tribunal.

The grounds for an appeal will include the grounds that the taxpayer had a reasonable excuse for missing a filing deadline.

The appeal process will be the same as the appeal process against an assessment of tax for the relevant tax on which the penalty is based.

• To discuss any issues raised in this article please contact me on 01772 480000