Why have an Audit?

1 min read

Being compliant with regulatory requirements is only one reason to have an audit. There are also a number of benefits to having your financial statements audited by Loucas.

The Audit Process

As part of the audit process, we will review and test your accounting systems and controls that you have in place and identify any weaknesses. We will sit down with you and discuss these whilst also suggesting useful improvements to ensure a robust internal control environment.

The benefits of having an audit

Regular audits can help deter fraud from occurring. Our audit tests are designed to reduce the risk of fraud and error within the company.

An audit can help provide assurance to directors and shareholders who may not be involved heavily in the day-to-day running of the company.

An audit can also help provide assurance to bank and lenders (current and prospective).

Loucas will provide advisory services to you that can benefit management and those charged with governance. Such advice would include but isn’t restricted to, tightening internal controls, reducing the risk of fraud, tax planning, technical advice, how the business is running and what can be achieved.

An audit can enhance the credibility of the financial statements for various third parties:

  • Audited accounts can help with credit ratings
  • Suppliers can favour audited accounts when considering credit risk
  • HMRC when placing reliance on the accounts
  • Investors (current and prospective)

How we can help

At Loucas, we understand that you would like peace of mind knowing that your financial statements are in full compliance with statutory requirements. To find out more, call us on 01622 758257and speak to one of our audit experts.

Creating Green Growth

2 min read

2021 will see the UK host COP26, where parties from around the world will gather together to find ways to work towards the goal of a low-carbon future.

The UK government itself must accelerate the reduction of carbon emissions in order to hit the country’s climate target by 2050. The desire to reach these goals has been further fuelled by the coronavirus (COVID-19) pandemic, with many people urging governments to ‘build back better’ and businesses assessing their own roles in the ‘Green Industrial Revolution’.

For this to happen, the government will need to deliver fundamental change to help the UK meet its net-zero target while aiding an economic recovery. Chancellor Rishi Sunak has already laid out some steps towards creating a greener economy. Here, we take a look at what could be done to drive these ambitions further.

Committing to green growth

In the 2021 Budget, the Chancellor made a number of commitments to green growth. This included the first ever UK Infrastructure Bank, which will have an initial capitalisation of £12 billion and will invest in green public and private projects.

The Chancellor also unveiled a retail savings product to give UK savers the chance to support green projects to sit alongside a Sovereign Green Bond that was announced last year. Mr Sunak also committed investment to offshore wind, with funding for new port infrastructure to build the next generation of projects in Teesside and Humberside.

Holistic plan

The Confederation of British Industry (CBI) has urged the government to go further in order to encourage the green industrial revolution. It says that greening the tax system must go beyond simply looking at different environmental taxes – transport, pollution and energy taxes – as one-offs. Instead it should deliver fundamental change with a holistic, coherent tax plan to help the UK meet its net-zero target.

Bumps in the road

However, the UK government has also come in for criticism for cutting electric vehicle grants by £500 while continuing to freeze fuel duties of petrol and diesel vehicles. The Department for Transport will now provide grants of up to £2,500 for electric vehicles on cars priced under £35,000. This is a reduction from the previous £3,000 available for vehicles costing up to £50,000.

The government says this means the funding will last longer and be available to more drivers. However, critics say the cut in grants sends the wrong message, while the fuel duty freeze highlights the challenge facing the government as it seeks to assist the post-COVID recovery whilst also building back better.

How we can help

We aren’t just your average accountants. We offer a wide range of business advisory services to help you make the right decisions for your business to grow and improve. With over 40 years experience our team is dedicated to really understanding your business.

We believe by staying up to date with not only current but changing legislation and industry news we are better placed to help our clients and their businesses succeed.

If you would like to know how Loucas can assist you please do not hesitate to contact us.

Do you own worthless shares? – Negligible Value Claim

2 min read

If you hold shares in a company that have become of negligible value, even if you have not yet disposed of them, it is possible to make a negligible value claim and potentially reduce your tax liability.

If such a claim is made, you will be treated as if you have sold the shares and immediately required them back at their value at that time.  This effectively crystallises the loss.

Although negligible value is not defined by law, HMRC’s guidance states “An asset is of negligible value if it is worth next to nothing”

You must own the shares at the time of making the claim.  If a company has been dissolved the shares no longer exist and therefore it would be too late to make a claim.  The timing of a claim is therefore particularly important, so any opportunity is not lost.

How can these losses be used to save tax?

The loss can be set off against other capital gains you have made in that year.  If certain conditions are met, it is also possible to backdate the claim to the previous two tax years.  Any unused losses can be carried forward to future years.

Perhaps more useful, in certain circumstances, it is possible to set the loss off against other income as opposed to just other capital gains.

The relief must be claimed within one year of the 31 January after the tax year in which the claim is made.

For the shares to qualify, they must have been subscribed for in a qualifying company.  Broadly speaking, for the company to qualify it must meet similar conditions as to those of an Enterprise Investment Scheme (“EIS”) qualifying company.  These are smaller companies not listed on a stock exchange. 

Furthermore, the company must have been trading for a period of six years up to the date of disposal or its entire existence if that is less. Although, if the company did stop trading before the disposal the company may still qualify under certain conditions.

It is possible to set the loss off against income in the year of the claim, the preceding year or both years.  A slight downside is that the loss can not be restricted in any year to preserve personal allowances, so care needs to be taken to ensure the loss is utilised in the most effective way.

Unless the shares have been acquired via SEIS or EIS then any loss claim is restricted to £50,000 or 25% of that year’s income whichever is greater.

The next step

If you have ever invested any money by buying shares in a company and believe that the shares may no longer have any value, you may be due a tax refund.  We would be happy to review the situation and make a claim on your behalf.

T: 01622 758257 E: enquiries@loucas.org.uk

Employee Ownership Trusts

3 min read

Employee Ownership Trusts (“EOT”) were first introduced in 2014 to facilitate more businesses being wholly or partly owned by employees.

There are some generous tax breaks on offer to encourage business owners to consider the EOT model.

What actually is an EOT?

A trust is set up which will hold all or some of the shares in the company. In order to benefit from the tax breaks the trust must own more than 50% of the shares in the company.

The trust will be operated for the benefit of the employees of the company. The trust is run by its trustees, which could include members of the management team, but given that its purpose is to hold the directors to account, it should be sufficiently independent to enable it to do this. It is necessary to demonstrate to HM Revenue & Customs that control of the business has passed to the EOT and having the trustees dominated by the original shareholders /directors would make this very difficult.

Employee Ownership Trust Model

How does it work in practice?

For new businesses, the EOT model could be put in place from the outset. For existing businesses, the shareholders would sell all or some of their shares to the EOT.

An independent market rate valuation of the business should be obtained which would set the sale price of the shares.

The company would make a contribution to the trust enabling it to pay for the shares. Depending on the funds available, a loan may have to remain between the trust and sellers which would be repaid over a period of time as the company generates future profits.

It may be possible for the company /trust to raise finance to help pay for the shares over a shorter period. The original business owners, post disposal, are able to retain some ownership in the business, keep their posts as directors and also receive market rate remuneration packages.

The company will continue to be run by the management team on a day to day basis, although they will now be answerable to the trustees of the EOT.

Tax breaks

Shareholders are able to sell their shares to the EOT free of Capital Gains Tax. With the recent reduction in Entrepreneur’s Relief this is even more attractive.

Income tax free bonuses of up to £3,600 per year can be paid to each employee.

What are the benefits of an EOT?

There are a number of benefits for the different business stakeholders.

Existing Business Owners

  • Capital Gains Tax free
  • Ready and willing buyer for the business
  • Reassurance that the business will continue as a going concern
  • Able to retain some ownership in the business

Employees

  • Tax free bonuses
  • A sense of ownership

The Company

  • An engaged workforce
  • Ensured long term future
  • Can continue with minimal disruption
  • A more innovative and forward thinking culture

The employee ownership model may not be suitable for all businesses, but it is fast becoming a popular choice for businesses who recognise the value of their most important resource.

An EOT is just one type of employee ownership model and other options such as share schemes should also be considered.

If you have any questions, our team of expert Accountants would be happy to assist.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

VAT Deferred Period – HMRC VAT Direct Debits

1 min read

The VAT payment deferral period, which was introduced as a measure to ease financial pressure on businesses during the COVID-19 pandemic, ends on 30 June 2020.  Any liabilities that fall due on or after 1 July 2020 should be paid in full by the due date, unless there is a time to pay arrangement in place.

Businesses will need to consider setting up any cancelled direct debits in enough time for HMRC to take their next VAT payment. 

Any deferred VAT payments should be paid in full on or before 31 March 2021. Additional payments can be made with subsequent returns.

If you have any questions, our team of expert Accountants would be happy to assist.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

Why Consider a Bounce Bank Loan

2 min read

In an attempt to help businesses that were unable to access funds through the Coronavirus Business Interruption Loans (CBILS), the treasury recently announced the Bounce Back Loan Scheme (BBLS).

The terms of these loans have now been confirmed as follows:

  • Loans range from £2,000 up to 25% of a business’ turnover to a maximum of £50,000
  • 100% Government backed loan with no other security required
  • The loans are for a period of six years
  • There are no interest charges or repayments due in the first year
  • A low interest rate of 2.5%
  • No early repayment charges
  • No arrangement fees

To be eligible for the BBLS, in general terms, you need to be a business in the UK, have been affected by Coronavirus and not using CBILS.

Why consider taking out a Bounce Back Loan?

  • Cash flow

A Bounce Back loan would provide cheap working capital for your business. 

  • Repayment of existing borrowings

Perhaps consider whether you have any current business borrowings such as hire purchase agreements, bank loans and overdrafts or credit card debt that could be settled by using the funds raised from a Bounce Back loan.  It would be important to check that there are no early repayment charges on existing agreements before doing this.

  • Funding of capital expenditure

If you are considering investing in new equipment for your business, a BBLS loan could be a more attractive alternative to traditional business borrowing options.

Although at the time of writing it has not been announced how long the BBLS or CBILS will be available, it is unlikely that it will be indefinitely and therefore it is sensible to consider this sooner rather than later.

You can find more details on the Bounce Back loans and indeed the larger Coronavirus Business Interruption Loans on the British Bank Website.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

Self Employment Income Support Scheme

1 min read

HM Revenue & Customs have today released a guide detailing how it will assess eligibility for the Self Employment Income Support Scheme for sole trader businesses that have been affected by COVID-19.

The guide sets out how the profits will be calculated, on which the grant will be based.  There are no real surprises, although it is worth noting:

  1.  Losses brought forward are not taken into consideration
  2. Capital allowances will be taken into account

The fact that capital allowances are taken into account could mean that for those which purchased a large item of equipment, such as a new van, and have taken advantage of the Annual Investment Allowance will be disadvantaged as their profits will be much lower and therefore will impact the grant they are entitled to.  In certain circumstances, it could also mean they are not eligible for the scheme at all.  

You can find the full guide by following the link below.

https://www.gov.uk/guidance/how-hmrc-works-out-total-income-and-trading-profits-for-the-self-employment-income-support-scheme

Information Commissioner’s Office (ICO)

2 min read

Thousands of small-business owners and landlords say they are confused by Information Commissioners Office (ICO) letters demanding a fee to ensure the protection of their customers’ and tenants’ personal information.

The Information Commissioner’s Office (ICO) upholds information rights in the public interest, promoting openness by public bodies and data privacy for individuals. ICO is an executive non-departmental public body, sponsored by the Department for Digital, Culture, Media and Sport. The organisation covers the following:

  • Data Protection Act
  • Freedom of Information Act
  • Privacy and Electronic Communications Regulations (PECR)
  • Environmental Information Regulations
  • INSPIRE Regulations
  • The re-use of Public Sector Information Regulations

Data protection fee

Recently, the Information Commissioners Office (ICO) has launched a campaign to remind small companies and SME’s of their legal responsibility to pay a data protection fee. For most small companies the charge is £40 or £60 a year. The move marks the start of an extensive programme to make sure the Data Protection Fee is paid by all those who need to pay it, unless they are exempt. 

They apply to companies that store personal information which can be used to identify someone which is stored electronically such as a computer, camera or smartphone such as clients’ names addresses and telephone numbers for work purposes. It is likely you’ll need to pay and there is a fine up to £4,000 for not registering.

Fee Checker

If you have received a letter from the ICO, it is a useful reminder that you need to either pay your fee or let the ICO know you are exempt, so they can update their records. Alternatively, you can quickly and easily find out if your organisation needs to pay the fee by using ico.org.uk/fee-checker, unless your business is exempt fill out the form at https://ico.org.uk/no-fee

For companies unsure if they are exempt, there is a helpline number: 0303 123 1113.

The charge will also apply to a wide range of landlords, institutions, including schools and solicitors, but not the police or anyone who stores information for judicial reasons.

CCTV

It is likely an annual fee payment is due for businesses holding personal information, for business purposes on any electronic device, including using CCTV for crime prevention purposes.

Be aware of scams

The ICO is warning companies to be aware of scams relating to payment of the data protection fee. Businesses that receive a letter, text message, email or telephone call from ICO representatives and want to check that it’s genuine please search ‘ICO fee’ using your usual search engine. Follow the top results to website links which begin with https://ico.org.uk, and this will bring you to the official website.

Staying compliant

Stay up to date with resources on GDPR and compliance for small businesses by visiting ico.org.uk/hub for more information.

We can help you with all aspects of business compliance. Please contact us for further advice and assistance.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice. Each comment posted by third party readers/subscribers of our website on topics is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for advice.

Capital Gains Tax

2 min read

Previously, disposals of UK residential properties are reported and any capital gains tax (CGT) calculated through your Self-assessment Tax Return.  The tax is therefore due for payment on the 31st January following the tax year of disposal.

What is changing?

This will all change for disposals of UK residential property after 6th April 2020 (the date of disposal is normally deemed to be the date of exchange). For these disposals, they must be reported to HM Revenue and Customs and the Capital Gains Tax paid within 30 days of the date of completion via the Capital Gains Tax on UK residential property service.

There is an exemption for the disposals where there is no tax to pay. Typically, these include properties that are covered by the main residence exemption; gains within the individual’s capital gains exemption or where there are losses from earlier capital disposals that reduce the gain below the exemption.

It is therefore vital to start collating information to compute the gain as soon as a disposal is anticipated.  In some cases, a disposal may require professional valuations to be obtained.

CGT liability

There are penalties for late filing of the information and payment of the Capital Gains Tax which follow the same rules as for self-assessment.

For those that do not normally file a Self-assessment Tax Return, there would be no need to do so in respect of the disposal. For those that do, they will need to disclose the gain on the Self-assessment Return as well.

When filing through the Capital Gains Tax in UK residential property service the tax payable is, in many cases, likely to be an estimated as it is not known the total income will be for the year or there may be later capital disposals the at affect the amount payable. The tax is therefore treated as a payment on account of the final liability which will be finalised either as an amendment via new service or disclosure of the final position on a self-assessment Tax Return.

The new rules apply to individuals, personal representatives and trustees.

How we can help

We are always on hand to answer any questions you may have about Capital Gains Tax. We can advise as to the best course of action in your own particular circumstances, so please do contact us.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

 

HMRC delays the introduction of off-payroll rules to the private sector

3 min read

The reforms will shift the responsibility for assessing employment status to the organisations employing individuals. The rules would have applied to contractors working for medium and large organisations in the private sector, and were due to come into effect on 6 April.

Steve Barclay, Chief Secretary to the Treasury, stressed that the introduction of the rules has simply been delayed, rather than cancelled. The rules will now take effect on 6 April 2021. 

In a statement, HMRC said: ‘This is part of additional support for businesses and individuals to deal with the economic impacts of COVID-19. 

‘This means that the different rules that exist for inside and outside the public sector will continue to apply until 6 April 2021.’ 

The off-payroll rules have applied to the public sector since 2017 and, following a review of the proposed changes earlier in the year, were to be amended to include intermediaries supplying personal services in the private sector.

Commenting on the delay, Andy Chamberlain, Director of Policy at the Association of Independent Professionals and the Self-Employed (IPSE), said: ‘The government has done the sensible thing by delaying the changes to IR35 in the private sector.

‘This is a sensible step to limit the damage to self-employed businesses in this grave and unprecedented situation, but we also urge the government to do more. It must create an emergency Income Protection Fund to keep the UK’s crucial self-employed businesses afloat.’

The ‘Intermediaries Regulations’

The Intermediaries Regulations, also known as IR35, apply to individuals who provide their personal services via an ‘intermediary’. An intermediary may be another individual, a partnership, an unincorporated association or a company; however, the most common structure is a worker providing their services via their own company – known as ‘personal service companies’ (PSCs). 

The rules are specifically designed to prevent the avoidance of tax and national insurance contributions (NICs) by those using PSCs and partnerships. The rules do not stop individuals selling their services through either their own PSC or a partnership. However, they do seek to remove any possible tax advantages from doing so. Instead of allowing contractors to extract taxable profits as dividends, thereby avoiding income tax and NICs, they would need to be paid as if the payment is a salary.

The IR35 rules apply to individuals who would be classed as employees, rather than self-employed, if they supplied their services as an individual rather than through their PSC.

HMRC has made a tool known as the ‘check employment status for tax’ (CEST) tool. This is available for organisations that need to determine who IR35 applies to. https://www.gov.uk/guidance/check-employment-status-for-tax

Changes to private sector contractors

In 2017, HMRC introduced new off-payroll rules to the public sector, which saw some contractors’ net income cut significantly. The rules shifted the responsibility for IR35 compliance from the individual contractor to a public body or recruitment agency. It is intended that similar rules are applied to the private sector.

The effect of these rules will be:

  • the medium or large business (the end user) will asses the status of the PSC. They will then inform the contractor (and agency paying the PSC if applicable) or their determination and reasoning. The PSC/Agency has a right to appeal the decision.
  • If the PSC is deemed to be within IR35, the medium or large business (or an agency paying the PSC) will calculate a ‘deemed payment’ based on the fees the PSC has charged for the services of the individual
  • generally, the entity that pays the PSC for the services must deduct Pay as You Earn (PAYE) and employee NICs as if the deemed payment is a salary paid to an employee
  • the paying entity will have to pay to HMRC not only the PAYE and NICs deducted from the deemed payment, but also employer NICs on the deemed payment 
  • the net amount received by the PSC can be passed on to the individual without the company deducting any further PAYE and NICs.

Going forward

Chancellor Rishi Sunak has promised that penalties for IR35 breaches will not be ‘heavy handed’ during the first year of the implementation of off-payroll rules to the private sector. Mr Sunak said that there will be a soft-landing penalty period where HMRC will allow organisations to adjust to new measures.

Commenting on IR35, Mr Sunak said:

‘We are shortly to publish a review of how it should be implemented with some tweaks and improvements to ensure that the transition is as seamless as possible. ‘I can also tell you that I have spent time with HMRC to ensure that they are not going to be at all heavy handed for the first year to give time to adjust as well, which is an appropriate thing to do.

‘What IR35 does is change the balance, so instead of people making the assumptions about how they should be taxed, we put the onus on the company to make that assessment for them.’

How we can help

We are always on hand to answer any questions you may have about off-payroll working. We can advise as to the best course of action in your own particular circumstances. If IR35 does apply to you we can help with the necessary record keeping and calculations so please do contact us.

Business Asset Disposal relief (Previously known as Entrepreneur’s Relief)

2 min read

Business Asset Disposal Relief, is available for those in business, which may reduce the tax rate on the first £1 million of qualifying lifetime gains to 10%.

This is targeted at working directors and employees who own at least 5% of the ordinary share capital of the company and the owners of unincorporated businesses.

BADR is available to individuals on the disposal after two complete qualifying years of:

  • all or part of a trading business carried on alone or in partnership
  • the assets of a trading business after cessation
  • shares in the individual’s ‘personal’ trading company
  • assets owned by the individual used by the individual’s personal trading company or trading partnership where the disposal is associated with a qualifying disposal of shares or partnership interest.

New 5% rules for company shareholders

To qualify for BADR, the company needs to be an individual’s personal company where the individual must:

  • be a company employee or office holder
  • hold at least 5% of the company’s ordinary share capital and
  • be able to exercise at least 5% of the voting rights.

For disposals on or after 29 October 2018, they must also satisfy one of the following tests:

  • a distribution test – an individual is entitled to at least 5% of the company’s profit available for distribution to equity holders and 5% of the assets available for distribution to equity holders in a winding up; or
  • a proceeds test – an individual is entitled to at least 5% of the proceeds in the event of a disposal of the whole of the ordinary share capital of the company.

Thought should be given to the structure of your company at the outset to ensure that the tax benefits of Business Asset Disposal Relief are not lost.

Investors’ Relief (IR)

If you do not meet the criteria for Business Asset Disposal Relief (BADR) you may still be able to take advantage of the ow 10% rate of tax through IR.

IR is available to external investors (other than certain employees or officers of the company) in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions need to be met:

•        shares must be newly issued and subscribed for by the individual for new consideration

•        be in an unlisted trading company, or an unlisted holding company of a trading group

•        have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016

•        have been held continuously for a period of three years before disposal.

An individual’s qualifying gains for IR are subject to a lifetime cap of £10 million.

Talk to us about your BADR planning

Loucas can help you to build a tax-efficient financial plan that ensures you are making the most of the reliefs and allowances available to you. 

If you would like to discuss any of the issues raised in this guide please call 01622 758257 or contact us.

Investors’ Relief (IR)

1 min read

If you do not meet the criteria for Business Asset Disposal Relief (BADR) you may still be able to take advantage of the ow 10% rate of tax through IR.

Business Asset Disposal Relief (BADR) has been extended to external investors (other than certain employees or officers of the company) in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions need to be met:

  • shares must be newly issued and subscribed for by the individual for new consideration
  • be in an unlisted trading company, or an unlisted holding company of a trading group
  • have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
  • have been held continuously for a period of three years before disposal.

An individual’s qualifying gains for IR are subject to a lifetime cap of £10 million.

How we can help

We can advise as to the best course of action in your own particular circumstances. If IR35 does apply to you we can help with the necessary record keeping and calculations so please do contact us.