A new tax year means new UK income tax rates, allowances and limits. It’s also an excellent time for business owners to evaluate their business’ progress or to start saving for a rainy day. Within this blog we explain the latest changes and what's new in 2021.
Plan for the 'New Normal' Now
As lockdown restrictions begin to relax, business owners are now faced with trying to understand, plan and prepare for the challenges that the ‘new normal’ will present. Not only to themselves, but their families, employees, customers, suppliers and business bank accounts too.
The summer Economic Statement highlighted that the road to recovery will be years rather than months. Signals from government that tax rates will need to rise to pay for all the support provided to the country are becoming more frequent and seem to be the only option left.
In such a short time HMRC’s role in taxpayers’ lives has switched from tax administrator and tax collector, to paying for putting food in mouths via the ‘Eat Out to Help Out’ scheme and fixing bikes with ‘Fix Your Bike’ vouchers.
This can’t go on for ever, can it? Surely it’s now sensible to assume that as we move further out of lockdown, HMRC will begin to revert to their business as usual tactics and strategies. Enquiries will begin to re-open, time to pay will become much tighter, the acceleration of cash payments for reliefs (such as R&D) will slow, and the need to manage tax liabilities will once again play a key part of the business owners cash flow management toolset.
Today, HMRC’s stance is ‘you should pay if you can afford it!’.
So what’s coming your way?
The quick win is to understand and face up to the commercial realities and challenges of the future, today. There’s quite a lot to get stuck into – and it’s not all pleasant reading!
August 2020 has seen summer holidays begin with some half decent news. VAT changes pitched at the hospitality sector are beginning to take hold and the ‘Eat Out to Help Out’ scheme has also started.
Equally, zero-rated PPE and the accelerated changes to zero rated ePublications should not be forgotten. But after all this, the government reliefs will begin to be withdrawn and the liabilities racked up during the lockdown will slowly be due.
August to October 2020 will see the gradual reduction of the Coronavirus Job Retention Scheme, with the removal of the government’s contribution towards employer NICS and pension contributions. The scheme will then reduce from an 80% to 70% wage contribution in September. Then further, down to 60% in October. And when Halloween ends at midnight, the scheme will be gone completely and left for the history books.
HMRC continue to remind us that now, as before, all PAYE liabilities must still be submitted and paid on time to avoid fines, penalties, and interest.
Time to pay will no doubt be tightened from the relaxed approach we have seen these last few months. Our advice is to open dialogue now with HMRC about a plan.
Redundancy planning should be aligned to the end of the Furlough schemes. Your HR advisor has never been more important than they will be in helping you plan potential redundancy payments. Reliance on the £30k tax free allowance can no longer be counted on where Payments in Lieu of notice (PILONS) are concerned. Processes must be followed, and lump sum pay outs planned in to protect business that will remain.
As Christmas approaches, CJRS enquiries are likely to begin with pace and even now current pre Covid-19 enquiries are starting to reopen and new ones commence.
Oh, and don’t forget Brexit! A hard Brexit may very much be a reality by January, putting further strain on processes underpinning export and import of goods and services.
By the time the end of January 2021 comes around, the deferred July income tax payment on account will be due, alongside any adjustments for the 2019/20 tax year, and the first payment on account for the 2020/21 tax year. Some of you may have already paid this. You can still do that now if you would rather the liability be settled and taken out of your hands.
An early 2021 bonus of £1000 will be paid to businesses for every employee that has been successfully brought back from Furlough and retained on a continuous basis up until 31/1/2020.
The cheer won’t last for long and March 2021 will see VAT registered businesses needing to complete the payment of their VAT deferrals from the lockdown period. This could be a significant stretch if it comes as a surprise! How could it be forgotten though?
April onwards will see the first CBILs payment become due, quickly followed in May by the bounce back loan repayments.
April will also see the recommencement of the so called IR35 off payroll working rules and the high likelihood of self-employment NIC rates being aligned to those of employees. After all, both the self-employed and employees received the benefit of very similar packages of support in the form of CJRS and SEISS. The words of chancellor will no doubt come true.
What can you do now to plan for when you get there?
As the various Covid-19 reliefs are quickly withdrawn, managing future cashflows and the tax risk around multiple liabilities becoming due in close succession has never been more important. Action is needed!
Time is on your side and there is a lot that can be done to navigate the winter months. There’s no better place to start than where you are today. Cloud accounting and the underlying book-keeping process has never provided business owners with so much insight and transparency into the current financial realities that are faced.
There is a plethora of tools to help business owners predict their cashflow hurdles and work towards financial stability over the next 12 months. Blu Sky’s implementation of Float and BluPrints has helped numerous clients sleep at night with the understanding of how multiple scenarios that face their business could play out.
Getting back to tax planning… the filing of year end accounts deadlines has been extended from 9 months to 12 months. That said, the deadline for the payment of corporation tax estimates remains the same as it was before, at 9 months. There is benefit here though. Any losses incurred in the current financial period can be carried back into earlier periods and any overpayments can be released early back to the business. Keeping the books in order and up to date will help support any estimates submitted for corporation tax losses.
Support such as the SME R&D tax reliefs remain in place and currently, cash back is being received in 5-6 weeks of returns being submitted. Equally, Video Game Tax credits and patent box are there to support specific sectors.
Capital Allowances can still be claimed on energy efficient machinery and the purchase of energy efficient vehicles like the Tesla 3 offer great tax incentives.
This, alongside making provisions for specific revenue items such as bad debts, stock adjustments and perhaps fair value adjustments for exchange rate swings may provide a favourable outcome to your tax position.
Does this all sound complicated? Well it is. However, speaking to your relationship manager now will help the tax planning process downstream.
There’s more too… Fundraising opportunities still exist and angel investors are starting to materialise again, looking for SEIS and EIS opportunities. Blu Sky partner, Capitalise, can help you look across the whole market of debt funding products in search of the rights ones to support your future growth and potentially growth of your team.
Perhaps the time is right for the disposal of assets that may see a capital gain crystallise. Maybe that commercial property, or even your whole business. CGT is one tax predicted to rise alongside NIC in the short term.
As we move into a new and uncertain time, providing a tax efficient award to our best and most valuable employees could be the way to incentivise and reassure the team that their career and futures rest with your business.
Now could be the time to set up an EMI scheme, as given the economic climate HMRC appear more accepting of a lower valuation. This will, of course, not last for ever!
Start Planning for the New Normal
If you need help to understand where your business is today and to navigate the challenges and hurdles that may be faced over the next 6 to 12 months, then give Blu Sky a call. We are here to help you understand and find a path through the winter months and beyond.
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