Directors may be liable for overclaimed CJRS grants

Where HMRC believe a company (including LLPs) is insolvent or about to become insolvent, and overclaimed CJRS grants owed will not be paid, they may give a notice making an individual (or individuals) jointly and severally liable for the relevant tax liabilities. This means that all individuals given a notice will be jointly and severally liable with the company for paying these liabilities.

HMRC have issued guidance setting out the conditions that need to be present in order to use their powers:

a. An officer of HMRC may give a joint and several liability notice to an individual if they are satisfied that all 4 of the conditions A to D set out in the legislation have been met

b. the company is subject to an insolvency procedure, or there is a serious possibility of becoming subject to one

c. the company is liable to an income tax charge as a result of receiving a COVID-19 support payment it was not entitled to receive

d. the individual was responsible for the management of the company at the time the tax first became chargeable, and the individual knew (at that time) that the company was not entitled to the relating COVID-19 support payment

e. there is a serious possibility that some or all of the income tax liability will not be paid

See: Overview of joint and several liability notices for the taxation of coronavirus (COVID-19) support payments - GOV.UK (https://www.gov.uk/guidance/overview-of-joint-and-several-liability-notices-for-the-taxation-of-coronavirus-covid-19-support-payments)

What’s your growth strategy?

A company might have a great product or service but without a business growth strategy to help it define, articulate and communicate where it is going, it may not grow at all!

A growth strategy starts with identifying and accessing opportunities within your market. The strategy addresses how your company is going to evolve to meet the challenges of today and in the future. A growth strategy gives your company purpose, and it answers questions about your long-term plans.

Having a growth strategy is important because it keeps your company working towards goals that go beyond what is happening in the market today. They keep both owners and employees focused and aligned, and they allow you to think long-term.

The first step is to look at five important areas that will help you develop a growth strategy:

1. Think long term – invest time in understanding where the market is going and what this means for your customers. Short term decisions do not help grow a business.

2. Having a good value proposition is essential – this states the relevance of your product or service, what it does and why customers need it. What is yours? 

3. Expanding your reach – who is your target customer and what do you need to do to let them know you exist and that your product or service is relevant to them?

4. Growth means new people, systems and (maybe) different ways of doing things. Grow at a pace you can manage.

5. How will your marketing get your value proposition to relevant customers?

Once you have taken some time to write out your growth strategy and where you want your business to be in (say) 2 years, the next step is to work out your marketing plan.

A marketing plan is a business document outlining your marketing strategy and tactics. It is often focused on a specific period of time (i.e., over the next 12 months) and covers a variety of marketing-related details, such as costs, goals, and action steps. But like your business plan, a marketing plan is not a static document. This should outline:

1. How you are going to keep existing customers happy and returning to buy more often
2. What the goals are for getting new customers
3. The marketing methods you are going to use to achieve 1 and 2

Please talk to us about helping you formulate your expansion plans; we have considerable experience in helping our clients grow their businesses.

Selling your Business via a Management Buy-Out

Have you considered selling your business to your management team?

In a typical management buy- out the existing management would set up a new company which would then raise finance to acquire your current business, so this is essentially the same as a sale to a third party, except the management team will know quite a bit about your business already. They would still nevertheless need to carry out due diligence and require you to provide warranties and indemnities as in a third party sale.

An increasingly popular alternative to the classic management buy-out referred to above would be to sell your company to an Employee Share Ownership Trust (ESOT).

SALE OF COMPANY TO EMPLOYEE SHARE OWNERSHIP TRUST

This alternative to the classic management buy-out enables the shareholders of a trading company to sell their shares free of CGT to a trust set up for the benefit of the employees. This has become more popular as an exit route since the lifetime limit for CGT business asset disposal relief (formerly entrepreneurs relief) was reduced from £10 million to just £1 million.

This tax break has recently been used by the owners of a number of well-known companies including Richer Sounds and Riverford Organics, and is similar to the structure in place at John Lewis.

Like business asset disposal relief, the company must be a trading company. The outgoing shareholders are only allowed limited participation in the company following the disposal of their shares. There are a number of other conditions that need to be satisfied. If you are interested in going down this route, contact us to discuss whether it would be suitable for you or your company.

COMPANY BUY BACK OF SHARES AS AN ALTERNATIVE EXIT

Another potential exit for shareholders would be for the company to buy back their shares. This would normally be taxed on the shareholder as a dividend unless certain conditions are satisfied resulting in the payment being taxed as a capital gain.

Clearly CGT treatment is preferable as the rate could be just 10% compared to up to 38.1% on dividends.

Consequently, HMRC need to be satisfied that the share buy-back benefits the company’s trade, and a large cash payment may be difficult to justify if that depletes cash flow. With careful planning it may be possible to stage the buy back over a number of years, but it is recommended that you get advance clearance from HMRC to confirm capital treatment.

4th February 2022 – Hillmans Weekly Update

Below I have summarised all the main tax related updates we have seen this week.

• Personal tax planning ahead of April 2022
• Planning To Sell Your Business In 2022?
• Passing On Your Business To The Next Generation
• HMRC guidance on VAT place of supply of services

If you have any queries about this week’s content, or if you need any assistance please do not hesitate to contact me.

I hope you have a great weekend.

Stay safe and well.

Cheers,

Steve

Steven Hillman BSc (Hons) ACA
Chartered Accountant
Tel: 01934 444100

Passing On Your Business To The Next Generation

If you do not wish to sell your business but are looking to reduce your involvement, you may be considering passing on your business to the next generation, or maybe your management team.

Where you are passing on the business or some of your shareholding, there are generous tax reliefs that facilitate the transfer of ownership without tax charges arising. These tax reliefs are currently available on the transfer of a trading business although it may also be possible to pass on an interest in an investment business with careful planning.

We can of course discuss your plans with you to ensure that you are able to take advantage of all available tax reliefs.

HMRC guidance on VAT place of supply of services

HMRC have recently updated their internal VAT manual to clarify the “place of supply” rules for services. This is one of the most complex areas of VAT legislation and of course the rules changed significantly since the UK left the EU.

The country where a supply is deemed to be made is called the ‘place of supply’ and is the place where it is liable to VAT, if any. These rules are necessary to ensure that VAT, where payable, is paid only in the correct country and to avoid the possibility of supplies being taxed more than once or not at all.

Although there are numerous exceptions depending on the nature of the services, the general rule is that services supplied between businesses (B2B) are taxable where the customer belongs. If the supplier and customer belong in the UK then the UK supplier accounts for VAT on his supply. However, where the supplier is in the UK and the customer is outside the UK the supply will be outside the scope of UK VAT.

Where the supply is to a non-business customer (B2C), the general rule is that the place of supply is the place where the supplier belongs.

Where the place of supply of a service is in an EU member state, that supply is outside the scope of UK VAT and is liable to the VAT rules in that member state and in no other country. If the place of supply of a service is outside the UK and EU, that supply is described as outside the scope of VAT altogether.

It is important to establish whether a supply of services is made to a relevant business person (B2B) or non-business customer (B2C). A person is a relevant business person in relation to a supply of services if:

(a) the person carries on a business, and
(b) the services are not received by the person wholly for private purposes.

For the updated internal HMRC guidance see: https://www.gov.uk/hmrc-internal-manuals/vat-place-of-supply-services

Note that the simplified guidance on the HMRC website has not been updated since December 2020:
https://www.gov.uk/guidance/vat-how-to-work-out-your-place-of-supply-of-services

Personal tax planning ahead of April 2022

The costs of keeping the country running through covid were huge and inflation is expected to add to the country’s debt. The Office for Budget Responsibility has indicated that the treasury will need to find £45bn in interest, before even thinking about paying off the debt itself. As taxpayers we will be providing the extra cash!

From April, the Chancellor is not directly increasing the rates of income tax we pay, he is freezing the thresholds at which basic and higher rates of income tax are paid from April 2022 to April 2026, effectively increasing the amount we actually pay as inflation pushes up earnings.

There will also be an additional 1.25% contribution added to both employee and employer National Insurance from April and a similar additional charge on dividends. This is referred to as the Health and Social Care Levy. From April 2023 it will be extended to employees above the state pension age.

The changes will not end there. The Treasury has issued a raft of consultations which could all mean extra costs.

There will be greater scrutiny if you are self-employed, or if you become a new landlord, with the onus on you to report your new venture even before it turns a taxable profit.

There could also be increasing pressure for ‘timely payment’ or in other words, collecting tax sooner. This is still just a consultation at this stage, but the government is understandably keen to raise funds quickly.

These changes mean that it will be more important than ever to ensure that you are not paying too much tax – and there are two key areas to look at:

Are you claiming all your allowances?

Tax is complicated, and we may tend to simply rely on HMRC to tell us what we owe them. The fact is that they are only human and HMRC does make mistakes. In particular, they may have forgotten an allowance or two, particularly if your income has fluctuated over the past few months.

It can be well worth looking at your tax return. If you do find errors, there is a relatively simple way to query them.  HMRC has a well-developed and surprisingly efficient appeals system which you can find here: https://www.gov.uk/tax-appeals/decision

Can you reduce your tax liabilities?

If you find that your current assessment is right, it might be time to take a more proactive approach to reducing your tax.

It could be time to:

• Maximise your pension contributions to make full use of tax relief
• Get a detailed pension forecast – to see the effect changes will have
• Make full use of your ISA entitlements
• Look at your investment portfolio and (if practicable) ensure you take advantage of the full £12,300 CGT allowance before 5 April 2022
• For Shareholder/directors, consider the timing of bonuses and dividends to mitigate the planned 1.25% rate increase
• Look at Salary sacrifice arrangements which can be particularly effective in mitigating income tax and national insurance contributions

These steps are all entirely legitimate, but the rules and regulations are complicated. Getting expert help may be vital. Please contact us about planning for the April tax changes. We can provide a full tax review which will help identify the marginal tax traps waiting for you – and help you to avoid them.