Tax breaks for locating your business in a freeport area

HMRC have published detailed maps setting out the precise location of all 8 Freeport tax and customs sites in England with the latest update at the end of August. The original 8 locations were announced in the Spring 2021 Budget:

●       East (Felixstowe and Harwich)

●       East Midlands Airport

●       Humber

●       Liverpool City

●       Plymouth and South Devon

●       Solent

●       Teeside

●       Thames

More maps of Freeports customs sites and Freeport tax sites will be added after they are designated.

Businesses in these designated areas will be able to benefit from generous tax and customs duty reliefs including:

●        An enhanced 10% rate of structures and buildings allowance.

●        An enhanced capital allowance of 100% for plant and machinery.

●        Full relief from Stamp Duty Land Tax.

●        Business rates relief.

●        Relief from employer National Insurance contributions where employees spend at least 60% of their time working in the designated area.

Businesses operating in the designated areas will be able to import goods into the Freeport customs sites with simplified customs documentation and they can also delay paying tariffs. Manufacturing businesses may then manufacture goods using these imports, before exporting them again using the simplified customs procedures without paying the tariffs.

For detailed maps see: Maps of Freeports, Freeport customs sites and Freeport tax sites - GOV.UK (www.gov.uk)

Museums and galleries are urged to sign up for a VAT refund to support free entry to the public

Museums and galleries are being urged to apply for VAT refunds to support opening free of charge as part of plans to boost visitor numbers and give more people access to arts and culture.

Any museum and gallery open to the public free of charge for 30 hours a week can apply. It will help organisations boost their finances and open up their collections more regularly.

The VAT Refund Scheme, which has been running since 2001, was last open to new applicants in 2018/19 and is estimated to have refunded up to £1 billion to museums and galleries so far.

See: Museums and galleries urged to sign up for VAT refund to support free entry for the public - GOV.UK (www.gov.uk)

New trading scheme to cut tariffs on everyday products

The Developing Countries Trading Scheme (DCTS) has been introduced to help UK businesses access products from around the globe at lower prices, with the aim of reducing costs for UK consumers.

The UK Government launched the DCTS in addition to the products that developing countries can already export to the UK duty-free, and could now mean that 99% of goods imported from Africa under the scheme will enter the UK duty-free.

The scheme means that a wide variety of products - from clothes and shoes to foods that aren’t widely produced in the UK, like olive oil and tomatoes – will benefit from lower or zero tariffs.

The UK Government says that the DCTS will ensure that British businesses can benefit from more than £750 million per year of reduced import costs, leading to more choice and lower costs for UK consumers.

See: New trading scheme cuts tariffs on hundreds of everyday products - GOV.UK (www.gov.uk)

HMRC issues warning to contractors about the use of umbrella companies

“Umbrella” companies are often set up by employment agencies to supply workers to end user clients. Many of these are compliant with the tax rules, but some use contrived arrangements that claim to allow agency workers and contractors to pay less tax on their earnings. HMRC have successfully challenged many of these arrangements.

HMRC view these arrangements as tax avoidance schemes that use disguised remuneration arrangements to pay the workers. The umbrella company might claim that a payment is non-taxable to try to avoid paying National Insurance contributions (NICs) - currently 15.05% for employers. The arrangements also purport to avoid employee NICs – currently 13.25% between £12,570 and £50,270 a year.

Using these non-compliant umbrella companies could leave the workers at risk of being involved in a tax avoidance scheme and owing HMRC the tax and NICs that should have been deducted.

Under PAYE regulations, employers have an obligation to deduct tax and NICs from employment income on workers’ behalf. However, where this does not happen, HMRC may recover the tax directly from the worker.

For updated HMRC guidance see: Warning for agency workers and contractors employed by umbrella companies (Spotlight 60) - GOV.UK (www.gov.uk)

Keep calm and focus on what’s really important

With the constant news surrounding the energy crisis (and waiting for a new Prime Minister to see what the government will do about it), soaring interest rates and rising inflation, it's difficult not to worry and lose sight of what’s really important – the health and welfare of you and your loved ones. 

The crisis we all face is a potent mix of inflation, recession, high debts, and the core reason for it all, a wartime energy shock. It is worth remembering that this is the point. It is not the market driving the crisis, it is geopolitics, diplomacy and conflict. On an individual level, this situation is not within our control. So what can we do to keep rational whilst this crisis unfolds?

It is worth recalling a quote from the singer Celine Dion: “Life imposes things on you that you can’t control, but you still have the choice of how you’re going to live through this”.

Firstly, know that you can only control your life and those close to you. Everything else going on is typically uncontrollable. So take time to set some long-term goals to give you a sense of control. Next, list the things that make you happy and safe. By doing this, you can focus on the good things and not the other stuff. Thirdly, take time out of your busy schedule to do things you enjoy. Doing something you are good at reinforces a sense of self-worth and purpose.

If you own a business, then:

1     Take time to review your personal objectives – the business is there to provide you with what you want from life, not the other way around!

2     Look at where the business is now – its strengths, weaknesses, opportunities and threats, and understand its position in the marketplace, the competition, the systems, the way things are done and the improvements that could be made.

3     Focus on what the business will look like when it is “complete” or running profitably and successfully. Then you can determine priorities – the big issues that need to be focussed on.

It is also a good idea to look at where you are now and plan for a range of scenarios (good and bad) so that you can be flexible about the direction you should take. 

Ask us about our One Page Analyst, a “what if” scenario planner which takes your projected 2022 figures and allows you to work out the effect on profit of reducing expenses, increasing sales, and increasing or decreasing prices.

If you need help during the next few months, please call us – we are here to support you!    

Self-Employed Need To Plan For Big Tax Bills in 2023/24

The changes to the basis of assessment of self-employed profits are scheduled to change from 6 April 2024. The new rules mean that profits (and losses) will be assessed based on the amounts arising between 6 April and 5 April instead of the profit/loss of an accounting period ending in the tax year. This means that where the business accounts do not coincide with tax year the profits or losses will need to be apportioned. This is intended to coincide with the start of Making Tax Digital for income tax.

Transitional rules proposed for the previous 2023/24 tax year could result in large tax bills for some sole traders and partners, particularly those with an existing 30 April year end. The profits of year ended 30 April 2022 would be taxed in 2022/23 under the current rules with 2024/25 taxing profits arising between 6 April 2024 and 5 April 2025 under the new rules. But what about 2023/24?

The profits taxed in 2023/24 would be those for year ended 30 April 2023 plus the period 1 May 2023 to 5 April 2024 - in total 23 months profits!

The good news is that there would be a deduction for “overlap relief” (as much as11 months) which typically arose when profits were taxed twice at the start of the business - but those will often be much lower than the extra 11 months being taxed in 2023/24.

The transitional provisions provide for the “excess” profits to be spread over the next 5 tax years to smooth out the excessive tax bill.

How much is my business worth?

This is a question many of our clients want an answer to! The truth is, it depends on a range of factors and any valuation is only helpful as a guide for planning forward. The ultimate value of a business is the price a willing buyer is prepared to pay for it. 

The prevailing economic climate and state of the business’ sector can affect company valuation for better or worse, as can your reasons for selling. For instance, if you need a fast sale due to ill health, the value may be lower than if a sale was taking place under more favourable circumstances.

Valuing a business is a complex process and we are available to support you throughout.

So what are the most common methods of valuing a business?

Price to earnings ratio (P/E)
The price to earnings ratio uses multiples of profit, so this may be an appropriate valuation method if you own a well-established business with a good track record of profits. ‘Price’ refers to the company’s current share price and ‘earnings’ refers to the earnings per share (EPS). The P/E ratio indicates the business’ expected growth in earnings per share in the future.

Discounted cash flow
Discounted cash flow relies on estimating future cash flows and a residual business value, and may be suited to businesses with few assets.

Entry cost
Entry cost valuation involves calculating how much it would cost to build your  business to the stage that it’s reached now, including startup and recruitment costs, marketing, and the value of assets. Any savings that could have been made should then be deducted to arrive at the valuation.

Asset valuation
The asset valuation method may be suitable if your business is well established and owns high levels of tangible assets. The Net Book Value (NBV) of assets is calculated and then adjusted to account for external factors such as depreciation and inflation.

Valuation based on industry
Some businesses are valued based on the industry in which they operate. The retail industry is one example, where the number of outlets is an important element for consideration. Industry ‘rules of thumb’ use factors specific to an industry and can provide a more accurate calculation in some cases.

Other considerations when valuing your business
Intangible assets are a key factor when valuing a business. Intellectual property, goodwill, business reputation, and even a premium business location can all add considerable value in the eyes of potential purchasers.

Spotlighting these intangible assets also allows you to improve their value where appropriate. For example, registering ownership of a trademark or patent, building up their reputation even further or improving the condition of their premises.

Please talk to us about valuing your business as this can lead to a range of important considerations and actions.