It is that stressful time of year again with the payroll year-end fast approaching.

Payroll year-end ties in with the tax year-end, which is 5 April. The deadline for submitting details to HM Revenue & Customs (HMRC) is 31 May.

Important dates around payroll year-end include:

• 5 April – End of the 2022/23 tax year
• 6 April – Beginning of the new tax year (2023/24)
• 19 April – Deadline for the final submission of the 2022/23 tax year
• By 31 May – Employees need to receive their P60s

The late filing of payroll information could attract penalties. To make sure the process is as smooth as possible, check the following has been dealt with:

• Staff details: Are all staff details correct and up to date on your payroll software?
• Pay details: Have you submitted details showing how you have reported all your staff’s pay correctly?
• The final pay run: Process your last pay run that falls on or before 5 April 2023 and check you are happy with your employees’ year-to-date figures.
• Process leavers:Have you processed any leavers before you do your final submission, so this information is recorded in the correct tax year?
• Extra payroll week(s): If you run a weekly payroll (including fortnightly or four-weekly) then you may have to complete an extra pay run.
• Final submission: This allows HMRC to finalise the figures for this tax year for each employee. If you didn’t pay anyone in the last period before 5 April, then you will need to submit an employer payment summary (EPS).
• Process employee P60s: This is important as every employee is legally entitled to this document.

Please check and double-check your payroll reporting as getting this wrong can cause financial problems for both your business and its employees.

Small business owners need to take measures to avoid costly mistakes when it comes to calculating, reporting and paying Value Added Tax (VAT).

The best way to prevent errors and stay on the right side of HM Revenue & Customs (HMRC) is to have an expert take care of your VAT affairs.

Having a qualified accountant or bookkeeper can ensure that all calculations are correct, up-to-date, and submitted on time and in line with the latest VAT regulations, including Making Tax Digital.

Employing an accountant to keep on top of record keeping will go a long way in preventing expensive mistakes and financial penalties related to VAT.

Some of the most common VAT errors include:

• Entertainment: You can claim back VAT on entertaining employees, but not normally for clients.
• Split usage: Where you provide items such as cars or phones, you can only claim VAT back on business use.
• Inaccurate information: Entering the wrong figures on a VAT return may leave you liable to an investigation by HMRC or lead to you paying too much or too little tax.
• Filing late: Ensuring that you file the necessary VAT information, on time, each quarter is essential to preventing the accumulation of penalty points, which can lead to a fine.
• Failing to register: If you reach a taxable turnover of £85,000 or more in any tax year, you will need to register.

To cut down on the chance of errors there are a few things you can do to improve VAT reporting:

• Take time to update – Keep on top of VAT by setting aside a regular time each week – or each day – to update your accounting records.
• Maintain accurate records – It is important that you retain invoices and receipts so that you can accurately report VAT. This is easily achievable with the latest cloud accounting software and apps.

Speaking to a VAT expert will help you avoid many of these mistakes, which can be easy to overlook, but could be costly to you and your business.

Business plans provide goals to work towards, help identify potential problems, give insight into competitors, and highlight potential opportunities.

A great business plan should include a concept, strategy, executive summary, market analysis, competitor analysis, the company’s financials and a clear action plan.

Concept

This part of the business plan is usually broken down into three elements:

• Executive summary
• Company description
• Products/services.

The executive summary will highlight the mission of the business by describing its products and services.

It might also be a good idea to briefly explain why you are starting your business and include details about your experience in the industry that you are entering.

Strategy

Understand the scope of your business, as well as the amount of time, money, and resources you will need to get started by writing it down to help clarify your ideas.

Market analysis

You should identify your target customers’ needs, desires and pain points and understand how you can meet them. You also need to understand what else is available on the market and how your offering differs.

Competitor analysis

While it is important to understand the market you are operating in, it is also important to assess the success and weaknesses of competitors within your market to spot gaps and beat the competition.

Financials

A crucial area, this should outline projections for short-term growth and long-term profitability. You should include projections of your profit and loss statements, balance sheets, and cash flow statements for the next three years.

Setting these points out should help you create a clear set of definable actions that can help your business to grow and flourish. Having a detailed, well-prepared business plan will increase the chances of survival and success for any venture.

Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will now come into effect in April 2026 for businesses, self-employed individuals, and landlords with gross business and/or property income over £50,000.

This will be followed in April 2027 for those with similar incomes over £30,000. The question is, how soon should your business start using cloud-based compatible software before that deadline?

The answer – the sooner the better.

Beyond compliance, the benefits of MTD cloud accounting software include:

• Reduce human error by keeping digital records and submitting tax information digitally
• Easily capture and digitise receipts using associated apps
• Making important decisions faster with a real-time overview of your financial position and performance
• Automate important financial functions, like cashflow forecasting
• Reduce your costs and saves you time by remaining constantly connected to your business through secure, remote servers
• Enjoy up-to-date software, with all the latest functions and legislative compliance
• Your work is saved automatically as you go, so you save both time and money on backup procedures
• Collaborate with your accountant anywhere in the world, at any time.

MTD-compliant cloud accounting software will generate the summary updates, which must be sent to HMRC every quarter via your HMRC digital account under Making Tax Digital.

You will be able to see how much tax you owe based on the information you have provided, so you can be better prepared for future tax bills.

Being prepared for MTD and having the correct software in place and ready to use will ensure a smooth transition to the new system, but, as you can see, the benefits go far beyond compliance.

With the end of the tax year fast approaching on 5 April, it makes sense to assess your tax situation and make use of the reliefs and allowances available to you.

Here are a few quick wins you can consider to help reduce your liabilities now and in the future:

Inheritance Tax (IHT)

Each tax year individuals are allowed to give away up to £3,000 worth of assets or cash without it being added to the value of their estate, referred to as your ‘annual exemption’.

If you have any unused annual exemption, this can be carried over to the next tax year.

Capital Gains Tax Allowances

Capital Gains Tax (CGT) is charged when you sell or dispose of an asset and make a profit. You are only taxed on the amount you gain from the sale or disposal.

UK residents can make a certain amount of gains each tax year before being charged CGT, this is known as the Capital Gains Tax Exemption.

The figure for 2022/23 is £12,300 but this will fall to £6,000 for 2023/24, before being reduced to £3,000 for 2024/25.

You should ensure that you are using your CGT Exemption before the end of the tax year and plan disposals to take advantage of the current higher rate.

Personal Allowance (PA)

Each individual is entitled to their own personal allowance (PA), which is set at £12,570 for 2022/23.

Part of the PA can be transferred between spouses and civil partners. The Marriage Allowance of £1,260 can be transferred, but only where neither spouse/civil partner pays tax at the higher rate.

Annual Pension Allowance

Ensuring you have made full use of your annual pension allowance is an important way to save tax. The current allowance allows most individuals to invest up to £40,000 a year before tax is applied. This allowance can be carried over several years if it has previously been unused.

Individual Savings Accounts (ISAs)

You pay no Income Tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax. You can pay your whole allowance of £20,000 (for 2022/23) into a Stocks and Shares ISA, a Cash ISA or any combination of these.

Taking advantage of these allowances will save you and your business money. It is good practice to repeat the process every tax year.

With the Spring Budget looming in March, it is easy to be tempted to delay tax planning until afterwards in hopes of favourable tax cuts.

However, the Chancellor has made it clear that significant cuts to taxation aren’t likely to be in his speech and so businesses should be taking steps now to prepare for the changes already being introduced in the months ahead.

Tax planning for businesses doesn’t have to be complicated. Small business owners can take advantage of certain deductions, credits and other tax benefits to help reduce the amount of tax they owe.

Corporation tax is a major tax for companies and tax planning allows businesses to reduce liabilities by taking advantage of capital allowances, R&D tax relief or other initiatives that encourage investment by offsetting expenditure against profits.

Effective tax planning can enable you to bring forward expenses or defer income, so as to delay tax payments into future years.

Your taxation planning should be part of a wider business plan helps you to:

• Outline your business’s goals
• Plan for investments and expenditure
• Identify and be prepared for potential problems
• Have the ability to measure your progress

A robust and well-prepared corporate tax plan can help you to make the most of the money and investments within your company.

Your business may be sailing along quite nicely, or it may be struggling with the effects of shortages, rising prices and an energy crisis.

In both cases could be time to step back and reflect on where you are, develop what has worked and abandon methods that don’t.

It is time to plan out a strategy for the long term. It could be a one-year or five-year plan that considers:

• Where the company is heading
• What you hope to achieve
• The challenges you anticipate along the way
• What investment will be necessary
• The people, technology and skills required to achieve your goals.

Within this plan, you will need to consider commercial guidance and tailored business planning, including funding, financial management, advice on succession planning, your business structure and strategy and of course financial reporting.

You make take pride in how you run your business, but it makes sense to enlist professional support. That advice can save you money and help plan for future growth.

A major overhaul of VAT penalties came into effect on 1 January 2023. This new approach changes how penalties are applied, as well as how interest is calculated and paid. In this article, we’ll break down what you need to know about the changes.

What is changing?

The biggest change that businesses can expect is a replacement of default surcharges with new penalties for late submissions and late payments. The objective of this shift is to reward businesses that comply with their VAT obligations on a timely basis. Additionally, the calculation of VAT interest has changed, including how it is calculated and paid.

Who is affected?

All businesses submitting VAT returns starting on or after 1 January 2023 are affected by these changes. It’s important for companies to note that these changes may also affect their tax planning strategy and potential savings from earlier payment dates.

How do the new penalties work?

HM Revenue & Customs (HMRC) has outlined a points-based system for late submission penalties intended to incentivise businesses to comply with their reporting obligations:

Up to 15 days overdue

You will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan on or between days 1 and 15.

Between 16 and 30 days overdue

You will receive a first penalty calculated at 2 per cent on the VAT you owe at day 15 if you pay in full or agree a payment plan on or between days 16 and 30.

31 days or more overdue

You will receive a first penalty calculated at 2 per cent on the VAT you owe at day 15 plus 2 per cent on the VAT you owe at day 30.

You will receive a second penalty calculated at a daily rate of 4 per cent per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full or a payment plan is agreed.

The frequency-dependent thresholds for penalty points mean that more frequent non-compliance results in higher penalties. However, should a business meet its obligations within the given timeframe, all penalty points are reset back to zero and no further action will be taken against it.

Businesses should also take note of the benefits associated with paying sooner rather than later when it comes to VAT. Paying early means fewer late payment fees, as well as interest due on top of those fees if they are not paid within 30 days of filing a return or making an adjustment request after filing one’s return.

For those who do pay late but still manage to file their returns before the deadline, there are still ways they can reduce their overall financial burden by paying off any outstanding taxes before incurring additional costs in interest charges or late payment fees.

With the new year upon us already, businesses need to be aware of the possible consequences of late returns and payments.

Keeping on top of your business’s financial health is critical to its success. A great place to start is by understanding what a balance sheet is and what it can tell you about the health of your business. Let’s look at what a balance sheet is, why it’s important, and how you can improve yours.

What is a balance sheet?

A balance sheet is an important financial document that provides an overall view of the financial position of your business. It shows how much money you have in assets (e.g., cash, accounts receivable) and liabilities (e.g., loans, accounts payable). When these two sides are balanced (i.e., when assets equal liabilities), the balance sheet reveals whether or not your business is operating at a profit or loss.

Why is it important?

Your business’s balance sheet tells you if you have enough money to pay for current expenses and future projects or investments. This information helps you make decisions about where to invest capital and whether or not to take on additional debt to finance growth opportunities.  The more informed decisions you make, the better off your business will be in the long run!

How can I improve my balance sheet?

The first step in improving your balance sheet is understanding exactly where your money is going each month – which means tracking all income sources and expenses with accuracy and consistency.

Additionally, it’s important to make sure that any debt on the books is managed responsibly; this means making timely payments so that you don’t accrue late fees or interest charges which can hurt your bottom line in the long run.

Finally, consider investing in new technology or resources that can help streamline processes within your business. This will allow for faster transactions which can help increase efficiency and save money over time.

Understanding and improving your business’s balance sheet are critical steps toward achieving financial success.

By tracking income sources and expenses accurately, managing debt responsibly, and investing in new technology or resources, small businesses in the UK can ensure they remain solvent while also creating an environment for growth opportunities down the road.

If you own a small business and are also a shareholder director, you may be wondering whether to take a salary or dividends.

When it comes to paying yourself, there are both advantages and disadvantages to each option, including potential tax savings.

We’ll explore how taking salaries versus dividends for shareholder directors of small businesses in the UK may affect the money you take home.

How should you remunerate directors?

The UK tax system allows company shareholders to draw money from their companies in two ways – either by taking a salary via PAYE, which will be subject to Income Tax and National Insurance Contributions or by taking dividends, which is instead subject to a unique dividend tax rate and free of NICs.

Why you should still take a salary

There are two primary reasons, beyond the earnings, for drawing at least part of your remuneration from a salary from your business.

First and foremost, you will more than likely want to continue to accrue qualifying years towards your state pension.

To obtain the necessary National Insurance credits to receive this benefit your salary will need to be in excess of the current Lower Earnings Limit (£6,396 in the 2022/23 tax year).

When setting your salary, many directors choose a level between the Lower Earnings Limit and the Primary Threshold (£11,908 per annum for directors), as this will ensure you receive National Insurance credits, but will avoid having to make regular National Insurance Contributions.

Secondly, taking a salary counts as an allowable business expense, which can be offset against your profits to reduce the amount of Corporation Tax your company is liable for.

How should you set a salary?

If you are planning on drawing money from your business but intend on maintaining contributions towards state pensions and other benefits such as maternity leave and job seekers’ allowance down the line, then it makes sense for you to take salary instead of dividends.

You will also need to consider how your salary affects your income tax position. Every UK taxpayer enjoys a personal tax allowance of £12,570 per annum (frozen until 2028).

Any earnings above this amount, including income from a salary, will be taxed at your marginal rate (basic, higher and additional).

If your salary exceeds the thresholds for these tax bands you will face a higher rate of tax, but this will also need to be considered alongside other earnings outside your salary, which could carry you over into higher rates of tax as well.

This will be particularly precarious from this April when the threshold for the additional rate of income tax (45 per cent) falls from £150,000 to £125,140.

Why take dividends instead of a salary?

Dividends, unlike salary payments, do not attract National Insurance Contributions and the tax rates on dividends are lower than tax rates on salaries.

However, care must be given to ensure dividends are correctly voted on by all shareholders and the company has sufficient distributable reserves available.

However, if your annual dividend payments exceed £2,000 per year (based on the current dividend allowance), then you will need to pay some tax on those payments.

This dividend tax allowance will be reduced from April 2023 to £1,000 and halved again to just £500 in the following tax year, but dividend tax rates remain lower than the rates of income tax and, therefore, may offer a tax advantage to some directors.

For 2022/23 and into the new tax year, the dividend tax rates are:

• Basic rate: 8.75 per cent
• Higher rate: 33.75 per cent
• Additional rate: 39.35 per cent

How to balance dividends and salary

It’s important to consider both options carefully before deciding which one works best for you based on your current financial situation and future plans.

Usually, directors will choose a combination of both dividends and salary so as to manage their tax position and that of their company, without reducing their access to benefits, such as a state pension.

This is something that needs to be done regularly at tax rates and allowances change. In the year ahead there are several changes to these rates and allowances that we have outlined.

It’s important to weigh all these factors carefully before deciding on a remuneration approach for you and any other directors of the business. This is where seeking regular professional advice can be particularly beneficial, especially as your circumstances may change from one year to the next.