With predictions that the UK economy is set to grow at its fastest pace in 80 years and could recover to its pre-pandemic size by the end of this year, SME owners are feeling more optimistic and are keen to invest in growth.

However, they are also frustrated by the mix of financial options open to them, according to a survey from the Association of Chartered Certified Accountants (ACCA) and The Corporate Finance Network (CFN).

Their wish to invest is buoyed by the latest figures from the Office for National Statistics (ONS) which show UK gross domestic product (GDP) for the second quarter is estimated to have increased by 4.8 per cent, which is now 4.4 per cent below the pre-pandemic level at the end of 2019.

There have been increases in services, production and construction output over the quarter, with the largest contributors coming from wholesale and retail trade, accommodation and food service activities and education.

This will be a boost for the large majority of SMEs who are now planning for expansion, with new research from Paragon Bank showing that six in 10 are increasing their innovation budget compared to pre-Covid levels.

More than 75 per cent of business owners list innovation as a key priority to recovery.

But they say they are struggling for financial help in the form of overdrafts and other options like mortgages and leases.

This has not been helped following the winding down of many of the Government-backed support schemes. They are also frustrated at being unable to find the right blend of financing for success.

According to the joint survey this has caused mental health problems with bosses feeling more stressed and anxious.

The difficulties of obtaining finance could not come at a worse time as they are desperate to get back to some normality and go for growth in the future.

Link: SMEs feel confident but frustrated by lack of financial backing

HM Revenue & Customs (HMRC) has warned that debt collection will resume as the UK emerges from the pandemic and it will be contacting taxpayers who have fallen behind with their taxes.

HMRC says it will take an understanding and supportive approach to dealing with those who have tax debts or are concerned about their ability to pay their tax.

During the pandemic, HMRC tax debt collection was put on hold. But on 30 June 2021, HMRC announced that it was restarting its debt collection work as economic activity resumed.

In its latest announcement, HMRC stated: “If you can pay your taxes then you should do so – but if you are struggling, we want to work with you to agree a plan based on your financial position.”

HMRC will be contacting all taxpayers with outstanding debts to discuss payment options and they have been warned they must respond to these notifications as soon as possible.

Taxpayers may be offered a short-term deferral, with no further action to collect the tax debt until that time has lapsed.

As part of agreeing to Time to Pay arrangements with businesses, HMRC will also talk about other forms of support they may be eligible for.

HMRC added that it will take an understanding and supportive approach to dealing with those who have tax debts or are concerned about their ability to pay their tax.

It also warned that it will do everything it can to help businesses with temporary cash-flow issues to survive as the economy grows, but where businesses have little chance of recovery, it has a responsibility to act – not least to protect viable businesses in their supply chains.

Link: Debts owed to HMRC due to COVID-19

As the UK economy gets back to full speed and confidence grows amongst small businesses, the impact of the ‘super-deduction’ and the ‘special rate allowance (SRA)’ should encourage even stronger growth.

According to HM Revenue & Customs (HMRC), the super-deduction will give companies a strong incentive to make additional investments, and to bring planned investments forward.

The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.

These benefits apply to capital investments made between 1 April 2021 and 31 March 2023. They work alongside the Annual Investment Allowance (AIA), whose limit was extended to £1 million until the end of 2021.

HMRC says capital allowances allow companies to write off the costs of specific capital assets instead of accounting for depreciation, which is not tax-deductible.

When translating accounting profits into taxable profits businesses can deduct capital allowances rather than ‘adding back’ any depreciation.

The super-deduction offers a capital allowance rate of 130 per cent and the SRA has a rate of 50 per cent for plant and machinery purchases. Both allow companies to lower their Corporation Tax bills following eligible investments.

Plant and machinery expenditure which normally qualifies for the 18 per cent main pool when written down as a Writing Down Allowance (WDA) can now qualify for the super-deduction at 130 per cent.

The same expenditure which would normally qualify for the six per cent special rate pool (like integral building features and long-life assets) can now be claimed under the SRA at 50 per cent instead.

The super-deduction and SRA are only available to incorporated companies, who have qualifying expenditures. Sole traders, partnerships and LLPs will not be eligible. Furthermore, only contracts entered into after 3 March 2021 and expenditure incurred after 1 April 2021 will qualify.

Link: Super-deduction

Taxation and other measures to be included in the Finance Bill for 2021-22 have now been announced.

The draft legislation largely covers pre-announced policy changes, along with accompanying explanatory notes, tax information and impact notes, as well as responses to consultations and other supporting documents.

The Government has also revealed three new policies that it will legislate for in the autumn:

• The exemption from income tax on payments for the COVID Winter Grant/Local Grant.
• Ensuring that the new Child Winter Heating Assistance and the Short Term Assistance social security payments made by the Scottish Government will not be subject to income tax.
• Ensuring that payments made by the London Capital & Finance Compensation Scheme will not be subject to Capital Gains Tax.

The main areas of the bill

Income Tax draft legislation: The proposal changes the basis period rules for unincorporated businesses from a ‘current year basis’ to a ‘tax year basis’. The transition would take place from 2022 to 2023. The changes would come into effect from 2023 to 2024.

A business’s profit or loss for a tax year would be the profit or loss that occurs in the actual tax year itself, regardless of its accounting date.

Increasing the normal minimum pension age for Pensions Tax: This introduces an age increase from 55 to 57 in 2028meaning pension savers will have to wait an additional two years to access their pensions without incurring an unauthorised payments tax charge unless they are retiring due to ill-health.

Pension Scheme Pays reporting – information and notice deadlines: This measure extends the information and notice deadlines for individuals to ask their pension scheme to settle their annual allowance charge of £2,000 or more, from a previous tax year. This will reduce their future pension benefits in a process known as ‘Scheme Pays’.

Taxation of asset holding companies in alternative fund structures

A qualifying asset holding company must:

• Be at least 70 per cent owned by diversely owned funds – these must be managed by regulated managers or certain institutional investors
• Exist to help move capital, income and gains between investors and underlying investments.

Real Estate Investment Trusts: The measure amends the tax rules that apply to Real Estate Investment Trusts. It also makes changes to conditions that a company must meet to be a UK Real Estate Investment Trust.

Corporation Tax: amendments to the hybrid and other mismatches rules: This sets out  how to counter mismatches for payments to hybrid entities. These changes make sure the outcome is proportionate when relevant entities are seen as transparent in their home jurisdiction. 

Capital allowances – amendment to statement for structures and buildings allowance: This amendment requires you to record additional information on your allowance statement. The amendment will make it easier for businesses to assess if they are entitled to structures and buildings allowance.

Insurance Premium Tax – identifying where the risk is situated: This moves the criteria for determining a location of risk for Insurance Premium Tax to primary legislation, to provide clarity for the insurance industry.

New proposals to clamp down on promoters of tax avoidance: The introduction of these new proposals will:

• Make sure promoters face tougher action to discourage them from operating
• Disrupt their activities
• Do more to support customers to steer clear of and leave tax avoidance arrangements.

Powers to tackle electronic sales suppression: New powers will reduce opportunities and decrease the existing use of electronic sales suppression, which is where businesses or individuals use technology to artificially reduce their reported sales and corresponding tax liabilities.

Large businesses – notification of uncertain tax treatment: Large businesses will need to tell HMRC if they adopt an uncertain tax treatment defined by HMRC notification criteria and subject to a monetary threshold set out in legislation.

Tracing and security for tobacco products: HMRC regulation-making powers will introduce tougher more visible street level sanctions to tackle tobacco duty evasion.

Link: Finance Bill 2021-22

Thousands of people who put money into their pension each year are inadvertently failing to declare pension tax charges, according to HM Revenue & Customs (HMRC).

This can lead to an unexpected and costly tax bill.

Most taxpayers can save up to £40,000 in pension contributions tax-free each tax year, a limit that is set to remain in place until 2026. Any contributions above this amount are subject to Income Tax and must be included in the Self-Assessment Tax Return.

However, the highest earners, with annual incomes of more than £240,000, can see their pension annual allowances taper down to as little as £4,000, largely wiping out the tax benefits of putting money aside for retirement.

The annual allowance tapers away by £1 for every £2 of income over £240,000. Someone with an income of £270,000 for example would be £30,000 over the threshold and so lose £15,000 of the allowance, leaving a limit of £25,000 to put into their pension tax-free.

Meanwhile, those with an income of £312,000 or more, will benefit from an annual allowance of just £4,000, which is the lowest level it can fall to.

Similarly, people who are drawing down their pensions flexibly must pay Income Tax on any contributions above the £4,000 Money Purchase Annual Allowance.

Yet, because pension scheme are only obliged to alert people who exceed the usual £40,000 limit, many affected individuals seem to be unaware of the prospect of a substantial tax bill on everything over and above as little as £4,000.

This is something that has hit the headlines in recent years for its effect on doctors in the NHS, although fewer should now be effected as the earnings threshold has risen by £90,000 from £150,000.

Your annual allowance applies to all of your private pensions if you have more than one.

 This includes:

• The total amount paid into a defined contribution scheme in a tax year by you or anyone else (for example, your employer)
• Any increase in a defined benefit scheme in a tax year
• If you use all of your annual allowance for the current tax year.

You might be able to carry over any annual allowance you did not use from the previous three tax years.

Link: Annual Pension Allowance