Small businesses could get up to £5,000 to pay for cloud accounting software under the Help to Grow: Digital scheme, it has been announced.

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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

Parents faced with the financial headache of childcare over the long school summer holidays are reminded they can get support from the Government.

HM Revenue & Customs (HMRC) is reminding working families that they can use Tax-Free Childcare to help pay for their childcare costs over the summer.

Tax-Free Childcare – a childcare top-up for working parents – has been available for some time.

It can be used to help pay for accredited holiday clubs, childminders or sports activities, giving parents and carers that extra peace of mind during the school summer holidays and saving them money.

The scheme is available for children aged up to 11, or 17 if the child has a disability.

For every £8 deposited into an account, families will receive an additional £2 in Government top-up, capped at £500 every three months, or £1,000 if the child is disabled.

Parents and carers can check their eligibility and register for Tax-Free Childcare on GOV.UK.

They can apply for an account at any time and start using it straight away.

By depositing money into their accounts, families can benefit from the 20 per cent top-up and use the money to pay for childcare costs when they need to, especially during the summer holidays.

More than 282,000 working families used their account in March 2021, the highest recorded number of families in any one month since the scheme was launched in April 2017. These families received a share of more than £33 million in Government top-up payments.

Tax-Free Childcare is also available for pre-school aged children attending nurseries, childminders or other childcare providers.

Families with younger children will often have higher childcare costs than families with older children, so the tax-free savings can make a difference.

Childcare providers can also sign up for a childcare provider account on GOV.UK to receive payments from parents and carers via the scheme.

Link: Tax-Free Childcare

Unlike other benefits, tax credits usually have to be renewed each year by 31 July to continue receiving payments from HM Revenue & Customs (HMRC).

If you are claiming tax credits, it is really important to look carefully at the information you receive.

Even if you have stopped getting tax credits, you still need to check that all your details are correct and respond if required to do so.

Each year you will be sent a renewal pack that tells you how to renew. If it has a red line across the first page and says ‘reply now’ you will need to renew.

If it has a black line and says ‘check now’, you will need to check your details are correct and if they are, you do not need to do anything and your tax credits will be automatically renewed.

If you miss the deadline your tax credits payments will stop. You will be sent a statement and will have to pay back the credits you have received since 6 April 2021.

From 6 April, you will get estimated (‘provisional’) payments from HMRC until you renew. Your payments may have changed based on information from your employer or pension provider.

If you miss the deadline for renewing, you will be sent a statement (TC607). If you contact HMRC within 30 days of the date on the statement your tax credit claim may be restored, and you will not have to pay anything back.

However, if you contact HMRC later than 30 days of the date on the statement, they will ask you to explain the reasons for the delay – known as ‘good cause’ – before they consider restoring your claim.

If HMRC stops your payments, you cannot make a new claim for tax credits.

How to renew

You can renew tax credits online or renew tax credits by phone or post.

You will need:

• Your renewal pack – if you have not had a renewal pack yet contact HMRC
• Details about any changes to your circumstances
• You and your partner’s total income for the last tax year (6 April 2020 to 5 April 2021).

Link: How to renew tax credits

A payroll services boss has been banned for orchestrating a multi-million-pound tax avoidance scheme.

The case puts a spotlight on company owners and should serve as a reminder that they are subject to strict conditions over keeping records.

The High Court issued a disqualification order lasting 11 years to the sole director of Magnetic Push Ltd.

The company was purportedly operating as a payroll services company and entered voluntary liquidation within a year of being formed.

However, the liquidator found the director completely uncooperative when requesting the company’s statutory records.

This was reported to the Insolvency Service, which investigated and found that the company was acting as an umbrella company in part of a tax avoidance scheme.

He had declared a VAT liability of just £609 but the tax authorities claimed more than £4 million from Magnetic Push in the liquidation.

Failure to keep accounting records can lead to a £3,000 fine and/or disqualification from acting as a director, as this case indicates.

If you haven’t reviewed your record keeping in a while, now is a great opportunity to do so.

Key points for company and accounting records

You must keep:

• Records about the company itself
• Financial and accounting records
• HM Revenue & Customs (HMRC) may check your records to make sure you are paying the right amount of tax.

You must also keep details of:

• Directors, shareholders and company secretaries
• The results of any shareholder votes and resolutions
• Promises for the company to repay loans at a specific date
• Promises for payments if something goes wrong and it is the company’s fault
• Transactions when someone buys shares in the company
• Loans or mortgages secured against the company’s assets.

Limited companies have to keep a register of ‘people with significant control’ (PSC), which must include details of anyone who:

• Has more than 25 per cent shares or voting rights in your company
• Can appoint or remove a majority of directors
• Can influence or control your company or trust.

When it comes to accounting records you must be able to evidence:

• All money received and spent by the company, including grants and payments from Coronavirus support schemes
• Details of assets owned by the company
• Debts the company owes or is owed
• Stock the company owns at the end of the financial year
• The stocktaking you used to work out the stock figure
• All goods bought and sold
• Who you bought and sold them to and from (unless you run a retail business).

Link: Running a limited company – Company and accounting records

Payments on account are advance payments towards your tax liability for the year, if you complete a UK Self-Assessment tax return and is a way of settling tax owed.

The two deadlines for the self-employed to pay their tax bills are 31 January and 31 July of each year.

These two payments are made during the year, calculated on the previous year’s tax bill and are designed to avoid building up debt to the taxman.

If the tax liability is greater than the previous year, a further balancing payment may also be required.

Normally this is not a problem, as you are only ever expected to make a half-payment.

However, if this is your first year filing a return then you may be required to pay tax for the year plus an additional 50 per cent of what is owed.

That can catch people out unless they have put sufficient money aside to pay the tax that they owe.

Given the challenges of the last year, many taxpayers may also find that the estimates for tax owed are inaccurate as their income has been smaller than predicted.

How do payments on account work?

Your bill for the 2019 to 2020 tax year is £3,000. You made two payments on account last year of £900 each (£1,800 in total).

The total tax to pay by midnight on 31 January 2021 is £2,700. This includes:

• Your ‘balancing payment’ of £1,200 for the 2019 to 2020 tax year (£3,000 minus £1,800)
• The first payment on account of £1,500 (half your 2019 to 2020 tax bill) towards your 2020 to 2021 tax bill
• You then make a second payment on account of £1,500 on 31 July 2021.

If your tax bill for the 2020 to 2021 tax year is more than £3,000 (the total of your two payments on account), you will need to make a ‘balancing payment’ by 31 January 2022.

Payments on account do not include anything you owe for capital gains or student loans (if you are self-employed) – you will pay those in your ‘balancing payment’.

You have to make a payment on account if your tax during the previous financial year was more than £1,000.

However, that is not the case if more than 80 per cent of that year’s tax was taken off at source, for example, through PAYE.

Link: Understand your Self-Assessment tax bill – payments on account