In times of economic uncertainty, businesses should have a clear plan to ensure that they can navigate any potential financial pitfalls.

One of the best ways businesses can do this is with the use of management accounts.

What are management accounts?

Management accounts are financial reports that contain information vital to your business, such as your profits and losses, a balance sheet, and a cash flow forecast.

Unlike statutory accounts which are produced annually, management accounts are produced on a monthly or quarterly basis.

This frequent reporting allows for up-to-date financial insights, enabling businesses to constantly respond to changes in the market environment in a proactive manner.

How can they help?

Management accounts can provide businesses with the financial data needed to make necessary adjustments in real-time.

It enables business owners to make strategic decisions based on concrete information rather than guesswork, which can help when investing, seeking finance or making a business more resilient during difficult times.

By focusing on detailed cost analysis, management accounts can also drive operational efficiency, a critical aspect during uncertain times.

They offer key insights into cost structures, making it possible to identify inefficiencies and areas of waste that can be targeted for cost reduction. This can ultimately lead to improved profit margins, better cash flow management, and increased financial resilience.

Although primarily designed for internal use, management accounts can also strengthen communication with key stakeholders.

If you would like more information about management accounts and how we can help you use them to strengthen your company’s financial outlook, please contact us today.

The number of individuals participating in the UK’s ‘hidden economy’ is increasing according to recent research.

A surge in additional income streams, from moonlighting to online trading, has led to millions of taxpayers failing to declare additional earnings to HM Revenue & Customs (HMRC).

HMRC’s latest figures highlight the extent of this issue. They showed that an estimated 8.8 per cent of the UK adult population – equivalent to nearly six million individuals – are involved in the hidden economy. This figure has nearly doubled since 2016.

While most of this undeclared tax is considered low-level, with only 1.1 per cent estimated to have earned over £5,000 of undeclared income, this group alone represents a significant £3.36 billion of tax-free earnings.

Participants in the hidden economy include those who supplement their taxed income with cash work (moonlighters), accounting for 65 per cent of the total and those who do not declare any earnings at all, which represent 35 per cent. Some businesses also contribute to this problem by failing to register for VAT.

While it is clear that some of these activities are deliberate and knowingly entered into, HMRC’s survey suggests that there is also a distinct lack of knowledge about tax obligations.

As an example, 28 per cent of those surveyed believed that if they were already paying tax, they did not need to inform HMRC about any additional forms of income as long as this did not place them into a higher tax band.

For those with more than one source of income, it is vital to declare all earnings to HMRC, regardless of whether this means being pushed into the next tax band or not.

This includes casual work, selling goods or services, rental income, and trading on platforms such as eBay.

Consequences of non-declaration

Non-declaration of additional income can carry significant implications for those involved.

These penalties vary in severity and those found guilty can face anything from a hefty fine to a prison sentence. Individuals need to ensure that they declare any additional income.

How to declare additional income

To declare additional income to HMRC, individuals can use the Self-Assessment tax return system.

This system requires taxpayers to report their income for each tax year, which runs from 6 April one year to 5 April the next, by 31 January of the following year.

If individuals have only recently started earning additional income, they must notify HMRC by 5 October following the end of the tax year in which they began to receive the additional income in order to register for Self-Assessment.

If you are worried that you may have earned additional income and have not declared this to HMRC, our expert tax advisors are on hand to assist.

The tax gap in the UK – the difference between the amount of tax owed and the amount that has been paid – remains wider than anticipated due to SMEs, according to HM Revenue & Customs (HMRC).

The tax authority’s figures for 2021/22 show that small and medium-sized enterprises (SMEs) contribute significantly to the national tax gap, with 56 per cent (£20.2 billion) of the total gap (£36 billion) accounted for by underpayments or non-payments by these businesses.

HMRC attributes much of this gap to careless errors made by SMEs, which is why ensuring compliance can help to narrow this gap and prevent SMEs from being hit by easily avoidable tax penalties and investigations.

Understanding tax obligations

Businesses need to have expert knowledge of the different taxes they are liable for. These include Corporation Tax, VAT, Income Tax and National Insurance Contributions via PAYE.

According to HMRC, Corporation Tax, Income Tax, National Insurance Contributions and Capital Gains Tax together account for 65 per cent of the total tax gap.

Organisation and meeting deadlines

SMEs need to remain organised and keep meticulous records of all financial transactions. A lack of sufficient care was responsible for almost a third (30 per cent) of all underpayments of tax.

It seems an obvious observation but ensuring that all tax returns and payments are submitted by the relevant deadlines will mean SMEs avoid penalties for late submission.

Delays in payment or submission can also increase the chances of errors as a last-minute rush often leads to carelessness.

Stay up to date with tax laws and changes

Tax laws are subject to change and being unfamiliar with any updates could lead to errors in your tax reporting that result in penalties, fines and investigations.

SMEs should ensure that they are up to date with the latest changes in tax laws, rates, and deadlines.

Maintain good communication with HMRC

If SMEs do find themselves to be in a position where they’re unable to pay their taxes on time, they should reach out to HMRC and explain the situation. They might be able to offer a payment plan or provide other solutions.

With HMRC intensifying its focus on non-compliance by small businesses, SMEs must pay close attention to their tax obligations.

If you are an SME business owner and would like assistance with your tax obligations, our expert team of tax professionals are here to help.

Office for National Statistics (ONS) data revealed that the Consumer Price Index (CPI) – the official measure of inflation – only fell to 8.7 per cent in the 12 months to May 2023.

While the rate of inflation is not as high compared to previous months, where it peaked at 10.4 per cent in February, many economists had predicted a significantly lower rate of inflation.

As inflation is falling at a slower rate, the Bank of England (BoE) has attempted to curb this by increasing the base interest rate further to five per cent.

High inflation and the ever-increasing base rate are having a significant impact on many businesses in a number of different ways including:

Increased costs

Higher prices and costs are feeding the current rate of inflation. As the cost of raw materials, labour, and operational expenses rise, businesses are squeezing their profit margins.

While larger businesses may have the capacity to deal with these increased costs, small and medium-sized enterprises (SMEs), often operating on tighter budgets can find this situation particularly challenging.

Some businesses facing increased costs are mitigating this by raising the prices of their products or services.

This move needs to be handled carefully, however, as if prices are increased too much then it could drive customers away and cause a loss in revenue, while also feeding into inflation.

Equally, SMEs need to explore how they can drive existing costs down where possible by reviewing arrangements with suppliers and service providers.

Difficulty borrowing

Interest rate increases naturally mean that taking out loans will be more costly for businesses looking to borrow and will also affect any existing loans that are not on a fixed rate.

Increased interest rates can be a significant worry for businesses carrying a substantial amount of variable-rate debt, as higher interest rates ultimately mean higher borrowing costs.

While the current five per cent base rate is the highest it has been since 2008, economists predict that interest rates could peak at six per cent by the end of 2023 – something businesses should consider as they plan their budgets for the next 12 months.

The higher rates of interest have also affected access to finance, as lenders adjust their approach to lending due to concerns about businesses servicing their debts. Many are, therefore, applying more stringent credit and affordability checks.

HMRC debts 

Tax debts to HM Revenue & Customs (HMRC) track the BoE base rate. In its simplest form, this means that the rate of interest for the late payment of taxes is calculated as the base rate plus 2.5 per cent.

The rate of interest paid by HMRC on the overpayment of tax is also calculated as the base rate minus one.

There are various other rates of interest charged by HMRC, which can be found here. As the rate of interest increases, so does the cost of late tax payments.

Although inflation rates are currently higher than predicted, the BoE has stated that the increase in interest rates will see the inflation rates fall in the coming months, as they attempt to push it down to the two per cent national target.

If you are a business owner who would like assistance navigating the current economic climate, please contact our expert team today.

As an employer, you will likely face the delicate situation of employees asking for pay rises.

With the cost-of-living crisis and rise in inflation, these requests will have become more frequent as people look to keep up with spiralling living costs.

Each month, the Office for National Statistics (ONS) surveys collect the salaries of 12.8 million workers to produce the median salary for the UK.

The latest data from the ONS indicates that the median average salary is estimated to be £31,772.

However, how much a person earns often depends on their age, skill and where they live.

When it comes to pay rise requests, employers need to tread a thin line between granting requests and retaining talented staff you cannot afford to lose, while keeping an eye on employment costs in what is still a tough financial climate.

Handling these situations correctly and professionally is crucial to keeping employee morale high and your business running smoothly.

Encourage open communication

Asking for a pay rise can be an awkward, uncomfortable experience for employees, so it is important to make employees feel comfortable discussing their salary expectations.

Encourage open and honest discussions about pay and make it a regular part of performance reviews.

This helps to prevent surprises and ensures that both parties have a clear understanding of the expectations.

Align pay with performance and evaluate requests objectively

Regularly evaluate your employees’ performances, acknowledge their accomplishments, and align their pay accordingly.

This approach encourages productivity and gives employees a clear understanding of how they can increase their earnings.

When requests for pay rises are made, objectively evaluate the requests based on performance and the last time the employee was given a pay rise. Try and avoid an instant response that may not be in line with objective thinking.

Consider the business’s financial position

While it is important to reward deserving employees, you must also consider your business’s financial situation.

Can your business afford the requested pay rise? If not, it’s important to communicate this openly to the employee while also discussing potential prospects.

It is better to delay a pay rise than to overstretch your finances and potentially jeopardise your business.

Consider alternatives

If a pay rise is not feasible, consider other alternatives. This could include additional benefits such as more flexible working hours, opportunities for training and development, or an enhanced bonus scheme.

Sometimes, non-monetary rewards can be just as effective in demonstrating that you value your employees.

Communicate your decision clearly

Once you have made your decision, communicate it clearly and respectfully. If you approve the pay rise, be sure to highlight the employee’s achievements and contributions. If you decline, explain your reasons, and provide constructive feedback on what the employee can do to improve their chances of a pay rise in the future.

All pay rise requests should be dealt with fairly and consistently. Inconsistent treatment can lead to discontent within the workforce and possible breaches of UK employment laws.

Are you unsure about how to deal with a pay rise request, or have other remuneration questions? Contact us today.

In the Spring 2023 Budget, the Government laid out plans to shake up the current free childcare system – but many higher earners will be disappointed to find that the changes keep them excluded from the scheme.

The existing childcare rules mean that parents are eligible for up to 30 hours of free childcare if their children are aged three to four.

Eligibility also depends on if you are employed or self-employed, the number of hours you work, and your income.

If you or your partner have an expected adjusted net income of over £100,000 in the current tax year, you will not be eligible.

The changes, which will be staggered over the next couple of years, will see many families in the UK benefit from free childcare at an earlier age, however, the £100,000 annual income cap will remain.

Timeline of changes

• April 2024 – Working parents of two-year-olds will be able to access 15 hours of free childcare per week.
• September 2024 – Children from the age of nine months will be eligible for 15 hours per week of free childcare.
• September 2025 – Working parents of children under the age of five will be entitled to 30 hours of free childcare per week.

The changes will be welcomed by many adults in the UK who will be able to return to work at a much earlier date.

However, higher earners will not see this benefit due to the income restrictions, which have not changed.

If you’d like more advice on the current childcare rules or want more information on the upcoming changes, please contact us.