From 7 May 2022, HM Revenue & Customs (HMRC) will launch a new mandatory P87 form for income tax relief. 

What is a P87 form?

Workers and agents use P87 forms to claim employment expenses. However, only employees can claim tax rebates. If you are self-employed, you can claim via the self-assessment system.

Taxpayers must submit a separate P87 for every job they claim a tax refund.

What is changing?

Claims for income tax relief on employment expenses are made using one of these options:

• a self-assessment tax return
• online service available to taxpayers (but not agents)
• print, complete and post the P87 form available on GOV.UK
• by phone (subject to limits) if a claim was made for a previous tax year
• substitute claim form or letter (Often widely used by high volume repayment agents)

The new form is available from 21 March and becomes mandatory from 7 May. You can find the form on GOV.UK.

HMRC will reject claims made on substitute claim forms, but the other options above will remain available.

Robotics will accelerate the processing of the new form if there are no attachments on the claim. HMRC uses Hyperscience – a sophisticated form of optical character recognition – to process without human intervention. 

If the P87 form has attachments, it will require manual processing, which will take longer. 

HMRC expects to extend its use of Hyperscience to other forms. 

Links: HMRC to mandate the format of claims for employment expenses

April 2023 will bring several significant changes to research and development (R&D) tax reliefs. Some businesses will find these changes positive. Whilst other changes can affect what income qualifies for R&D tax relief. Organisations need to ensure they remain compliant with new rules.

Although Parliament is still considering these new measures, details of upcoming amendments are now published. 

R&D activities overseas

From April 2023, the costs of overseas workers will not qualify for UK R&D relief. With these new rules, R&D activity must be located in the UK for the costs to be included. 

The Government indicated that it does not want to discriminate against organisations that cannot practically conduct R&D in the UK.

Expenditure on overseas R&D activities can still qualify where:

• Material factors (such as environment, geography, population) are not present in the UK and are necessary for the research
• Regulatory or legal requirements that must take place outside of the UK, such as clinical trials

Considerations must be in place for international structures and connections of businesses carrying out R&D activities. Organisations need to re-evaluate their potential R&D claims if they maintain all or part of their research overseas. An imposed blanket ban may stop UK groups with overseas subsidiaries working on a UK project from making a claim, even if the innovation benefits the UK parent company. 

Claims for cloud computing and data expenditure

Currently, organisations cannot include any costs relating to cloud computing and data in their R&D tax claims. Many of the UK’s most innovative tech and media companies do not get the tax benefits of the R&D tax credit scheme.

From 1 April 2023, the costs of purchasing data for R&D activities or using cloud computing services will qualify. 

Many businesses use the same cloud services throughout their operations, so apportioning specific R&D costs may be a challenge. 

HM Revenue & Customs (HMRC) are likely to provide clarity in upcoming guidance.

Anti-abuse action

The new measures will include compliance procedures to deter speculative or fraudulent claims amidst growing concern that the R&D tax relief system is open to abuse.

These measures include:

• a digital claims system
• additional details are required with all claims
• a named senior officer of the company must endorse each claim
• notifying HMRC, in advance, of a company’s intentions to submit a claim
• the details of any agent advising on the claim

HMRC has new powers and enforcement action to tackle R&D tax advisors and invest further resources for additional risk profiling and scrutiny of R&D tax relief claims.

Further reforms?

We expect to gather more details for future reforms to the R&D tax credit system in this year’s Autumn Budget. 

In the Spring Statement, the Chancellor of the Exchequer alluded to further changes to the R&D tax relief system. The Treasury hopes to give an additional £5 billion for R&D funding by 2024.

With these new restrictions, we understand the implications for our clients. For advice on how these changes might impact your R&D projects, speak with our R&D tax relief experts today. 

Most adults flirt with the possibility of creating their own business and becoming successful entrepreneurs.

Although the pandemic may have paused this idea for many, new figures show that 13% of UK adults now run fledgling businesses. According to the research by The Global Entrepreneurship Monitor (GEM), this is the highest percentage since the late 1990s.

More than 70% of Britons believe it easy to start a UK business, but less than one in 10 intend to set up their own. Observing people set up new business ventures within the local community and having confidence in their abilities has a positive impact.

For those willing to leap, here are a few tips for getting started:

Be prepared and plan carefully

Overnight success is a rarity, so focus on what’s achievable and be consistent.

You should create good habits and follow routines that power you on when that initial motivation wanes.

Take one step at a time, as diving in headfirst can be disastrous.

The best way to accomplish any business target is to plan it out step by step.

Decide what kind of business you want

What you love and are good at can lead you to a brilliant idea for your next business.

If you already have a vision, measure it against the market, and consider whether you’re good at it. Have a passion for success, and most importantly, assess whether it is genuinely a profitable idea. 

Research thoroughly

The first stage of any business is primary market research.

You can obtain data directly from potential customers through questionnaires, surveys, and interviews to learn what consumers want rather than base any conclusion on past data.

You should also review similar ideas within existing markets and see whether your product or service has a sufficient unique selling point that could beat the competition.

Create your business plan

A business plan is a dynamic document that serves as a roadmap for establishing a new business.

This document makes it simple for potential investors, financial institutions, and company management to understand and absorb.

Even if you intend to self-finance, a business plan can help you flesh out your idea and spot potential problems.

We help businesses of all shapes and sizes, from start-ups to international organisations, through every aspect of running a company. If you need help with accounting support services, company secretarial matters or understanding tax implications, contact our expert advisors here. 

As part of the new Health and Social Care levy, 2022-23 National Insurance (NI) and Dividend Tax rates have increased by a 1.25 percentage point as of 6 April.

Many businesses are getting to grips with the added complications to the payments of National Insurance Contributions (NICs) and dividends.

How have NICs changed because of the increase? 

The increase in NI affects the contributions made by employees, employers, and many self-employed workers.

Although the move intends to raise more than £12 billion for the NHS and social care system, businesses now face a sudden rise in employment costs.

Initially, the 1.25 percentage point NICs increase affects employed workers between 16years old and under state pension age, earning over £190 per week (rising to £242 in July 2022).

Self-employed with profits over £9,880 (rising to £12,500 from July 2022) or more than a year in self-employment also feel the impact. Although, the increase will not apply to Class 2 NICs.

This increase also applies to employer NICs minus any entitled business relief.

How are dividends changing?

Most businesses have favoured a balanced pay strategy for directors, which saw a larger proportion of their income paid through dividends versus a regular salary, to reduce the amount of tax and NICs the business is liable for.

Dividends are paid out of a company’s profits to its shareholders and every individual also receives help from a £2,000 tax-free allowance for dividend income.

Any dividends over this amount are taxed at different amounts depending on a person’s marginal rate.

Businesses do not pay any NICs on dividends, supplying a clear benefit to the company.

Before the increase in the Dividend Tax rate, most people were taxed as follows:

• Basic rate – 7.5 per cent
• Higher rate – 32.5 per cent
• Additional rate – 38.1 per cent

However, as of the start of the new tax year, these rates are now as follows:

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

From an employer’s NIC perspective, paying out more in dividends may make more sense given the upcoming changes.

However, those in receipt of dividends may not be as happy as it could affect how their income is taxed.

What about the changes to the NIC thresholds? 

Softening the blow of the NI rates increase, the Chancellor announced that the primary threshold (PT) for National Insurance is increasing by £3,000 from July, bringing it in line with the personal tax allowance of £12,500. 

However, the change does not affect the secondary threshold (ST). Employers will continue paying NICs at the same rate. 

However, the Chancellor has extended the annual Employment Allowance to eligible businesses (those with employers’ Class 1 National Insurance liabilities less than £100,000 in the previous tax year) by an additional £1,000 a year to £5,000.

The Treasury has said that the changes to thresholds will help cut up to £6 billion worth of NICs – cutting the NIC bill for the ‘typical employee’ by around £330 a year.

Although representing a saving, in reality, much of this ‘tax cut’ is taken up by the rise in NI rates.

Do you have any questions on the 2022-23 National Insurance and Dividend Tax rates? Our employment tax advisors or payroll experts can help, get in touch.

Links: Four things to know about National Insurance contributions and the April increase

With the current economic climate of high inflation, global uncertainty, and the backdrop of war, financing a new business might seem a challenge.

However, with planning, careful research and professional advice, you can find the right financial solution for you.

If the traditional funding route is problematic, other forms of finance may also be a good option and are generally easier to obtain than bank funding.

Crowdfunding, angel investors, and other alternatives for funding can provide flexible options and may not require an extensive credit history of a bank loan.

Lack of preparation

Persuading a financier or financial institution to lend your business money is like getting a mortgage.

You need to prove you can afford the loan, have the initial equity to kickstart the company and have a clear repayment plan.

However, if you are not ready to invest in yourself, why should they?

With most loans, you need to provide some collateral should you default on payment. Lenders will want to see a clear business plan and an indication of income to support regular repayments and interest.

Planning is the key

You know the saying, failure to prepare is preparing to fail?

You must have a business plan. Unfortunately, many start-ups apply for finance without preparing a business plan.

To persuade a lender to part with the funds, a clear and costed business plan is essential for them to see your goals and, specifically, how you intend to reach them.

Choosing equity or loans

Friends and family, online angel investors and crowdfunding platforms can all give equity investments.

Equity is less risky than a loan because there is typically less or nothing to pay back. Instead, investors enjoy a cut of your profits by being given shares in your company.

Although freeing up the additional funds needed early on in a business, conflict may occur if the investors are friends or family. 

On the other hand, a bank or lender doesn’t have any ownership of your business and has no say in how you run your company.

A loan can be short-term or long-term. Whatever the terms, you must pay the money plus interest back within the agreed time frame.

If you are unsure which option is best for you, speak to a professional adviser beforehand.

Know your borrowing limits

It might seem obvious advice, but you should not borrow too much or too little. Have a clear conversation with potential lenders about how much you need and how much they think you can afford.

You shouldn’t make the mistake of asking for more than you need, but it is a good idea to build a contingency into the amount of working capital you budget for, in case something unexpected arises.

Make sure you manage your credit score

Your credit score will always be a factor when a lender considers offering you a business loan.

If a business owner does not take care when managing their personal credit, a lender may think they run the risk they will take the same approach to business credit.

Managing your credit is critical and starts with knowing your current score. Create a plan to improve it if necessary.

If you are starting or scaling up a business, seek professional advice on financing from our team.

Businesses often find it a challenge to keep costs down, particularly whilst inflation rates soar and the cost of utility bills dramatical rise. Designing an expense report will help track any business-related expenses that your employees incur, either through a company credit card or spending their funds.

These expenses might include spending related to work activities, such as a business trip, travel and transportation, meals, training and workshops, accommodation, business supplies and tools.

Implementing expense management software can automate the entire process and easily control your business expenses.

Why it is critical to keep spending under control

Keeping expenses under control is vital to the long-term health of any business.

While some expenses are recoverable via the tax system, much of it falls on business owners and can reduce your profitability. 

There are several steps to take when implementing an expenses management system. 

Manual expense management demands a lot of time, money, and effort.

An automated expense management system with ready-made templates and cloud-connectedness streamlines the spending and employee reimbursement process and helps you be more efficient.

Avoiding costly mistakes and duplicating

Using a digital expense management system helps employees follow the rules, eliminating potential risks such as overspending, double-entry and lost receipts. 

By employing some of the latest technology, businesses can track employee spending and determine how the organisation will reimburse staff.

Many apps and platforms connect to existing cloud accounting software to automate much of the accounts process and apply specific procedures and policies to control this type of spending. If your employees have a daily allowance for meals whilst travelling, your system will account for those limits when reimbursing. 

Make systems secure and compliant

You can limit user access to these systems and configure the software to prohibit employees from entering claims that breach organisational policy or HMRC expenses guidelines. 

Senior management can review any disputed claims if breaches in certain limits or rules occur within the chain.

Collect data properly 

A widespread problem with employee expense claims is that not all the necessary information gets captured correctly to prove claim validity. 

The latest systems safely and securely store information on the cloud. Staff can quickly take pictures of receipts or invoices, so they do not have to get manually processed or stored. 

Publish analysis of the data

Some expense claims may look ridiculous or excessive. If you publish specific data, claimants might see more sensible claims and allow you to reinforce rules surrounding expenses. 

Transparency of expenditure when pursuing a new client or managing existing ones can help senior management see the cost of client acquisition or retention. 

Businesses without automated expense software should explore the options available to help them save time and money and reduce the strain of managing expenses manually.

Are you implementing an expenses management system? Or need advice on claiming business expenses? Arrange a free consultation with our team.

Don’t ignore the signs that your business is struggling.

Losing a business is incredibly stressful, both for you and any employees who may lose their jobs. You have worked too long and too hard getting your business set up and putting your heart and soul into making it a success. 

Equally, if you have a customer who owes you money, you may want to take more immediate action if it looks like they may be in distress.

So, how do you avoid getting into difficulties and spot the signs of business failure? And begin firefighting potential problems?

Here are several warning signs that a firm is struggling:

Problems with cash flow

They say that money isn’t everything, but poor cash flow is a problem in business and is often a clear indication that trouble is afoot.

You can identify cash flow issues with proper forecasting, highlighting the cash shortage problem areas or overspending.

Excessive debts

With interest rates creeping up after more than a decade of historically low rates, having too much debt may put your company at risk.

If you seek additional funding and lenders require stronger personal guarantees or security against a loan, take this as an indication that your own business is in trouble. 

If your customers regularly pay late, this could indicate that they may struggle to manage their own money and have debt issues. 

Defaulting on bills

We all have heard or used the phrase “you will get paid by the end of the month” to overcome short term money shortages.

However, if this is a regular occurrence, it might suggest that a business struggles to pay its way.

When it comes to your finances, defaults on tax payments, or other formal payment arrangements, can be particularly damaging and lead to penalties.

It could also negatively impact your reputation and your business if it becomes clear you are struggling to make payments efficiently.

Chasing payments

Many businesses are reluctant to chase payment as they do not want to damage customer relationships or reduce the prospect of future work.

However, regularly allowing late payments can affect your finances and prevent your suppliers from being paid.

Do you have issues with dealing with late payments? Seek professional advice to improve your credit control processes. If necessary, eliminate late-paying customers from your business. 

Taking control over how you chase payments can help monitor future cash flow problems. 

If you see sudden changes in your cash flow, you should investigate whether they are signs of something more serious. 

Falling margins

Profit is key to the survival and growth of your business. Falling margins suggest costs are too high, and prices or income are too low, which is not a sustainable position for any company. 

Cutting services or product lines, operational changes, redundancies, or a decrease in the quality of goods are all indications that a business is struggling. 

Low morale

Reduced hours, contractual changes and pay freezes are all signs of business trouble. Although these indications may not mean the end of the business, they highlight money troubles. 

Are you encountering signs that your business is in trouble? If you are concerned about your financial health, arrange a free credit control review or speak to our team for tailored advice.