2022/23 ready:

How businesses can start their year right

ONE | STORY

2022/23 ready: How businesses can start their year right

As always, the new tax year has come around fast, and brought with it a range of new requirements for businesses. This year, business owners must be ready to embrace new processes, examine their tax needs and prepare for rising costs.

Haines Watts tax experts Martin Gurney, Anoop Rehal and Ian Haynes have shared their best tips for making tax efficient.

Be proactive with your planning

With the beginning of the new tax year upon us, it is vital that business owners get ahead of the game with proactive tax planning. Martin Gurney explains: “Entering a new tax year can be daunting. By setting aside time earlier in the year you can really maximise the opportunities available to you. It’s important to review your affairs and take time to reflect on your needs now and in the future so you can ensure that you have the right long-term structures in place.”

When do you usually start your tax planning?

Months in advance - usually in the previous calendar year

In the final quarter of the existing financial year

A few weeks before the financial year end

When the new financial year comes!

Now that we have full sight of the tax changes announced in the Spring Statement, businesses can effectively plan and take advantage of opportunities for tax relief.

Martin continues: “While there are tax hikes in the next year, there are still a host of opportunities to review your current structures and save some money in 2022/23.”

By doing the necessary legwork as early as possible, companies can save themselves money and time later, according to Martin: “Speaking to your tax advisor early means that you can implement as many appropriate reliefs, allowances and exemptions as possible, rather than rushing to get everything done at the last minute. It might seem tedious but by maximising the opportunities available to you it can really add up.” Even if you tend to leave it later to start planning, knowing what relief is available ahead of time can put you on the right track."

Spend to save tax
The Personal Allowance was frozen at £12,570 in the March 2021 Budget and will remain at that level until the end of the 2025/26 tax year. Had it received the normal inflationary increase, the allowance for 2022/23 would have risen to £12,960. If your income falls above one of the tax thresholds, you might want to consider reducing your tax liability through tax-efficient spending. There are several ways you can do this such as: making pension contributions; tax-efficient investments; or Gift Aid charity donations.

Personal Allowance transfer
Where your spouse or civil partner does not use all of their Personal Allowance, consider

jointly electing to transfer an element to you (if you are a basic rate taxpayer) to reduce your family tax burden.

Maximising dividends
Dividends are taxed at a lower rate than other income. Director-shareholders can often influence the level of salary and dividends when deciding how that are rewarded by their company as a director and as a shareholder.

Inheritance Tax - get gifting now
Start the seven-year Potentially Exempt Transfer ‘clock’ running by gifting assets during your lifetime to minimise the IHT payable on your death.

Capital Gaines Tax - Losses
Capital losses must be offset against capital gains in the same year or carried forward to offset against future capital gains above the annual exemption. Careful timing of the disposals of assets which will realise losses can

reduce future Capital Gains Tax liabilities. Where losses arise, a formal claim is required and must be submitted to H M Revenue & Customs within four years of the end of the tax year of the loss.

Property - Buying new properties through a limited company
Buying new properties through a limited company (potentially combined with the use of a Family Investment Company), particularly where the intention is to build a long-term investment portfolio, can be tax efficient as it avoids the finance cost restriction and can have other benefits.

Tax relief - Patent Box election
If your business qualifies for the Patent Box regime, you must make an election within specific deadlines, generally two years from the end of the relevant accounting period. There is a raft of tax reliefs available specifically for the creative sector, which includes: films, animation, high end TV programmes, video games, theatres, orchestras, museums and gallery exhibitions. Qualifying conditions vary and you should therefore review in the context of your company’s activities.

Embrace a new digital era

Initially only impacting companies with a turnover of over £85,000, the new financial year will see HMRC’s Making Tax Digital initiative extended to all VAT-registered businesses in the UK. Businesses of all sizes will need to be prepared, says Ian Haynes: “SMEs need to be ready; they need to be aware that changes are coming to the way in which they may have to record and report information, and they need to know they will be affected."

“This process will be one of education both for advisors and clients, working together to ensure systems are in place that will allow compliance with MTD while creating as little disruption as possible.”

The introduction of digitisation need not be cause for alarm, with technology having the power to make accounting easier for business owners. Ian explains: “While the requirements of MTD may seem daunting, the use of new software or tech to harness and scrutinise the raw accounting data will prove beneficial, encouraging access to vital management information.” To be prepared ahead of the universal rollout of Making Tax Digital, SMEs should ensure that they can:

Use software to keep digital records so that HMRC can integrate this with their systems

Send quarterly income and expenses

Submit a yearly statement

Submit via an API link - which allows TaxCalc to request information held by HMRC and pull it into the SA100 Tax Return

Be prepared for rising costs

The National Minimum Wage and National Living Wage both increased on April 1, affecting businesses in most sectors across the UK. The move, while providing a boost to workers across the country, will have undoubtedly put additional strain on employers - especially those that have been significantly impacted by the pandemic. Anoop Rehal says: “For many start-ups and SMEs - particularly those in sectors that have been hardest hit by Covid such as the tourism, hospitality and leisure sector - the pressure on costs is already huge. For these employers, the increase in the National Minimum Wage not only means increased employee pay but also an increase in the associated cost of National Insurance and holiday pay.”

For Anoop, there are limited ways a business can offset this cost: “There is very little slack in these businesses to absorb a rising wage bill. Companies effectively have three options: they dip into their profits to fund the increase, they pass the cost onto customers, or they stop hiring and try to meet their needs with existing staff – which in turn creates a problem down the line around workplace stress.”

However, while it might seem as though smaller companies will bear the brunt of these rising costs, they often possess the agility to manage change. Anoop adds: “There are a lot of start-ups and early-stage SMEs that are thriving. Many of these owners accept that year-on-year wage costs are likely to increase. They have budgeted for this and can absorb the costs. More importantly, particularly in sectors like tech, these businesses choose to pay the National Living Wage which is higher than the National Minimum Wage so that they can attract the best talent.”

Although SME business owners are facing financial strain, the Chancellor announced light relief in the recent Spring Statement. In his announcement, Mr Sunak unveiled an increase to the Employment Allowance – a relief which enables smaller businesses to reduce their employers National Insurance contributions bills each year – from £4,000 to £5,000 starting from 6 April. This measure aims to partially offset the National Insurance hike, which has gone ahead as planned.

In addition to the relief from the government, there are a range of ways businesses of all sizes can cut costs in the face of rising wages, but it can be difficult to weigh up the benefits of each option. The simplest way for businesses to effectively manage the national wage increase is to ensure they have a strong understanding of their current financial position - this is where working with firms such as Haines Watts can help. Drawing on the knowledge and experience of experts is the most effective way for a business to examine their costs, debt and growth plans and seek the best solutions for their unique needs.