If you choose to take money out of the business in a way that isn’t accounted for by one of these options, then it will be recorded through a director’s loan account (DLA).

Essentially, you are borrowing money from your own company.

While this can be a simple way of accessing high levels of capital when you need it, there are tax implications which you’ll need to consider.

Failing to do so could result in major penalties, as in the recent case of HM Revenue & Customs (HMRC) and David Kingsmill Plumpton, Director of Botleigh Grange Hotel, Southampton.

Although HMRC was forced to reduce the £90,000 penalty, Mr Plumpton still faced a £200,000 bill and £30,000 fine for improperly filling out Income Tax Self-Assessment (ITSA) when he received the funds.

So, how do you avoid getting in trouble with HMRC? Let’s investigate.

Income Tax

You generally don’t have to pay Income Tax on director’s loans as the tax liability sits with your business.

However, if the loan is ‘written off’ or ‘released’, i.e. it is not repaid, then you must report it via ITSA and pay Income Tax on the loan.

Your company must also deduct Class 1 National Insurance (NI) through its payroll.

Director’s loans as benefits in kind (BIKs)

If a director’s loan is £10,000 or over and free from interest, HMRC will consider it to be a benefit in kind (BIK) – a benefit which an employee or director receives which is not included in their salary, typically provided to the individual at low or no cost.

For a loan of this size, you will need to report it via ITSA.

Your company will also need to deduct Class 1 NI Contributions.

Corporation Tax

Some director’s loans create a Corporation Tax liability, reported to HMRC by form CT600A.

This occurs if a loan or advance has been made to the Director or shareholder from a close company.

A close company must be resident in the UK and controlled by either:

• Five or fewer participators (shareholders or any other person(s) who have shares or an interest in the company capital or income); or
• Any number of directors who are also shareholders.

Under Section 455 CTA 2010, a loan to a close company is subject to Corporation Tax. Therefore, the company, rather than the participator is liable for the tax on the loan.

You should try to repay the loan within nine months of the end of your business’ accounting period (AP) to avoid additional tax on the loan.

If you do this, then your company will pay Corporation Tax according to the following:

• A loan of more than £5,000 (and another loan of £5,000 or more was taken out up to 30 days before or after the original loan was repaid) – Corporation Tax is due at 33.75 per cent.
• If the loan was more than £15,000 (and another loan was arranged upon repayment) – Corporation Tax is due at 33.75 per cent.

If you don’t repay your loan within the given period, then your company will pay Corporation Tax on the outstanding amount at 33.75 per cent, as shown on the Company Tax Return.

After the loan is repaid, your company can reclaim Corporation Tax.

Exception to Section 455

An exception exists for directors and employees of the company or its associated companies when:

• The individual is employed full-time by the company or its associated companies;
• The loan or advance does not exceed £15,000; and
• The individual holds no material interest in the company (i.e. no more than five per cent of the ordinary share capital, or five per cent of the company’s assets).

Record-keeping and planning

Director’s loans come under the purview of financial management and compliance.

For this reason, you must keep detailed records of any money which you have withdrawn from the business or paid into it, as well as any tax you have paid and details of any written-off loans.

This can help you avoid non-compliance with tax regulations and support you if HMRC asks you for more information.

For further advice on director’s loans and financial planning, please contact our team.

The post Have you included director’s loans in your tax planning? appeared first on Grunberg & Co.

Establishing which category your property falls into can help you find out the specifics of your tax obligations.

What type of property do you own?

Defining if your property is a furnished residential let is simple.

If your residential property is either partially or fully furnished at the time that it was let out, then it is a furnished residential let.

However, defining your property as a FHL is more complex. For your property to be an FHL, it must be:

• Furnished sufficiently for normal occupation
• In the UK or European Economic Area (EEA)
• Let to make a profit
• Available for letting as an FHL at least 210 days out of the year
• Let commercially for at least 105 days a year
• Long-term lets over 31 continuous days don’t exceed 155 days of the year.

Whichever property type yours falls into, you must understand your tax obligations and available reliefs.

Furnished residential lets

There are limited tax reliefs available for furnished residential lets. Since 6 April 2020, Income Tax relief has been limited to the basic rate of Income Tax. They are also limited to the lowest mortgage interest, furnished let income, or your adjusted total income.

You may want to consider offering your property unfurnished, as there is no longer a ‘wear and tear allowance’ for landlords to deduct from their taxable earnings.

There is the ‘replacement of domestic items relief’, which allows you to claim certain items as expenses, as well as disposing of the old item.

Furnished Holiday Lets

Currently, FHL owners can enjoy significant tax benefits. However, the Furnished Holiday Let allowance is set to be abolished in April 2025, meaning that there will be fewer tax benefits for landlords.

Under the current regulations, FHL owners can benefit from:

• Claiming up to £1 million of capital expenditure under the Annual Investment Allowance (AIA)
• Costs such as mortgage interest are fully deductible from rental income, lowering your taxable income
• Business Asset Disposal Relief can replace GCT if their operations are classed as a business
• Earnings from FHLs are considered earned, so are eligible for relief at the owner’s highest rate of Income Tax.

Unfortunately, FHLs will likely come under the same rules as residential holiday lets from next year. This means that there will be less tax benefits to owning a FHL instead of a residential rental property.

If you need advice with your property taxes, our team are here to help.

Get in touch today to discuss tax relief for your rental properties.

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Getting prepared early on is something we always advise clients to do, and this proactive approach helps you to manage your financial obligations well before the January rush.

Do you need to file a Self Assessment tax return?

If you’re unsure whether you need to file a return, checking as soon as possible is essential to ensure you are prepared for the filing deadline.

As outlined by HMRC, you must file a tax return for the 2023/24 tax year by 31 January 2025 if you met any of the following criteria:

• You earned more than £1,000 through being self-employed
• You were a partner in a business partnership
• Your taxable income was above £150,000
• Capital Gains Tax was due on the sale of an asset
• You paid the High Income Child Benefit Charge

There are other situations where you may need to file a tax return, such as if you are a landlord or earned any untaxed income during the tax year.

If you are required to submit a tax return for the first time, you must register for Self Assessment by 5 October 2024.

In the case you are filing a paper return, it’s important to note you must do this before 31 October 2024. You should prepare for the shift to Making Tax Digital for Income Tax Self Assessment (ITSA), which will be implemented from April 2026.

This forms part of the move to digitise the tax system, with sole traders and landlords earning above £50,000 being required to file their tax returns using MTD-compliant software from April 2026. This will extend to those earning above £30,000 from April 2027.

You may be able to voluntarily register for MTD for ITSA early – you can check if you are eligible here.

Why should you file early?

The first day of the tax year, 6 April, saw a substantial number of filings, with nearly 70,000 people submitting their returns.

Filing early offers numerous advantages. It allows more time to ensure your return is accurate and complete, potentially avoiding common errors associated with rushed submissions.

If you’d rather take the pressure off yourself, our tax team can prepare and file your tax return for you, providing the peace of mind that you are fulfilling your tax obligations on time.

Preparing your tax return early with the support of an accountant can also help with budgeting, by providing early insight into any tax owed or refunds due.

To aid in managing finances, HMRC offers the option to set up a budget payment plan, allowing taxpayers to make incremental payments towards their next tax bill through direct debits.

Refunds on overpaid tax are processed sooner for early filers, and the status of these can be checked using the HMRC app.

As the year progresses, taxpayers are encouraged to take advantage of these options, ensuring a smoother and more efficient tax filing experience.

If you would like assistance with filing your Self Assessments or require specific advice, please contact us today.

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Those in this band do not automatically need to send a Self-Assessment tax return for the 2023/24 financial year if they meet the following criteria:

• They are taxed through Pay-As-You-Earn (PAYE)
• They submitted a 2022/23 tax return showing income within the stated band
• They have no other income
• They do not meet any other criteria for requiring Self-Assessment, such as being self-employed and earning over £1,000 from self-employment
• They do not pay the High Income Child Benefit Charge (HICBC)
• They are not a partner in a registered business partnership
• They do not receive any untaxed income over £2,500.

Net adjusted income refers to total taxable income before your Personal Allowance is applied, but after certain reliefs, such as charitable donations via Gift Aid.

Anyone earning between £100,000 and £150,000 annually who does not meet all these criteria will need to submit a Self-Assessment return for the previous financial year as normal.

If you need to send a return for the 2023/24 financial year, you must register by 5 October 2024 and submit it by 31 January 2025.

Are further changes coming?

2023/24 was a transition year towards completely removing the requirement for PAYE-only taxpayers to submit a Self-Assessment return.

In the most recent financial year, those earning over £150,000 per annum were still required to submit a return, despite paying tax through PAYE only.

For the 2024/25 financial year onward, this requirement has been removed entirely.

Those that need to submit a Self-Assessment return for 2023/24 should remember that the Personal Allowance decreases by £1 for every £2 that you earn over £100,000 – effectively removing the Personal Allowance for incomes of £125,140 or more.

For advice on Self-Assessment and optimising your personal taxes, please contact our team.

The post Tax return shake-up for earners from £100,000 to £150,000 appeared first on Grunberg & Co.

Whilst busy periods can inspire both excitement and dread for many business owners, ensuring that you are prepared can help you cope with the rush.

Stay organised

One of the best things you can do for your seasonal business is to stay organised. This can help streamline your business and ensure that nothing is getting in the way of your workflow.

Staying on top of your tools, equipment, and workspace can not only ensure that work can be carried out more efficiently but also help to avoid employees getting injured.

You should also ensure that your staff are organised. This should include ensuring that all employees are fully trained and understand their responsibilities within the company. When this is done correctly, it will allow you to delegate tasks that can free your time for more pressing matters.

Prepare in advance

As part of staying organised, it is important to prepare in advance for your busy periods.

Leaving tasks to the last minute can jeopardise your business’s chance of success. Getting everything together with time to spare can ensure that you are ready to take on the rush.

Preparations should include:

• Purchasing stock
• Hiring seasonal staff
• Repairing tools and equipment in advance
• Refreshing anything that may be outdated
• Preparing marketing campaigns to draw in customers
• Updating your business plan

By doing this, you can ensure that your business is prepared to maximise profits when the rush comes.

Managing your cash flow

As your business heads into the busy season, it may be tempting to put your profits to good use immediately. However, when it comes to seasonal business, managing your cash flow is key.

For example, spending money on supplies should be done strategically for future increases in demand. Buying stock and supplies towards the end of the busy period could see your products and services going to waste, and profits being lost.

Hiring an accountant can help manage your cash flow more effectively. They will be able to provide insightful advice on your seasonal business, whilst providing guidance on your business plans and strategy.

If you would like further guidance on your seasonal business, get in touch with our team today.

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The updated regulations came into force on 5 April 2024 in the hopes of improved prompt payment practices for businesses across the country.

Background of the payment practices reporting regime

Introduced originally in 2017, the Payment Practices Reporting Regime was designed to enhance transparency in how large businesses handle their payments to suppliers, aiming to encourage a culture shift towards prompt payment.

The regime requires large companies and limited liability partnerships (LLPs) to report biannually on various aspects of their payment practices and performance, including average payment times and the percentage of invoices settled within agreed terms.

These reports are made publicly available on a Government-hosted website, providing valuable insights for small businesses and enhancing market transparency.

What’s new in the 2024 regulations?

The 2024 Regulations have not only extended the duration of these reporting requirements until 6 April 2031 but have also introduced several significant updates to the reporting process.

Businesses must now report on the proportion of invoices that are disputed and subsequently result in late payments beyond the agreed terms.

There is a new requirement to report the total value of payments made within a 30-day period, as well as the total value of payments not made within the payment period.

The amendments provide clarity on how to report payments when third-party supply chain finance providers are involved, ensuring that all aspects of payment processes are transparent.

Increased longevity and continued review

With the regime now extended to 2031, and a scheduled review by 2029, the Government has committed to ongoing evaluation and improvement of the payment practices landscape.

Why this matters

For small businesses, late payments can restrict cash flow, limit growth opportunities, and in severe cases, risk business viability.

By forcing larger businesses to maintain transparency about their payment practices, the regime aims to empower small businesses to make informed decisions about who they do business with based on these companies’ track records.

Implications for large businesses

Large organisations need to be vigilant in their compliance with these updated regulations. This involves not only following the detailed reporting requirements but also actively managing payment processes to avoid damage to reputation.

Ensuring accuracy in these reports is crucial, as discrepancies can lead to legal consequences and damage to business relationships.

Looking ahead

The Government is set to release updated guidance for businesses covered by these regulations, which will provide further details on complying with the new requirements.

Contact us today to discuss how we can support your business in adapting to these new regulatory requirements.

The post UK payment practices regime updated – what does this mean for your business? appeared first on Grunberg & Co.

Understanding the Salaried Member legislation

The Salaried Member legislation essentially treats LLP members as employees for tax purposes if they fail to satisfy certain conditions.

These conditions, known as Condition A, Condition B, and Condition C, serve as benchmarks to determine the tax status of LLP members.

The conditions

• Condition A – Disguised salary. This condition examines whether at least 80 per cent of a member’s profit share resembles a fixed salary rather than a variable share linked to the overall profits of the LLP.
• Condition B – Significant influence. This evaluates whether the member’s rights and duties within the LLP present significant influence over its affairs.
• Condition C – Capital contribution. This condition assesses whether the member’s capital contribution to the LLP falls below 25 per cent of their expected disguised salary.

The focus of the recent amendments revolves around Condition C, particularly concerning a member’s capital contribution and its implications for tax treatment.

What’s changed?

HMRC’s updated guidance sheds light on how they interpret the legislation, although the legislation itself remains unchanged.

Notably, HMRC has emphasised its stance on Condition C and its application, especially in light of the Targeted Anti Avoidance Rule (TAAR).

The TAAR aims to disregard any arrangements designed to avoid the application of the salaried members rules.

While the original guidance implied that HMRC would only invoke the TAAR in extreme cases, the recent changes suggest a more vigilant approach, particularly regarding Condition C.

Previously, HMRC had advised that a genuine, enduring capital contribution with real risk would not trigger the TAAR.

However, the advice now includes a clause specifying that financing arrangements aimed at avoiding the salaried members rules may indeed trigger the TAAR.

In light of these amendments, LLPs and their members must be wary when structuring capital contributions and arrangements.

It is important to ensure that capital contributions are genuine, enduring, and not solely aimed at avoiding tax obligations.

Are you affected by these changes?

If your LLP or its members are grappling with the implications of HMRC’s updated guidance, then we are here to help.

Our team of experienced accountants specialises in navigating complex tax regulations and can provide tailored solutions to ensure compliance and mitigate risks.

Don’t let uncertainty about tax regulations impact your business. Contact us today for expert advice and personalised assistance.

The post HMRC’s guidance update for salaried LLP members’ capital contributions appeared first on Grunberg & Co.

While ‘growth’ refers to the revenue and resources increasing at the same rate, ‘scaling’ refers to the process of identifying ways to grow more quickly and efficiently. 

By taking the initiative and scaling your business, you can ensure that your business grows at a more sustainable rate. 

Pitfalls of scaling 

Whilst scaling can be an effective tool for ensuring the growth of your business, it is important to acknowledge issues you could run into before you start planning. 

Common errors that businesses experience include: 

• Scaling too fast 
• Prioritising short-term instead of long-term goals 
• Losing focus 
• Hiring for quantity over quality 
• Overlooking processes and systems 

These common pitfalls can be easily avoided with strategic planning and the help of an accountant. 

Planning for profit 

If your business is looking to scale, one of your top priorities will be to increase sales and profits. 

Your initial instinct may be to attract new customers, but it may often be more cost-effective to build relationships with your current client base. This can not only help to retain customers but also make them more receptive to any price increases you may need to implement. 

To ensure that you are scaling your business rather than growing, it is best to increase your profits without taking on extra resources. 

Some tactics include:  

• Targeting a narrow market 
• Gaining a better understanding of your customers
• Addressing feedback both positive and negative 
• Building a skilled but not necessarily large team 
• Develop a marketing plan 
• Refine your message 

Structuring your team 

When it comes to scaling up, ensuring that you have the best staff on hand is vital. Qualified and experienced staff may require more pay, but they will also be able to take on more job responsibilities than someone who would accept less pay. 

To ensure that your team are right for your business, you should identify key hard and soft skills that you are looking for. 

These can include their customer service skills and qualifications that they may have. 

You should also consider if employees will fit into your long-term business goals, and if they are capable of driving growth forward. 

Investing wisely 

Part of scaling is about limiting resources where possible. 

Putting your profits back into your business should be considered carefully and strategically, with investment only going into areas that will increase efficiency. 

One example of this could be to invest in technology that streamlines your processes. There is software available that can help you to onboard both staff and clients, even improving your relationships with both. 

Another key component you can lean on technology for is keeping on top of your finances. Accountancy software can simplify the way that you access your business accounts, as well as open opportunities to automate repetitive processes. 

An accountant can help you to set up and maintain your online accounts, and even help you to ensure that you are staying compliant. 

Accountants are also a great investment, as they can provide data-driven business advice that can help drive the scaling of your start-up. 

Get in touch with our team today to find out how we can help. 

The post Ready for growth? Tips for scaling your start-up appeared first on Grunberg & Co.

According to HMRC, travel from an employee’s home to their main office is not eligible for tax relief.

As the adoption of hybrid working models increases among office-based employees, there has been a significant discourse around whether trips to the office should be considered as ‘journeys in the performance of the duties of employment’.

Typically, travel expenses that are necessary for performing one’s job are eligible for tax relief.

However, HMRC maintains that commuting to and from the workplace, unless it is a temporary place of work, does not qualify for tax relief.

The rationale provided is that choosing to live at a particular location is a personal decision, and thus the costs associated with commuting from home to work are deemed personal expenses, not essential job requirements.

Nevertheless, HMRC has specified that if an employee performs substantial duties from home, as often seen in predominantly remote contracts, they may be entitled to tax relief for travel costs to the office.

This applies if such travel is necessary for the performance of their duties or is stipulated by their contract.

For those eligible, tax relief can be claimed at the following rates:

• 45p for cars and vans for the first ten thousand miles in each tax year
• 25p for cars and vans for each mile over ten thousand miles
• 24p for motorcycles
• 20p for bicycles

HMRC also offers a convenient online tool to help determine if individuals can claim relief on expenses incurred while performing their duties.

For further guidance on claiming tax relief on work-related expenses and to check your eligibility, please consult our expert team today.

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They contain key financial information about a business to show its performance.

Whilst these are not mandatory, using Management Accounts can allow for better-informed decision-making and closer monitoring of progress towards goals and targets.

What should a Management Account include?

For many businesses, Management Accounts will include the same things. However, depending on the size and complexity of your company, they can be customised to include the information that you need.

In general, Management Accounts should include:

• Profit and loss report detailing your company’s revenue, costs, and profits
• Balance sheet showing your company’s assets, liabilities, and equity
• Cashflow statement and forecast showing your company’s cashflow throughout the accounting period
• Key performance indicators (KPIs) measuring your company’s performance, including sales growth, profitability, and feedback
• Budget comparison that highlights your company’s performance against its budget
• Analysis and commentary that sums up the above information and highlights any trends and issues that need addressing.

Who are Management Accounts for?

There are no specific recipients for your Management Accounts. They are designed to be seen by those who need financial information about your business, but this will vary depending on the size and structure of your business.

In short, Management Accounts can be seen by anyone who has a stake or interest in the finances of your business. This includes but is not limited to:

• Owners
• Shareholders
• Board members
• Senior management
• Accountants
• Tax advisors
• Investors

These people will then be able to make decisions based on the information that they are presented with.

Why are Management Accounts so important?

Regularly collating and analysing financial data in these reports is an excellent tool for ensuring the right decisions are being made for your business.

Without Management Accounts, issues and trends within your company may go unnoticed for long periods. This could lead to a lack of growth and poor decision-making.

Having up-to-date and correct information on hand can help promote the growth of your business. Good, data-driven decisions can help skyrocket your business above your competitors.

Preparing Management Accounts

When it comes to preparing Management Accounts, having an accountant on hand can help you to simplify the process.

They can help you to gather the relevant information and help you to prepare your:

• Balance sheet
• Profit and loss report
• A cashflow statement
• An analysis of financial data

From here, you can take your Management Accounts to the relevant parties and relay the information.

An accountant will also be able to offer practical business advice and support, identifying your market trends and influencing key decisions.

Get in touch today to find out how we can help you prepare Management Accounts.

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