Year end tax planning

 

When it comes to tax, it pays to be organised, and it is important to be aware of the transition from the 2019/20 tax year to 2020/21 on 5 April 2020. Here are some key tax planning opportunities to be aware of. Some of these opportunities will be lost if not used before the tax year end of 5 April.

 
 
Capital Gains tax changes

From 6 April 2020 new Capital Gains tax rules will take affect regarding the sale and possible gifts of residential properties. The persons most likely to be affected by the changes will be:

• Buy to let landlords
• Owners of a second home / holiday home
• Owners who have not always lived in the property
• Divorcing couples

Sale of property – If you are in the process of selling a house which you lived in at some stage and you are now renting out, take steps to ensure the sale is completed before 5 April 2020. Changes re lettings relief and PPR relief could mean your tax liability is much higher if the sale is completed after 5 April 2020.

CGT payment window – If your sale of residential rental property is completed before 5 April 2020, you don’t have to pay any CGT liability until 31 January 2021. However, if your sale completes after 5 April 2020, you will have to pay any CGT liability and file a return within 30 days of the completion date.

Annual exemption – The CGT annual exemption amount for 19/20 is £12,000. This means you can generate capital gains of up to £12,000 from investments tax free. This allowance is per individual and is on a use it or lose it basis.

Reduce your taxable income

High earners could reduce their taxable income by making pension contributions (up to £40,000 for everyone earning under £150,000) and charitable donations. This could help you:

• Regain your tax free personal allowance which starts to be withdrawn for incomes over £100,000.
• Avoid losing child benefit which is gradually removed if one parent earns more than £50,000.

Gifting Allowance

You can give away up to £3,000 each tax year Inheritance Tax (IHT) free.
• You can also make use of any unused part of your gifting allowance from 2018/19 in the current year.
• Using this year and last year’s allowance, a couple could potentially remove £12,000 from their estate before 5 April 2020 without any IHT implications.

Annual Investment Allowance – For sole traders, partnerships and limited companies, the Annual Investment Allowance (AIA) of £1million is available as a potential 100% deduction against your taxable profits for 19/20. This relates to qualifying capital expenditure on long-term business assets (plant & machinery, fixtures and fittings, excluding motor cars.) You may wish to consider accelerating any planned capital investments before the end of the tax year to potentially reduce your taxable profits.

You may have been one of the more than 700,000 individuals who submitted their 2018/19 tax return on the recent deadline day of 31 January 2020. If you found the process of finalising your 2018/19 tax return stressful, this is a good time to get more organised before the end of the 2019/20 tax year. Implementing good record-keeping systems that are updated regularly has the potential to transform your business. This will allow both you and your accountant to reduce the last-minute stress of complying with tax deadlines, and instead concentrate on adding value to your business in the most tax-efficient ways.

 
Eoin McAteer

 

http://www.abacni.co.uk/category/articles/ 

Business Succession

 
Family businesses are the most prevalent form of business system globally. As the family business structure dominates the global economic map, their economic impact is enormous. In the UK, family owned businesses make up two thirds of the economic landscape – a vital component of the economy. They employ millions of people, generate more than a quarter of the UK’s annual GDP, and contributing over 20% of its total tax revenues each year.
 
 
Even for the most successful entrepreneurs, one key decision poses a complex challenge and that’s the question of succession. Successful succession seriously addresses the question of continuity and how to pass on the business in better shape than it was inherited. Generational succession in the family business has become increasingly complex, both from a legal and financial perspective. Family firms survive from one generation to the next by taking a long-term, sustainable and structured outlook. They must respect and utilise the experience of those who have built the business, while adapting to stay relevant to the modern, constantly-shifting world.

As families grow and change, so does their relationship with the business. That’s why setting up plans and processes for the family’s involvement with the business is key. You may think it’s too early or complicated to have formal structures in place, but it can help you avoid conflict in the future.

What makes planning more complex in the case of the family business is the overlap between family and business. The many practical business sides to successful succession include tax implications, assets transfers, family trusts, buy-sell agreements and wealth management. These business issues, whilst complex, are often more easily addressed than the family issues of communication, differing expectations, family values, individual competencies and family dynamics. Seeking guidance from your accountant at an early stage can help provide clarity on some of the more complex issues, as would engaging a solicitor for legal advice. A family constitution could be a useful formal document of the succession planning process, which can be adapted as needed.

Very often the key issue to be considered in succession concerns the suitability of any particular family member to take over the business. Do they have the skills, experience or even interest? Research shows that succession is successful when there are clear and consistent succession intentions communicated and documented between family members.

Developing a family forum to deal with any potential conflict through training, education and mentoring could help the family business survive and thrive. This would be a prudent step and something that should be not just a one-off event but possibly set up as an annual or biannual meeting. There would also be benefits in including not just those family members involved in the business, but also other key management personnel. Family members who are not currently involved in the business may also bring a valuable alternative perspective.

Having a clear and transparent plan for the future ensures successful succession where all members of the family are aware of the role they’ll play in the future, be it inside or outside the family business. The view of succession as something that happens when a business founder makes the decision to retire is the source of many of the problems outlined above. If it is viewed as a key part of planning throughout the life of the business, the business and family bonds will stand a much better chance of thriving and enduring.

 
Eoin McAteer

 

http://www.abacni.co.uk/category/articles/ 

Brexit Day – What This Means For Your Business

 

Brexit is finally upon us. This historic event has loomed over the UK since its controversial introduction in 2015.

The UK will no longer be represented in EU institutions from 11pm GMT tonight and Northern Ireland’s three MEPs will no longer sit in the European Parliament, therefore essentially “Brexit is done”.

BREXIT TIMELINE

Brexit Day: Friday 31st January 2020
Deadline for Transition Period Extension: Tuesday 30th June 2020
Transition Period End: Thursday 31st December 2020

WHAT HAPPENS ON THE 1ST FEBRUARY 2020?

Britain now faces an 11 month “Transition Period” whereby the UK will continue to follow EU rules, maintain all current laws and contribute to the EU budget until their future trading relationship has been negotiated and recognised.

However, if no such deal has been agreed upon the UK will still leave the EU without a trade deal on the 31st December 2020, until then it is business as usual.

CHANGES FOR NORTHERN IRELAND?

After the transition period, Northern Ireland will be outside the EU while the Republic of Ireland will remain inside despite their connecting border. To ensure no hard border exists, Northern Ireland will continue to follow EU rules on VAT regulations and continue to enforce the EU’s customs codes at its ports on any applicable imported/exported goods, while the rest of the UK could follow a separate regime to both VAT and custom codes if they decide to do so.

This agreement leaves Northern Ireland essentially inside the single market, while joining the rest of the UK outside the EU, which creates a ‘special economic zone’ within Northern Ireland. Northern Ireland could act as somewhat of a duty-free footing into the EU, which will prove beneficial to NI businesses trading within ROI and the rest of the EU.

When there will legally be a customs border between Northern Ireland and Ireland after 31st December 2020, there will be no physical checks at that border to ensure no hard border exists straight after the transition period or in future years to come. Where the actual checks will take place will be on the new “Irish Sea Border” as stipulated in the Northern Ireland Protocol, within the agreed Withdrawal Bill. Any entry points for goods being transported between Northern Ireland and the UK Mainland could be subjected to administrative checks, customs paperwork and customs duty and taxes.

Taxes will only have to be paid on goods being moved from Great Britain to Northern Ireland and vice versa if the products are deemed “at risk” of then being transported into the Republic of Ireland.

A joint committee has been appointed and is made up of both UK and EU representatives and they will have the task of making an agreement during the transition period after 31st January 2020 what goods are considered “at risk”. If these newly introduced tariffs are paid on “at risk” goods that do not end up being sent on from Northern Ireland into the EU through ROI, the UK would then be responsible for whether to refund the money to the customer, depending on what is agreed during the transition period.

Northern Irish businesses are most likely going to be required to fill out exit declaration forms, which are forms for every item they ship into Great Britain and similarly Great Britain companies shipping into Northern Ireland. Despite the controversy surrounding the commercial “Irish Sea Border”, the Prime Minister has confirmed that he will personally see to it that the United Kingdom will continue to ensure the same unrestricted access for Northern Ireland’s businesses to the whole of the United Kingdom’s market.

Whilst the Withdrawal Agreement sets out how the UK will exit the EU, the practicalities of what this might entail has yet to be negotiated in the coming months. This could also prove to be a challenge due to the minimal time to negotiate the UK’s entire withdrawal from the EU.
If a deal has been reached, the UK will begin to operate under the new agreed terms from 1st January 2021.

HOW YOU CAN PREPARE:

As details surrounding UK trade post Brexit still remains ominous and unclear, there are various ways you can help ensure your business has a clear Brexit strategy for any potential problematic outcomes.

GENERAL

• Establish a Brexit planning function within the business to formulate, implement and review Brexit related strategy.

IMPORT/EXPORT

• Have a valid EORI number.
• Identify whether customs administration will be handled internally or by an external agent.
• If externally, potentially make contact with external agents to investigate pricing and register interest as demand is likely to be high.
• If internally, identify whether existing IT facilities/software within your company will be sufficient to process customs declarations or whether your company needs to invest in new systems to process declarations internally.
• Identify whether there is necessary capacity/skillset within your business to process customs administration or whether your company may need to invest in retraining existing staff or look at potentially recruiting.
• Review existing NI imports and relevant commodity codes to establish potential import tariffs.
• Review your current supply chain to assess alternative supply chains.
• Look at potentially establishing an Ireland premise to facilitate ROI projects.

BORDER DELAYS/ISSUE

• Look at potentially stockpiling supplies in advance of Brexit to avoid any shortages or price rises in immediate term.
• Build in potential lag time in the construction process to account for potential customs clearance delays to ensure production deadlines are not impacted.
• Potentially re-examine the terms and conditions of any existing customer contracts or sales agreements to ensure your company is protected in the case of any unforeseen delay resulting from Brexit.

CURRENCY FLUCTUATION

• Monitor currency fluctuation and their currency holdings continually to ensure you maintain the right mix depending on market conditions.

SCENARIO ANALYSIS

• Monitor both NI and UK sales figures to ensure your company is able to react to any potential downturn in sales.
• Monitor costs increases to ensure your company can make adjustments in real time to adjust for any potential loss.
• Analyse whether it would be possible to implement price rises without affecting sales.

If you have any questions or would like specific and specialised advice to help make your business take the necessary proactive steps to thrive, please contact one of our Brexit specialists.

 

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Self-Assessment Deadline

It’s that time of year again! There is now just over one week left to file your personal tax return with HMRC for the 2018/19 tax year. If you miss the 31st January deadline then you will automatically be issued with a £100 penalty regardless of whether there is any tax due or not. Be aware that this penalty will increase if your tax return is more than three months late.

It is not only individuals that have been issued with a Notice to File a Tax Return that have to be concerned with filing a tax return. You may also have to file a tax return if you fall within any of the following categories; if you were self-employed, a partner in a business, a company director, a minister of religion, a trustee or an executor of an estate, if were in receipt of untaxed income of more than £2,500 from the rental of a property or from savings and investments, if you had income from outside the UK, if you lived abroad and had UK income, if you had savings and investment income of at least £10,000 (before tax), if your income was over £50,000 and you were in receipt of Child Benefit, or if your annual income was more than £100,000.

Also, if you sold an asset during 2018/19 and it made a gain of more than the annual exemption (£11,700) or the total proceeds were more than £46,800 then you may also have to report this in the Self-Assessment Tax Return.

If any of these categories apply to you or if you are not entirely sure then it is advisable that you speak to an accountant.

Any tax liability due for 2018/19 is also to be paid to HMRC by 31st January 2020, but if you have already made payments on account towards 2018/19 then it is the balancing amount that is due to HMRC. You may also have to make a payment on account towards 2019/20 unless your tax liability is less than £1,000 or you have already paid more than 80% of your tax due. If you fail to make this payment by 31st January then you will incur interest on any late payment, with a 5% penalty if the payment is more than 30 days late. You may incur more interest and penalties the longer the tax liability remains unpaid.

There are a number of different methods to pay your tax bill, you can post a cheque direct to them making the cheque payable to HMRC followed by your UTR Number (allowing 3 working days for the cheque to clear). If you have a paying in slip from HMRC then you can take this, along with the payment, to your nearest bank or building society. You can also pay online with either a debit card or by making a bank transfer (using Faster Payments, CHAPs or Bacs).

In order to avoid any unnecessary penalties and interest arising it is best to get all your information gathered together and get your tax return filed, and any liabilities paid, on time.

Kerry Donaghy

 

http://www.abacni.co.uk/category/articles/

 

Failing to Plan is Planning to Fail


The New Year is a perfect time to take a step back and assess what has worked in your business in 2019 and to make plans for the year ahead. Writing a good plan can’t guarantee success, but it can go a long way towards reducing the risk of failure.

We all know the well-known proverb “failing to plan is planning to fail”, yet it is very easy for business owners to get consumed almost entirely with the day to day running of the business and this results in crisis management. Planning is vital if you want a healthy, growing business. A strategic business plan lets you take stock of what worked and what didn’t work in 2019, and helps you set new directions or adjust old goals/targets. So why do it just once a year? Set aside time each month or quarter to review, adjust, and look forward. Not only will this help you avoid costly mistakes and stay on track, but you’ll feel more focused and relaxed.

So what’s stopping you from making a plan? The idea of writing a strategic plan for your business can seem quite daunting but at its simplest it is really only having an idea about what you would like your business to achieve over the next year and how you are going to get there. The first step to creating your plan is to think about what position you want your business to be in a year from now, what sales targets do you need to set yourself, what financial position do you want to be in this time next year? Maybe you want to take more time off work, does this mean you need to recruit more staff or delegate better?

When setting goals and financial targets it is important to be realistic but to also stretch what you think you might be able to achieve and challenge yourself. Breaking goals into small actionable steps and assigning realistic time frames to each, can make goals seem less daunting and more achievable. It also enables you to work out what you need to do week by week, day by day to achieve your goals. Regular weekly or monthly benchmarks are a great way to keep you on track and to evaluate what’s working and what isn’t, allowing you to make the adjustments required to your twelve-month plan.

And finally, the secret of achieving your goals is to write them down in a well-defined and clear manner. According to a study on goal setting, people who write down their goals are more likely to achieve them than those who don’t. A group of Harvard students who were about to graduate, were asked to set goals for themselves. Some didn’t set goals, some did without writing them down and only 3 percent in the group wrote down their goals. After many years this same group of students were interviewed. Those who set goals but never wrote them down were earning twice as much as those who never set any goals, and the 3 percent who set goals and wrote them down, were earning 10 times as much as those who set goals but never wrote them down.

So who doesn’t want to be in the 3 percent that achieved considerably more? Now is the time to grab a pen and make a plan for 2020 to begin making this a successful year for you and your business.

Vicki Platt

 

http://www.abacni.co.uk/category/articles/