News
| 30-09-2024
The Chancellor of the Exchequer, Rachel Reeves, has pledged her support to the Invest in Women Taskforce, a new initiative aimed at increasing funding for female-founded businesses.
| 30-09-2024
HM Revenue and Customs (HMRC) has recently reminded people to check and make sure they are not missing out on valuable State
| 16-09-2024
On Monday, 9th September, the newly formed Labour Market Advisory Board, appointed by Work and Pensions Secretary Liz Kendall MP, had its first meeting.
| 16-09-2024
As HMRC intensifies its crackdown on National Minimum Wage (NMW) noncompliance, itâs vital to make sure you donât fall foul of NMW laws. Compliance can have
| 09-09-2024
Last week, Companies House confirmed that their online services will move to the GOV.UK One Login beginning from autumn 2024. The GOV.UK One Login
| 02-09-2024
Last month, the Home Secretary, Yvette Cooper, announced a significant government crackdown on employers
| 02-09-2024
The Prime Minister, Sir Keir Starmer, speaking from Downing Street last Tuesday, has said that the budget in October will be âpainfulâ and the government would be making âbig asksâ of the country.
| 02-09-2024
HM Revenue and Customs (HMRC) have issued a press release debunking some common myths about whether someone needs to register to complete a self-assessment tax return.
| 02-09-2024
Tax-efficient gift-giving is an essential aspect of estate planning that can significantly reduce your inheritance tax (IHT) liabilities while benefiting your loved ones. By carefully planning and utilising the available allowances and exemptions, you
| 02-09-2024
Research and development (R&D) tax credits are a crucial incentive designed to encourage businesses to innovate and invest in new technologies, processes and products. Yet, despite their significance, many businesses
| 20-08-2024
The latest annual update to Student Loan interest rates was made last week by the Department for Education.
| 14-08-2024
The first of the 2024 Sustainable Farming Incentive agreements for 2024 are now live. A tool is available that can help you find out about grants and funding that
| 14-08-2024
Last week, the Rural Payments Agency (RPA) announced that 98% of eligible farmers have now received their first instalment of the new delinked payments.
| 14-08-2024
The Bank of Englandâs decision to reduce the base rate to 5% means that HM Revenue & Customs (HMRC) will also reduce their interest rates. The interest rates charged by HM Revenue and
| 14-08-2024
Chancellor Rachel Reeves visited the US and Canada last week, and during an interview with Bloomberg was asked whether she was considering increasing capital gains tax. She replied: âWeâve got a budget on October 30 and we will set out our policy
| 06-08-2024
Draft legislation has now been published for the governmentâs plan to end the VAT exemption for private school fees.The government is also legislating to remove private schools from being eligible for business rates charitable rates relief.
| 06-08-2024
The previous government included plans to end non-domiciled tax status at the Spring Budget and replace it with a 4-year foreign income and gains (FIG) regime. The new government have now announced their intention to continue with these
| 06-08-2024
The government made changes last week to the remit for the Low Pay Commission (LPC) that will mean it takes the cost of living into account when recommending minimum wage rates. The LPC have also been instructed to narrow the gap
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The Chancellor of the Exchequer, Rachel Reeves, has pledged her support to the Invest in Women Taskforce, a new initiative aimed at increasing funding for female-founded businesses. The Taskforce aims to create a ÂŁ250 million investment pool, making it one of the largest of its kind worldwide.
This move follows the Rose Review, which highlighted a ÂŁ250 billion economic boost if women started and scaled businesses at the same rate as men. Despite women making up over half the UKâs population, they currently own only 21% of businesses.
Speaking about the initiative, the Chancellor commented that she doesnât take her responsibility to be able to use her position to improve life for women across the UK lightly. She said that her focus is on addressing the gender pay gap, strengthening workplace rights, and investing in childcare.
The announcement coincides with International Equal Pay Day and is part of broader efforts, such as the Investing in Women Code, to address the financial barriers female entrepreneurs face.
For women business owners or those looking to start, the Taskforce could lead to more opportunities for investment and growth, as the government seeks to encourage more equal representation in entrepreneurship.
See:
https://www.gov.uk/government/news/chancellor-everyone-can-do-something-for-womens-equalityHM Revenue and Customs (HMRC) has recently reminded people to check and make sure they are not missing out on valuable State Pension entitlements due to gaps in their National Insurance (NI) record.
The issue mainly affects parents, particularly women, who claimed Child Benefit before 2000. During that time, Home Responsibilities Protection (HRP) was designed to reduce the number of NI qualifying years needed to receive the full basic State Pension. However, if you didnât provide your NI number when claiming Child Benefit, your record may not reflect the HRP you were entitled to, potentially lowering the State Pension you will now receive.
Who should check?
If you claimed Child Benefit between 1978 and 2000, itâs worth checking if HRP was properly applied to your NI record, especially if you took time off work to raise a family. Although HMRC is writing to those affected, you donât need to wait for a letterâyou can check your NI record online or through the HMRC app.
If gaps are identified and you successfully claim HRP, your NI record will be corrected, and the Department for Work and Pensions (DWP) will recalculate your State Pension. This could result in higher payments or, in some cases, back payments.
How to check and claim
It takes about 15 minutes to check your record on GOV.UK. If you find any gaps, you can submit a claim online or by post. Thereâs no need to apply if you already receive the full State Pension or if your missing year is already counted as a qualifying year.
Why this matters
For those nearing, or at, State Pension age, these missing years could make a difference in retirement income. Taking a few minutes to check your records now could help ensure you receive the full pension youâve earned.
If you need any help, please feel free to give us a call and we would be happy to help you. Donât miss out on whatâs rightfully yours!
See: https://www.gov.uk/government/news/check-youre-not-missing-state-pension-payments
On Monday, 9th September, the newly formed Labour Market Advisory Board, appointed by Work and Pensions Secretary Liz Kendall MP, had its first meeting. This board is no ordinary groupâitâs a collective of experts drawn from business, industrial relations, and academia, all focused on tackling whatâs being called the “greatest employment challenge for a generation.”
Whatâs the big issue?
The UK is facing a significant employment crisis. Itâs the only G7 country whose employment and inactivity rates havenât bounced back to pre-pandemic levels. Nearly 2.8 million people are currently out of work due to long-term sickness, which not only affects individuals and families but also has a knock-on effect on businesses and the economy at large.
Whatâs the boardâs role?
The Labour Market Advisory Board is tasked with developing new ideas and initiative for the Work and Pensions Secretary to consider.
At the first meeting, the new approaches were discussed, including how to tackle the underlying problems that keep people out of the workforce, such as poor physical and mental health. The Board also looked at how to help the government achieve its ambitious goal of an 80 per cent employment rate.
What could this mean for businesses?
- Localised Approaches to Employment: There are hints that a White Paper to be published this autumn will show that the Secretary of State plans to devolve power to local areas, enabling them to tackle inactivity with tailored work, health, and skills plans. This could mean more localised support for businesses, with strategies designed to address specific regional challenges.
- Overhauled Jobcentres: Plans are in the works to merge jobcentres with the National Careers Service. This could lead to more streamlined services, helping businesses to find skilled workers more easily.
- Youth Employment Initiatives: The same White Paper is expected to include plans for a new youth guarantee for 18-21-year-olds. If your business has been struggling to attract young employees, this initiative might offer new opportunities.
- Focus on Health and Well-being: With the Boardâs focus on addressing the impact of ill-health on economic inactivity, we might see new initiatives aimed at improving workplace health and well-being. This could benefit businesses by reducing absenteeism and increasing productivity.
Why Should You Care?
While itâs difficult to know at this stage how the governmentâs plans will actually affect day-to-day business life, changes to recruitment and training, employee well-being and productivity all have the potential to affect your business. Therefore, it pays to be aware of whatâs happening in these areas, especially as changes can provide new opportunities for growth and development.
See: https://www.gov.uk/government/news/government-action-to-tackle-the-greatest-employment-challenge-for-a-generation
As HMRC intensifies its crackdown on National Minimum Wage (NMW) noncompliance, itâs vital to make sure you donât fall foul of NMW laws. Compliance can have more complexities to it than many assume, and the risks of getting it wrong are significant.
HMRC is focusing on SMEs
It seems that HMRC are targeting SMEs. For instance, they have recently targeted SMEs in regions including Belfast, Liverpool, East Anglia, Watford, and the North East. They have plans to expand to additional areas over time.
What are the areas of compliance to watch?
Clearly it is important to make sure that you are using the correct rates of NMW pay. However, compliance isnât just about paying the correct hourly rate. There are a few areas that you need to be aware of to make sure that you comply with the laws.
- What category is the worker? Under NMW laws, workers are categorised in four different ways – salaried, time-based, output-based, or unmeasured. The category a worker belongs to can alter the method for calculating NMW.
- How much time does the worker work? If you have salaried staff, then you need to monitor the excess hours they work. A salaried worker is entitled to receive NMW for the total hours they work over a year, called their âcalculated yearâ. Excess hours could include their turning up early, staying late, working through some of their lunch break, logging on outside of their normal office hours, and business travel. Payments to staff may need to be uplifted to avoid falling foul of the regulations.
- Does a non-employee count as a worker for NMW purposes? In some situations, someone who would not be considered an employee under PAYE may count as a worker under the NMW laws. For instance, paying volunteers beyond expenses, or offering non-cash benefits, could inadvertently classify them as workers under NMW rules.
- Could an after-tax deduction bring a worker below NMW? Deductions from wages, such as those made for benefits or savings schemes, can create unintended problems. A recent tribunal case highlighted that a scheme which was well-intentioned still resulted in noncompliance because it reduced pay below the NMW threshold.
- Are your records complete and accurate? In the event of a dispute where an employee says they have provided time records, but you have not kept a record, HMRC will side with the staff and calculate any arrears based on the information provided by the worker.
The consequences of noncompliance
HMRC’s enforcement process includes a three-stage approach, that starts softly and becomes heavier where the business fails to put things right. Continued noncompliance can result in penalties of up to 200% of arrears and public naming and shaming on the government website. Such exposure can damage a businessâs reputation, affecting recruitment, supplier relationships, and overall growth.
Proactive steps for compliance
To mitigate risks, you should conduct periodic and thorough reviews to check that you are complying. This includes assessing potential areas of noncompliance, updating your policies, and ensuring that employment contracts are aligned with NMW regulations. Communication with staff and line managers is also critical to ensure that any issues are flagged promptly.
Our payroll team are skilled at applying the NMW rules, so if you have questions on any particular situation, please feel free to contact us and we would be happy to help you.
See: https://www.icaew.com/insights/viewpoints-on-the-news/2024/sep-2024/smes-must-grasp-nuances-of-minimum-wage-compliance
Last week, Companies House confirmed that their online services will move to the GOV.UK One Login beginning from autumn 2024.
The GOV.UK One Login is becoming an increasingly important way of accessing government digital services. It means that you only need one account, one username, and one password to access a range of government services.
The Login is already used for a number of government services, including those related to being an apprenticeship provider, finding and applying for grants, and in Wales to manage fishing permits and catch returns.
Ultimately, the GOV.UK One Login will be used to access all GOV.UK services, which eventually would include tax services. Companies House services moving across will be a major step towards this goal.
The Find and update company information service will be the first to move across, with the Webfiling service being moved at a later date.
As part of the changes being made by the Economic Crime and Corporate Transparency Act, any person who sets up, runs, or controls a company in the UK will need to verify their identity.
The GOV.UK Login will be used when Companies House implement this requirement so that users can verify their identity directly.
If you need any help with your company secretarial requirements, please just get in touch, our team will be happy to help you!
See: https://www.gov.uk/government/news/companies-house-to-join-govuk-one-login
Last month, the Home Secretary, Yvette Cooper, announced a significant government crackdown on employers hiring migrants illegally.
Overview of the government’s crackdown
From Sunday 18 to Saturday 24 August, Immigration Enforcement teams carried out a series of targeted visits to businesses suspected of employing illegal workers, with a particular focus on car washes. Over this intensive week of action, more than 275 premises were targeted. Of these, 135 businesses were issued notices for employing illegal workers, and 85 illegal workers were detained.
Potential consequences for non-compliant businesses
The penalties for employing illegal workers are severe. Businesses found in violation can face substantial financial penalties. The maximum civil penalty for employing illegal workers is ÂŁ45,000 per worker for a first offence and ÂŁ60,000 per worker for repeat violations.
Key takeaway for business owners
In view of the potential penalties, itâs vital you ensure that your business is fully compliant with all employment laws. This includes conducting the necessary right-to-work checks on all employees to ensure they have the legal right to work in the UK.
If you have any concerns or need advice, please get in touch with us. We will be happy to help you.
See: https://www.gov.uk/government/news/hundreds-of-rogue-employers-targeted-in-illegal-working-crackdown
The Prime Minister, Sir Keir Starmer, speaking from Downing Street last Tuesday, has said that the budget in October will be âpainfulâ and the government would be making âbig asksâ of the country.
He said that the country would need to be prepared to âaccept short-term pain for long-term goodâ and that those with the âbroadest shoulders should bear the heavier burdenâ.
However, no details were given about what the measures would be, other than Sir Keir reiterated that national insurance, VAT and income tax would not go up.
What could change?
There are a number of areas of tax that may be increased, and these could include the following:
- Focus on tax thresholds: By freezing thresholds â the amount of money at which any tax starts to be paid â the government collects more tax as more people are caught by higher rates of tax as their wages rise. Income tax thresholds are already frozen until 2028 and this could be extended.
- Increases in capital gains tax â Capital gains tax rates are lower than income tax rates, so the government may look to increase these.
- Reduce pension tax relief â Currently pension savers receive tax relief at the same rate as their income tax. However, there has been speculation that a flat rate of pension tax relief could be brought in and this would raise funds for the government.
- Raise inheritance tax â The government could raise the rate of inheritance tax or remove some of the reliefs that are available.
If you are concerned about how the budget may affect your situation, please feel free to talk to us at any time and we would be happy to advise you. We will be monitoring the October 30th budget very closely and update you on all the changes!
See: https://www.bbc.co.uk/news/articles/clyn01p5npgo
HM Revenue and Customs (HMRC) have issued a press release debunking some common myths about whether someone needs to register to complete a self-assessment tax return.
The basic requirement is that anyone who needs to complete a self-assessment return for the first time to cover the 2023-24 tax year, needs to tell HMRC by 5 October 2024.
Here are the myths and the realities highlighted by HMRC:
Myth: I donât need to file a return because HMRC hasnât been in touch.
The reality is that it is each taxpayerâs responsibility to determine whether or not they need to complete a tax return.
You may need to register and complete a tax return if you:
- have started to be self-employed and earned gross income of more than ÂŁ1,000.
- earned below ÂŁ1,000 but want to pay voluntary Class 2 National Insurance contributions to protect your pension and benefit entitlements.
- have become a new partner in a partnership.
- have received untaxed income above ÂŁ2,500.
- need to pay the High Income Child Benefit Charge because you receive Child Benefit and you or your partner earned more than ÂŁ50,000.
Myth: Tax has to be paid at the same time as the return is filed
The deadline for paying tax for the 2023-24 tax year is 31 January 2025. Tax can be paid any time before this date, it does not need to be paid at the same time the return is filed.
Myth: I donât need to file a return because I donât owe any tax
Tax returns need to be completed to claim tax refunds and to claim tax relief on business expenses, charitable donations, and pension contributions. A return also needs to be completed to be able to pay voluntary Class 2 National Insurance Contributions if you want to protect your pension and benefit entitlements.
Myth: HMRC wonât expect a return from me if I donât need to file one
Taxpayers need to tell HMRC if they no longer need to file a tax return, perhaps because theyâve stopped being self-employed or stopped renting out a property. Especially if HMRC have sent you a notice to file a tax return they will expect one and keep reminding you and may charge a penalty if they donât receive it.
If you think you donât need to complete a return it is best to tell HMRC as soon as your circumstances change.
Myth: I have to file a tax return and pay tax on things I sold after clearing out the attic
Although there has been speculation on this, the tax rules are that selling old clothes, books, CDs and other personal items through online marketplaces do not trigger a requirement to file a return or pay income tax on the sales.
If you are not sure whether you need to file a tax return for the 2023-24 tax year, please just get in touch with us. Weâll be happy to let you know what you need to do and to contact HMRC on your behalf.
See: https://www.gov.uk/government/news/need-to-register-for-self-assessment-top-5-myths-debunked
Strategic planning of gifts to minimise tax liabilities
Tax-efficient gift-giving is an essential aspect of estate planning that can significantly reduce your inheritance tax (IHT) liabilities while benefiting your loved ones. By carefully planning and utilising the available allowances and exemptions, you can ensure that more of your wealth passes on to your family and less is lost to taxes. At our practice, we believe that understanding the rules around gift-giving is key to making informed decisions. In this guide, weâll walk you through the essentials of tax-efficient gift-giving for the 2024/25 tax year.
Understanding the basics of tax-efficient gift-giving
When we talk about tax-efficient gift-giving, we refer to the strategic planning of gifts to minimise tax liabilities, particularly IHT. For tax purposes, a gift is any transfer of money or assets to another person without receiving anything of equal value in return. This could include cash, property, shares or other valuable assets.
The current UK tax rules provide several ways to give gifts without incurring immediate tax liabilities. However, these giftsâ timing, structure and documentation are vital to ensuring they remain tax-efficient. As of the 2024/25 tax year, IHT is charged at 40% on estates above the nil-rate band, which remains at ÂŁ325,000 (there is also a âresidence nil rate bandâ of ÂŁ175,000 per person, subject to certain restrictions). Properly planned gifts can reduce the taxable value of your estate, potentially saving your beneficiaries a significant amount in IHT.
Annual gift allowances
One of the simplest and most effective ways to give tax-efficient gifts is by utilising the annual gift allowance. For the 2024/25 tax year, you can give away up to ÂŁ3,000 each year without it being added to the value of your estate for IHT purposes. This is known as the annual exemption.
If you didnât use your ÂŁ3,000 allowance in the previous tax year, you can carry it forward, allowing you to give away up to ÂŁ6,000 tax-free in the current year. However, this carry-forward can only be used for one year, so planning your gifts is important.
The annual exemption can be used to make gifts to any number of individuals, but itâs worth noting that this is the total amount you can give away tax-free each year, not the amount per recipient. For example, you could give ÂŁ1,000 to three people or the entire ÂŁ3,000 to one person.
Exempted gifts
In addition to the annual gift allowance, certain gifts are completely exempt from IHT. These exemptions provide further opportunities for tax-efficient gift-giving.
Small gifts exemption
You can give away up to ÂŁ250 to any number of individuals each tax year, provided that the recipient doesnât also receive part of your ÂŁ3,000 annual exemption. The small gifts exemption is particularly useful for making regular small gifts to friends and family without affecting your estateâs IHT position.
Gifts to spouses or civil partners
Gifts between spouses or civil partners are completely exempt from IHT, as long as both individuals are UK-domiciled. This means you can transfer any amount of money or assets to your spouse or civil partner without it being subject to IHT. This exemption is one of the most effective ways to manage the tax impact of your estate.
Gifts to charities and other exempt organisations
Gifts to registered charities, political parties and certain national institutions are also exempt from IHT. If youâre charitably inclined, this exemption allows you to support your favourite causes while reducing the taxable value of your estate. Additionally, leaving 10% or more of your estate to charity can reduce the IHT rate on the remainder of your estate from 40% to 36%.
Potentially exempt transfers (PETs)
A potentially exempt transfer (PET) is a gift that becomes exempt from IHT if you live for seven years after making the gift. PETs are a powerful tool for reducing the taxable value of your estate, but they require careful planning and documentation.
When you make a PET, the value of the gift is immediately removed from your estate for IHT purposes. However, if you pass away within seven years of making the gift, it may still be subject to IHT. The rate of tax applied to a PET that becomes chargeable within seven years is reduced on a sliding scale, known as taper relief. For example, if you survive three to seven years after making the gift, the IHT rate progressively reduces from 40% to 8%.
This sliding scale makes it beneficial to make large gifts as early as possible. Even if youâre unsure about living for the full seven years, the potential reduction in IHT liability can still make PETs a valuable part of your estate planning strategy.
Regular gifts from surplus income
One often overlooked exemption is the ability to make regular gifts from your surplus income. These gifts are exempt from IHT as long as theyâre made from your income (not capital), are regular and donât affect your standard of living.
To qualify, you must demonstrate that the gifts are part of a regular pattern and that you have sufficient income to cover your living expenses after making the gifts. Common examples include regular payments to children or grandchildren, contributions to someoneâs living costs or paying for life insurance premiums.
Keeping detailed records is essential to proving that these gifts qualify for the exemption. You should document the source of the income, the amounts gifted and evidence that your standard of living hasnât been affected. If done correctly, this exemption allows you to reduce the value of your estate over time without triggering an IHT liability.
Gifts for weddings and civil partnerships
Weddings and civil partnerships provide another opportunity for tax-efficient gift-giving. You can give tax-free gifts to someone getting married or entering a civil partnership, with the amount varying depending on your relationship with the couple.
- parents can give up to ÂŁ5,000
- grandparents can give up to ÂŁ2,500
- anyone else can give up to ÂŁ1,000.
These gifts must be given on or shortly before the wedding or civil partnership ceremony to qualify for the exemption. They are a straightforward way to provide financial support to a loved one on their special day while also reducing the value of your estate for IHT purposes.
The importance of record-keeping
Accurate record-keeping is a critical component of tax-efficient gift-giving. Without proper documentation, you may find it difficult to prove to HMRC that your gifts qualify for the various exemptions and allowances.
For each gift you give, you should keep detailed records that include:
- the date of the gift
- the recipientâs details
- the value of the gift
- the type of gift (for example, cash, property)
- any relevant exemptions or allowances applied.
For regular gifts from surplus income, you should also maintain records of your income and living expenses and how you calculated that the gifts didnât affect your standard of living. This documentation will be invaluable if HMRC questions your estate after your death, ensuring that your gifts are correctly accounted for and exempted from IHT.
Gifting property and other high-value assets
Gifting property, shares or other high-value assets can have significant tax implications, particularly with respect to capital gains tax (CGT). When you gift an asset that has increased in value since you acquired it, you may be liable for CGT on the gain.
However, there are strategies to minimise CGT liabilities when making such gifts. For example, you could transfer assets that have not appreciated significantly or utilise the CGT annual exemption, which allows you to make gains of up to ÂŁ3,000 (for the 2024/25 tax year) without incurring CGT.
Gift Hold-Over Relief, on the other hand, essentially allows the individual to gift an asset and not have to pay any capital gains on the gift (with the recipient instead paying it when they sell the asset). The gift has to be business assets (which can include shares, but they must be unlisted).
To further minimise CGT, if an individual has exhausted their annual exemption, they could transfer the asset to their spouse, who can then gift it, utilising their own exemption. Similarly, for the ÂŁ3,000 annual gift exemption and wedding gift exemptions, if more needs to be given, assets can be transferred to a spouse, who can then re-gift to the intended recipient, effectively doubling the exemptions by using both spouses’ allowances.
If youâre considering gifting high-value assets, itâs advisable to seek professional advice to explore the most tax-efficient way to do so. We can help you navigate the rules and ensure that your gift achieves the desired tax benefits.
The role of trusts in tax-efficient gifting
Trusts can be valuable in tax-efficient gift-giving, particularly for managing large gifts or protecting family wealth across generations. By placing assets into a trust, you can reduce the value of your estate for IHT purposes while retaining some control over how the assets are used.
There are different types of trusts, each with its own tax implications.
- Discretionary trusts: These allow trustees to decide how to distribute the trustâs income and capital among the beneficiaries. These can be useful for providing for future generations while maintaining flexibility.
- Bare trusts: In a bare trust, the beneficiaries have an absolute right to the trustâs assets. The assets are held in the trusteeâs name, but the beneficiaries have the right to the income and capital.
Trusts can be complex, and setting one up requires careful consideration of your goals and the tax implications. It is essential to work with an adviser who can guide you through the process and ensure that the trust is structured to achieve your objectives.
Seeking professional advice
While the principles of tax-efficient gift-giving are straightforward, the rules can be complex and mistakes can be costly. Professional advice is invaluable when planning significant gifts or complex arrangements, such as trusts or gifting high-value assets.
Our firm specialises in helping clients navigate the rules around gift-giving and estate planning. We can work with you to develop a personalised strategy that maximises the tax benefits of your gifts while ensuring that your wealth is preserved for your loved ones.
In summary
Tax-efficient gift-giving is essential to estate planning, allowing you to pass on your wealth while minimising tax liabilities. By understanding the available allowances and exemptions, keeping accurate records and seeking professional advice when needed, you can ensure that your gifts are both generous and tax-efficient.
Whether youâre looking to make small gifts to family members, transfer high-value assets or set up a trust, weâre here to help. Contact us today to discuss your estate planning needs and learn how we can help you and future generations
Unlock the benefits of R&D tax credits for your business
Research and development (R&D) tax credits are a crucial incentive designed to encourage businesses to innovate and invest in new technologies, processes and products. Yet, despite their significance, many businesses either arenât aware of their potential benefits or arenât fully utilising them.
We explore what R&D tax credits are, who can claim them, and how businesses can maximise their potential.
What are R&D tax credits?
R&D tax credits are government incentives designed to encourage businesses to spend more on R&D activities. The purpose is simple: by reducing a companyâs tax bill or providing a cash lump sum, these credits make it easier for businesses to reinvest in innovation. Theyâre available to a wide range of companies, from large corporations to small and medium-sized enterprises (SMEs), regardless of their industry.
Who can claim R&D tax credits?
One of the most common misconceptions about R&D tax credits is that they are only for companies involved in scientific research or high-tech industries. This isnât the case. Any company undertaking a project seeking to advance science or technology can potentially claim R&D tax credits. This includes activities such as developing new products, processes or services and significantly improving existing ones.
Eligible projects
To qualify for R&D tax credits, a project must meet certain criteria set out by HMRC. It should:
- aim to create an advance in science or technology
- attempt to overcome scientific or technological uncertainties
- not be readily available or easily deducible by a competent professional in the field.
Importantly, these projects donât need to succeed to qualify. Even if the project fails or the company doesnât fully achieve its objectives, the R&D expenditure could still be eligible for tax relief.
How R&D tax credits work
The process for claiming R&D tax credits can seem complex, but it essentially revolves around calculating the companyâs eligible R&D expenditure and applying the relevant tax relief. The calculation differs slightly depending on whether the company is an SME or a large business.
R&D tax credits for SMEs
For SMEs, R&D tax credits are particularly generous. To qualify as an SME, a company must have fewer than 500 employees and either an annual turnover under âŹ100m or a balance sheet total under âŹ86m.
R&D expenditure credit for large companies
Large companies that donât qualify as SMEs can claim R&D tax relief through the R&D expenditure credit (RDEC) scheme. The RDEC offers a credit of 20% of qualifying R&D expenditure, which is taxable, resulting in a net benefit of 15%. While this rate is lower than the SME scheme, it still represents a significant incentive for larger companies to invest in R&D.
This scheme can also be used for SMEâs whose expenditure doesnât qualify for the SME scheme (e.g. the expenditure was covered by grant funding or was âcustomer-ledâ).
Notable changes to the rules
The UK Government has announced it will be merging the SME and RDEC R&D tax relief schemes into a single, streamlined scheme from April 2024 (although elements of the SME scheme still remain for R&D-intensive companies in the form of the enhanced scheme).
This new approach will follow the RDEC model but retain some SME benefits. While the consolidation aims to simplify the process, it may result in reduced relief for certain SMEs, especially those that don’t qualify for the enhanced R&D intensive scheme. The merger also introduces changes such as subcontracting rules and relief caps, making the claims process more complex and reinforcing the importance of seeking specialist advice. The HMRC website is regularly updated with relevant information.
Common misconceptions about R&D tax credits
Despite the availability of R&D tax credits, many businesses miss out on claiming them due to common misconceptions.
Misconception 1: R&D tax credits are only for large, high-tech companies
As mentioned earlier, this is not true. Companies of all sizes and across various sectors can claim R&D tax credits. Whether a business is involved in manufacturing, construction, agriculture or even creative industries, thereâs a good chance that R&D tax credits are relevant.
Misconception 2: The application process is too complex
While the process of claiming R&D tax credits involves detailed documentation and a clear understanding of what qualifies as R&D, itâs not as daunting as it seems. Many companies choose to work with specialist advisers who can guide them through the process, ensuring that all eligible activities are identified and accurately claimed.
Misconception 3: We didnât achieve our project goals, so we canât claim
One of the biggest benefits of the R&D tax credit scheme is that it rewards innovation, even when projects donât go as planned. If your company attempted to resolve a technological or scientific uncertainty, it could still qualify for relief, regardless of the outcome.
How to maximise your R&D tax credit claim
Given the significant financial benefits, businesses should approach the R&D tax credit claim process with a well-planned strategy. Here are some tips to ensure youâre getting the most out of your claim.
1. Keep detailed records
Accurate and comprehensive records are crucial for a successful R&D tax credit claim. This includes documenting project objectives, methodologies, time spent by staff and all related costs. The more detailed your records, the easier it will be to substantiate your claim and maximise the benefit.
2. Identify all qualifying activities
Itâs easy to overlook certain activities that qualify as R&D. Beyond obvious R&D work, consider whether your company has been involved in process improvements, software development or even trials and testing that attempted to solve scientific or technological challenges. An experienced R&D tax adviser can help identify these activities.
3. Understand the scope of eligible costs
R&D tax credits cover a wide range of costs, not just direct R&D expenses. Qualifying costs can include:
- staff salaries, wages and other associated costs like employer NICs and pension contributions
- costs of materials and consumables used in R&D
- utilities like power and water which are used in R&D processes
- software costs directly related to R&D activities
- payments to subcontractors and external agencies, provided they relate to R&D (Note: For the accounting period starting 1 April 2024, the subcontractor needs to be based in the UK).
By thoroughly understanding the scope of eligible costs, you can ensure that your claim is as comprehensive as possible.
4. Work in âprojectsâ
It is helpful to think of your R&D activities as distinct projects, each representing its own area of innovation. HMRC typically prefers claims to be split into projects, so keeping detailed records for each project throughout the year will help ensure a well-organised and comprehensive claim.
5. Review past claims
R&D tax credits can be claimed for previous years, typically up to two years from the end of the accounting period in which the R&D expenditure occurred. If your company has overlooked R&D tax credits in the past, it might be worth reviewing previous periods to see if thereâs potential for a claim.
6. Work with a specialist adviser
While handling R&D tax credit claims internally is possible, working with a specialist adviser can significantly increase the likelihood of a successful and maximised claim. Advisers have the expertise to identify all qualifying activities and costs, and they can help navigate the intricacies of HMRCâs requirements.
Significant changes have recently been made and continue to be made to the schemes, making claims even more complex, further justifying the need for an adviser. Furthermore, historically, HMRC enquired for further detail on 1% of claims, but to reduce fraudulent claimants abusing the scheme, now look into 20% of claims.
The impact of R&D tax credits on business innovation
R&D tax credits are more than just a tax relief; theyâre a catalyst for innovation. For many companies, the financial relief these credits provide makes the difference between pursuing and shelving a new idea due to cost concerns.
According to HMRCâs statistics, for the tax year 2021 to 2022, over 90,315 companies claimed R&D tax credits, amounting to ÂŁ7.6bn in tax relief. This represents a significant investment in the future of UK businesses, helping to drive forward new technologies, products and services.
Encouraging growth and competitiveness
By lowering the financial barriers to innovation, R&D tax credits help businesses of all sizes remain competitive. They enable companies to take risks on new projects, invest in research and develop cutting-edge solutions that might otherwise be unaffordable. This, in turn, strengthens the UK economy by fostering a culture of continuous improvement and technological advancement.
Supporting SMEs and large businesses alike
While large companies often have the resources to dedicate entire teams to R&D, SMEs may find allocating funds to innovative projects more challenging. R&D tax credits level the playing field by making it more feasible for smaller companies to invest in research and development. As a result, SMEs can compete on a global scale, bringing new products and services to market and driving economic growth.
Donât miss out on R&D tax credits
R&D tax credits are an invaluable resource for UK businesses, providing financial support that can be reinvested into further innovation. Whether your company is a small startup or a large enterprise, engaging in activities that advance science or technology could make you eligible for significant tax relief.
To ensure youâre making the most of this opportunity, keep detailed records of your R&D activities, identify all eligible costs and consider seeking advice from a specialist. With the right approach, R&D tax credits can provide the boost your business needs to stay ahead in a competitive market.
Get in touch with us today to learn more about how we can help your business innovate and grow.
The latest annual update to Student Loan interest rates was made last week by the Department for Education.
Different rates and thresholds apply depending on the type of student loan and the new rates will apply from 1 September 2024 to 31 August 2025.
Those running payroll may want to be aware that the rates are changing in case of queries from staff with student loans who notice a change in their deduction in their September pay packet.
For details of the rates, see: https://www.gov.uk/government/news/student-loans-interest-rates-and-repayment-threshold-announcement–5
The first of the 2024 Sustainable Farming Incentive agreements for 2024 are now live. A tool is available that can help you find out about grants and funding that you may be eligible for.
The tool can be found here – https://www.gov.uk/find-funding-for-land-or-farms
The tool doesnât confirm your eligibility, but it is a good way of tracking down actions that you may be able to get paid for.
If you need any help finding funding that you may be eligible for, please feel free to give us a call and we would be happy to help.
See: https://www.gov.uk/government/news/first-sustainable-farming-incentive-agreements-live-for-2024
Last week, the Rural Payments Agency (RPA) announced that 98% of eligible farmers have now received their first instalment of the new delinked payments.
The second instalment is due to be paid from 30 September. This is earlier than originally planned. According to RPA Chief Executive Paul Caldwell, the payment has been brought forward âto make sure farmers are paid promptly to improve cash flow during this challenging period.â
Farmers will receive support via delinked payments until 2027.
The delinked payments are based on the average BPS payment received by the farm for the 2020 to 2022 scheme years. Progressive deductions will be applied when calculating the delinked payments each year from 2024 to 2027.
If you were expecting a delinked payment and have not received your first instalment, please feel free to get in touch and we will be happy to help you.
See: https://www.gov.uk/government/news/first-instalment-of-new-delinked-payments-issued-to-businesses
The Bank of Englandâs decision to reduce the base rate to 5% means that HM Revenue & Customs (HMRC) will also reduce their interest rates.
The interest rates charged by HM Revenue and Customs on late tax payments, as well as the rates they pay on repayments are linked to the Bank of Englandâs base rate. Late payment interest is charged at base rate plus 2.5%. Repayment interest is paid at base rate minus 1%, subject to a minimum of 0.5%.
The reduced rates will apply from:
- 12 August 2024 for quarterly instalment payments; and
- 20 August 2024 for non-quarterly instalments payments.
If you need help with your tax or are concerned about being able to pay a tax payment, please get in touch. We can work with you to make a payment arrangement with HMRC.
See: https://www.gov.uk/government/news/hmrc-late-payment-interest-rates-to-be-revised-after-bank-of-england-cuts-base-rate
Chancellor Rachel Reeves visited the US and Canada last week, and during an interview with Bloomberg was asked whether she was considering increasing capital gains tax.
She replied: âWeâve got a budget on October 30 and we will set out our policy then, but itâs always important when youâre deciding tax policy to strike the right balance. Of course, you need to bring in the revenue to fund public services, but weâve also got to grow the economy. I wonât do anything that makes it harder to achieve that economic growth and prosperity.â
The Chancellor has ruled out raising VAT, income tax rates or National Insurance rates, but this has added speculation on whether other taxes will be increased.
Last year, Ms Reeves told the BBC that she had no plans to increase capital gains tax. However, since the Labour party came into office, she has claimed that there is a ÂŁ22 billion shortfall in public finances this year. She has identified some savings, but it seems likely that the gap will also be plugged by raising taxes somewhere.
In addition to changing the rates of capital gains tax, the government could also remove some reliefs to increase their tax take.
Whether there will be any changes to capital gains tax, and what they might be, is difficult to predict, but it may be telling that Ms Reeves refused to rule it out.
If you are thinking about disposing of an asset and would like to know the likely tax cost under the current rules, please get in touch. We would be happy to help you.
See: https://www.bbc.co.uk/news/articles/c9v880z470lo
Draft legislation has now been published for the governmentâs plan to end the VAT exemption for private school fees.
The government is also legislating to remove private schools from being eligible for business rates charitable rates relief. Because business rates policy is devolved, the business rates policy change will only affect private schools in England. VAT policy, however, is reserved and so the VAT changes will affect private schools across the UK.
The current situation for VAT
Currently, private schools, as regulated education providers, qualify as exempt from VAT. This means no VAT is currently charged on private school fees. Private schools also cannot recover any VAT they incur on expenditure.
What will change?
From 1 January 2025, all education services and vocational training supplied by a private school, or a âconnected personâ, for a charge will be subject to VAT at the standard rate of 20%. Any boarding services that are closely related to this supply will also be subject to VAT at 20%.
For parents this means a likely increase of 20% in private school fees beginning next year. However, since private schools will now be able to claim back the VAT on expenditure they incur. This might provide some latitude for the school to be able to absorb some of the increase.
What if a pupil is being funded by the Local Authority?
In some cases, pupils are in a private school because their needs cannot be met in a state run school and the Local Authority funds this. Where this is the case the Local Authority will be compensated for the VAT they incur. If this is your situation then you should see no change.
Can I pay fees in advance to save VAT?
Unfortunately not. As an anti-forestalling measure, any fees paid from 29 July 2024 that relate to the term starting in January 2025 and onwards will be subject to VAT.
Does this apply to nurseries?
The intention is that nurseries, whether standalone or attached to a private school will remain exempt from VAT.
It will be the fees for children who turn compulsory school age that will become taxable. So, this means that VAT will start to apply when a child begins their first year of primary school.
How about sixth form?
Education and vocational training provided by standalone private sixth form colleges or ones attached to a private school will also be subject to VAT.
However, further education colleges that are classified as public sector institutions will not be subject to VAT.
Is there any change for state schools and academies?
No, state schools, including academies, will continue to be exempt from VAT for education and boarding.
How about other goods and services supplied by private schools?
Outside of boarding, a private school will also often provide school meals, transport and books and stationery. The government has confirmed that other closely related goods and services other than boarding which are for the direct use of the pupils and necessary for delivering the education to the pupils will remain exempt from VAT.
This opens the possibility that a school might limit the amount of VAT they charge by assigning a high value to these VAT exempt goods and services and a low value to the VATable education and boarding services. However, the government have confirmed their awareness of this, and any such practice will be challenged.
The additional fly in the ointment with having a mixture of taxable and exempt supplies is that it can affect the amount of VAT that can be recovered by the school on its expenditure. Partial exemption calculations are needed, and HM Revenue and Customs (HMRC) have said they will provide specific guidance for schools on how to do this.
Itâs also been confirmed that VAT will need to be charged on any education after school hours or during the holidays. However, before or after school childcare, or childcare holiday clubs, that just consist of childcare will remain exempt from VAT.
When will private schools need to register for VAT?
Any private schools that are not already VAT registered will need to register from 1 January 2025.
Schools that donât already make any taxable supplies will be able to register from 30 October. Schools that do currently make taxable supplies, such as hiring out facilities, can choose to voluntarily register early.
If you are involved in running a private school and would like help on what these VAT changes will mean to you or would like training or advice on how to deal effectively with VAT, please call us and we would be happy to help.
See: https://www.gov.uk/government/publications/vat-on-private-school-fees-removing-the-charitable-rates-relief-for-private-schools
The previous government included plans to end non-domiciled tax status at the Spring Budget and replace it with a 4-year foreign income and gains (FIG) regime. The new government have now announced their intention to continue with these plans, while ending some advantages for existing non-domiciled individuals.
What the change in tax status will mean
Preferential tax treatment based on domicile status will be removed for all new FIG arising from 6 April 2025. This means that foreign income and gains will all be taxable in the UK where you are classed as residing in the UK, not just that included under the remittance basis.
A relief will be available for new arrivals
New arrivals to the UK will have 100% relief in their first four years of tax residence, as long as they have not been a UK tax resident in any of the 10 consecutive years prior to arriving.
Transitional measures
As a transitional measure, it was previously announced that there would be a 50% reduction in foreign income subject to tax for the first year for those losing access to the remittance basis. However, the government has said this will not now happen.
The government has also outlined transitional arrangements to cover FIG that arose before 6 April 2025 and remitted to the UK afterwards â it will be taxed when remitted as per the current rules. A new Temporary Repatriation Facility (TRF) will also be available that allows for paying a reduced tax rate on a remittance for a limited time period after the remittance basis ends.
Changes to inheritance tax included
The government plans to replace the existing domicile-based system for inheritance tax (IHT) with a new residence-based one from 6 April 2025.
The basic test they are proposing for whether non-UK assets are within the scope for IHT will be whether a person has been resident in the UK for 10 years prior to the tax year in which the chargeable event happens. A person will also be kept within scope for 10 years after leaving the UK.
There are also plans to end the use of Excluded Property Trusts that keep assets out of the scope of IHT. Confirmation of how the rules relate to this and how existing trusts are affected will be provided at the Budget on 30 October.
If you are concerned about how these changes will affect you and the tax you pay, please call us at any time and we will be happy to discuss this with you.
See: https://www.gov.uk/government/publications/2024-non-uk-domiciled-individuals-policy-summary
The government made changes last week to the remit for the Low Pay Commission (LPC) that will mean it takes the cost of living into account when recommending minimum wage rates.
The LPC have also been instructed to narrow the gap between the minimum wage rate for 18-20 year olds and the National Living Wage. The longer term objective is to remove the age bands altogether and have a single adult rate.
Each October the LPC makes recommendations to the government on the minimum wage rates to apply from the following April. The new remit keeps this process and timeline in place, allowing for businesses to plan for uplifts.
As well as the cost of living, the LPCâs remit will continue to look at the impact on business, competitiveness, the labour market and the wider economy.
See: https://www.gov.uk/government/publications/national-minimum-wage-and-national-living-wage-updated-low-pay-commission-remit-2024
