From benefits to bankers' bonuses - how does the mini budget affect you?

Although it was labelled a “mini budget” – the announcements from the Chancellor today are set to be far reaching. Here Director of KBL Accounts Kelly-Anne Byres looks at what it means for you and your business.

The Growth Plan delivered today by the new Chancellor Kwasi Kwarteng is likely to cause many of us to breathe a sigh of relief.

It was designed to release the huge potential in the British economy by tackling high energy costs and inflation and delivering higher productivity and wages. And it has certainly delivered.

So, here’s how they will affect your bank balance…

Personal taxes

In a nutshell, the 45% top rate of income tax for those earning more than £150,000 is being ditched and they will pay the higher rate of 40%.

Meanwhile, a 1p-in-the-pound cut to the basic rate of income tax promised by Rishi Sunak for 2024 will be brought forward to 2023 at a cost to the government of £5 billion a year.

Finally, there will be a four-year transition period for Gift Aid relief to maintain the basic rate relief at 20 per cent until April 2027 to support charities.

House buyers

Good news for those of you buying a home – and especially those of you who are taking the first step on the housing ladder.

The threshold for stamp duty on house purchases has been raised from £125,000 to £250,000 from tonight. And for first-time buyers it will rise from a £300,000 threshold to £425,000.

The value of the property on which first-time buyers can claim relief has been raised from £500,000 to £625,000.

Bankers’ bonuses

From benefit claimers to bankers, there really is something for everyone.

The big news here is that the cap on bankers’ bonuses has been scrapped. It was introduced under EU law in 2014 but the government believes that it limits London’s competitiveness against financial rivals such as New York and Hong Kong.

Business news

Businesses are winners here too.

The planned rise in corporation tax from 19 per cent to 25 per cent from next April has been scrapped to support business investment.

National insurance

News of this change was leaked yesterday but confirmed today.

A 1.25 percentage-point increase in national insurance contributions introduced in April to fund the health and social care will be cut from November and on top of that the health and social care levy has been scrapped.

This will mean that 28 million people will keep an extra £330 a year on average in 2023-24 and about 920,000 businesses will have a reduction their national insurance bills.

Energy bills

This is the one that affects every single one of us – and has been causing a massive amount of anxiety among clients – from a personal finance point of view as well as in terms of business.

Thanks to today’s announcements however, energy bills for households have been capped at an average of £2,500 a year for two years, a £1,000 saving at present energy prices.

Bills have also been capped for six months for businesses, charities and public sector organisations such as schools and hospitals from October.

The bottom line

Hopefully, the news today helps go a little way to easing financial pressures for our clients. However, if you are struggling to make sense of your business accounts and need our guidance, we are here to help. Just drop us a line.

Monthly management accounts could boost business – and we are offering them to you all

Throughout the pandemic, many of you have needed extra support with juggling monthly income and expenditure as well as forecasting.

Not only has this helped them plan for the immediate future but it has also been beneficial in creating business strategies for years to come – allowing business owners to make decisions without waiting for yearly reviews.

With that in mind, we are now extending our offering of monthly management accounts to all clients with a package you can add on to your existing service plan with us.

How does it work?

Monthly management accounts are designed to give you better information to help run and grow your business.

In short, they are a set of financial statements prepared every four weeks, which provide clear insight into the financial trading position of your business.

They aren’t required by law, and they don’t have to be filed with HMRC - but they do put you more in control of your finances than ever before.

Typically, they include a profit and loss account, balance sheet, cash flow statement and a short report.

By working this way, the regular information allows you to plan accurately for growth, diversification or expansion.

Other benefits of management accounts include:

• Making more informed decisions based on up-to-date information

• Measuring performance of your business and individuals

• Gaining control over your cash flow

• Planning your tax and dividend payments

• Detecting fraud in your business

• Reducing annual accounting costs

Give it a go

If you would like us to provide you with monthly management accounts, we will agree a plan which is right for you, the size of your business and what you hope to achieve.

These will be prepared on a regular and consistent basis to ensure you are getting the most out of the service.

If you would like to talk to us about how this could work for your business, give us a call today.

New cash boosts to help firms employ more young workers

Not only has the coronavirus pandemic impacted the working lives of millions in the UK, but it has also blocked some from ever getting going in the first place.

The nation’s younger generations may have left college, university or placements with grand hopes for a career kickstarted by their youthful enthusiasm.

Yet even the most enthusiastic and talented of young people have been left with few opportunities to stake their claim in what has become a fiercely competitive jobs market.

With firms making losses, then job cuts and then, in some cases, shutting up shop for good, routes into a dream career from a young age have proven difficult to come by in the last 12 months.

That’s why these young people will be breathing a collective sigh of relief at the latest government funding boost designed to get them into the workplace.

Here’s what your firm needs to know about the new funding and how it can help you bolster your workforce while kickstarting careers.

The cash funding available

Employers can now apply for a £1,000 cash boost for every trainee they take on, up to a maximum of 10 trainees.

Firms can also claim this new cash incentive for all work placements that have been completed since 1 September 2020.

This new funding follows Chancellor Rishi Sunak’s announcement in July 2020 that an additional £111 million was being invested in traineeships as part of his Plan for Jobs.

The cash boost can be claimed in addition to the funding for apprentices announced last year that offers employers £2,000 for each new apprentice they hire aged under 25 and £1,500 for apprentices aged 25 and over.

The £1,000 bonus is available to employers until 31 July 2021.

How this could help you

Young workers are the lifeblood of many industries, providing a fresh approach to jobs they are passionate about with the promise of huge potential.

But unlocking this potential requires a long-term investment which isn’t always cheap.

The new £1,000 cash boost will help businesses cover the costs of providing a high-quality work placement for a trainee.

Traineeships require firms to provide facilities, uniforms, training courses and sometimes pay travel costs to give trainees the most productive learning experience possible.

Taking advantage of the government funding available may help depleted firms strengthen their workforce while helping young people find a foothold in their dream careers.

How can we help you?

If you are now considering hiring any number of trainees to your workforce, KBL can help you handle the administrative and financial aspects involved with making these new additions.

Construction industry approaching new VAT reverse charge rules

Last year saw most plans, projects and even everyday activities put on hold.

Sadly, where our most-favoured parts of society were shut down, its less welcome facets continued to operate.

A rise in online shopping and banking, remote working and the general overwhelm of HMRC’s services led to an increase in many types of fraud in 2020.

A VAT ‘reverse charge’ designed to combat VAT fraud in the building and construction sector was due to be introduced in October 2020.

Although the government remains committed to tackling fraud of all kinds, its commitment to supporting businesses throughout the pandemic took priority as the new rules were further delayed until March 2021.

The reverse charge was pushed back to allow businesses to focus on enduring the impacts of the pandemic.

But, with March 2021 around the corner and no sign of the new rules being delayed again in sight, here’s what your business needs to know about the new VAT rules within the construction and building industry.

The VAT reverse charge

The domestic ‘reverse charge’ is a measure that has already been introduced for other services. The system shifts the liability for accounting for output VAT from the supplier to the customer.

This prevents the supplier from charging what appears to be VAT and then not paying this element over to HMRC.

A customer of construction-based services within the industry will have to pay the VAT directly to HMRC rather than paying it to the supplier before recovering this amount on the same VAT return.

Who the new rules affect

The new reverse charge rules will only affect supplies at standard or reduced rates where payments are required to be reported through the CIS.

The CIS is a program which deducts advance payments for subcontractor’s tax and National Insurance liability when they are paid by contractors for work relating to construction.

Construction operations defined in CIS include construction, alteration, repair, extension, demolition, painting and decoration. The services of architects, surveyors and certain consultants are excluded.

How this affects you

The reverse charge was first due to come into effect in October 2019, but this was delayed as the government felt that not enough businesses were prepared.

Though it serves a noble cause, the reverse charge will have a significant impact on the VAT and cash flow management of businesses affected, requiring fundamental changes to the way they keep their books.

New processes will need to be introduced or current processes amended in order for businesses to keep up with their new VAT commitments.

Smaller sub-contractors often rely on the positive cashflow provided by payments including a VAT element, which will now disappear where the reverse charge applies.

In order to prevent disruption to supply chains and protect small sub-contractors, contractors may want to ensure that their sub-contractors are prepared for the reverse charge or are made aware that the new rules apply to their services.

It is vital that businesses are prepared for the new rules or penalties may be imposed.

In the guidance for the new rules, HMRC states that it will “apply a light touch in dealing with related errors that occur in the first six months of the new legislation, as long as you are trying to comply…and have acted in good faith”.

If you sell building and construction services

The below flowchart from HMRC will help you decide if you need to use the reverse charge.

The reverse charge will need to be used when:

• your customer is registered for VAT in the UK

• payment for the supply is reported within the Construction Industry Scheme (CIS)

• the services you supply are standard or reduced rated

• you’re not an employment business supplying either staff or workers, or both

• your customer has not given written confirmation that they’re an end user or intermediary supplier

If you buy building and construction services

The below flowchart from HMRC will help you decide if you need to use the reverse charge.

The reverse charge will need to be used when:

• payment for the supply is reported within the Construction Industry Scheme (CIS)

• the supply is standard or reduced rated

• are not hiring either staff or workers, or both

• you’re not using the end user or intermediary exclusions

How can we help you?

In such testing times, the last thing you need is a VAT-induced headache. KBL are on hand to assist you and your finances in any way should you be affected by the new VAT reverse charge.

The Budget: It’s all good – for now

Like me, you’ve probably been waiting for Rishi Sunak’s recovery Budget with some trepidation.

Were we all going to be facing huge tax hikes? Were businesses on the brink going to collapse with a final financial burden? How could we possibly keep propping up the economy to see us through to the end of lockdown?

If so, I can imagine you were pleasantly surprised.

In a nutshell

Here are the main points of Rishi Sunak's Budget today:

• The Office for Budget Responsibility (OBR) predicts economy will return to pre-Covid levels by the middle of 2022, six months earlier than previously thought. Big tick!

• Unemployment is now expected to peak at 6.5 %, down from the predicted 11.9%. Also, great news!

• The furlough scheme is to be extended to the end of September under current 80% of salary rate. Employers will be asked to pay 10% in July, then 20% in August and September. Support for the self-employed also goes on until September.

• Apprentice grants for employers will be doubled to £3,000.

• There is a £5 billion fund for Restart Grants for businesses. Retailers will get up to £6,000 per site from April. Hospitality and leisure open later and will be able to claim up to £18,000.

• There’s also a new recovery loan scheme for businesses of £25,000 to £10 million - with 80% guaranteed by the Government.

• The business rate holiday will stay in place until June and then be discounted for the remaining nine months of 2021-22 financial year.

• A 5% VAT rate for hospitality and tourism will be extended to September, then at 12.5% until April 2022 before returning to 20% regular rate.

• Tax free income threshold will rise to £12,570 next year and then will be frozen until 2026. Higher rate threshold rises to £50,270 next year and will then be frozen until 2026.

• Corporation Tax will be increased from 19% to 25% in 2023. Those with profits of £50,000 or less will continue paying corporation tax at the current level and a taper above £50,000 will be introduced. Only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.

Easy does it

The UK's total public spending bill is now estimated at £407 billion and the UK has borrowed £355 billion - 17% of GDP - the highest since the Second World War.

But the Chancellor is planning on taking a “softly, softly catchy monkey” approach to paying off the deficit.

He knows we have to pay it back. We know we have to pay it back. But none of us are ready to put our hands in our pockets just yet.

So how will this work?

Well in short, the Government has laid out a realistic proposal for recouping the debt over a longer period of time.

They will do it by hiking up taxes (this is to be expected) but are giving us plenty of notice until the charges increase.

Corporation tax is being increased from 19% to 25% from 2023, for example.

Those with profits of £50,000 or less which will be protected from the hike and will continue paying corporation tax at the current level and a taper above £50,000 will be introduced to ensure only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.

The rise puts the UK above the EU average of 21.7% but remains below the US corporation tax level of 27%.

France’s rate is 26.5%, Germany has a rate at 30%, Canada at 26.5%, Japan at 30.62% and Italy at 24%.

I’m not for one minute suggesting tax increases are welcome. Any tax increase – even a future one – is a bit depressing.

But Sunak is combatting any future negatives with plenty of immediate positives – demonstrating that the support is in place to adapt to these hikes once the economic recovery is well established. 

The hope is that by the time we have to dig deep from a personal and business point of view, we will be in a position to do so without feeling the pinch as acutely.

What’s in it for me?

Some of the little perks to the budget include efforts to get people shopping, including raising the contactless payment limit from £45 to £100, freezing alcohol duties and dropping the idea of raising fuel duty. 

The £20-a-week boost to Universal Credit will stay for another six months, the stamp duty cut has been kept on until the end of June, and eight new 'freeports' will also be created across England to step up economic growth. 

On top of this, inheritance tax thresholds, pensions lifetime allowance, and annual exempt amount in capital gains tax will be maintained at current levels until April 2026.

But the biggest benefits by far are those for businesses and the self-employed – and let’s face it, those are the ones you are really interested in.

Supporting businesses

Key to the Chancellor’s plan is protecting businesses and encouraging growth.

The furlough extension is key to this, allowing those businesses – particularly the ones who haven’t been allowed to open yet – to protect their staff and livelihoods for when they can.

Further business bailouts and VAT and business rates breaks for hospitality, leisure and tourism are also a vital component. 

Those of you who are self-employed workers will also benefit from another round of support. And, in a surprise move, the scheme will be extended to cover 600,000 'excluded' workers who did not qualify before because they did not begin trading until 2019.

One major measure to fuel growth that was also announced was the tax 'super-deduction' for companies that invest in the UK - meaning that they will be able to claim relief of 130% of the value of their investment.

Insisting that the UK will have a “pro-business tax regime” after Covid, Sunak told MPs the new super deduction will unlock investment and specifically reward firms with bold expansion plans in the wake of the pandemic.

Though little detail is yet clear about the new policy, Sunak said in the Commons: “While many businesses are struggling, others have been able to build up significant cash reserves. We need to unlock that investment; we need an investment-led recovery.

“So today I can announce the ‘super deduction’. For the next two years, when companies invest, they can reduce their tax bill, not just by a proportion of the cost of that investment, as they do now, or even by 100% of the cost, the so-called full expensing some have called for – with the super deduction they can now reduce their tax bill by 130% of the cost.”

How we can help

As with all government announcements, the finer detail is yet to be divulged.

But as we get to grips with it all, we will pass on those details to you to help you manage your finances.

We are also here to provide you with advice on your accounts now – and in the future when any changes take effect. Be sure to speak to the team to make sure you get every benefit available.