Tax

On October, 30th, 2024, the UK Chancellor, Rachel Reeves, announced the Autumn 2024 Budget. I will be looking at the announcements that will affect businesses in the UK and the blog post will only touch on some of the main highlights of the Autumn Budget. You can read the full budget on the HMRC website here.

1. Minimum Wage Increases from April 2025:
   National Living Wage for those 21 years and over will increase from £11.44/hour to £12.21/hour.
   
   National Minimum Wage for 18-20-year-olds will rise from £8.60/hour to £10.00/hour.
   
   National Minimum Wage for 16-17-year-olds will rise from £6.40/hour to £7.55/hour.
   
   Apprentice Rate for those eligible and under 19 years old, or those over 19 years old and in their first year of an apprenticeship – will rise from £6.40/hour to £7.55/hour.
   
2. Changes to National Insurance for Employers:
   The National Insurance Employers Allowance will increase from £5,000 to £10,500 for those employers who are eligible to claim the allowance from April 2025. The government is also removing the £100,000 threshold which expands the NI Employer’s Allowance to all eligible employees. Please note that sole director limited companies where there are no other staff members on the payroll are not eligible for this discount.
   
   The Employer’s National Insurance Rate will increase from 13.8% to 15% from April 2025.
   
   The amount at which employers pay National Insurance on employee wages will drop from £9,100 a year to £5,000 a year from April 2025 and will remain in place up to, and including, the 2027/2028 tax year.
   
3. Stamp Duty on the purchase of second homes, buy-to-let residential properties and companies purchasing rental property in England and Northern Ireland will increase from 3% to 5% from 31/10/2024.
   
4. Business Rates
   For the 2025/2026 tax year, retail, hospitality and leisure (RHL) properties, will have the existing 75% relief for eligible properties in England replaced by 40% relief with a max discount of £110,000.
   
   From April 2026, there will be permanent lower business rate multipliers for RHL properties with a higher multiplier for properties with Rateable values above £500,000.
   
   The small business multiplier is frozen at 49.9p for 2025/26.
   
5. Corporation Tax
   Corporation Tax will be capped at 25% for the duration of Parliament and the Small Profits Rate and marginal relief will be kept at the current rates and threshold.
   
6. AIA, Writing Down Allowance
   The government will continue to maintain permanent full expensing, £1 million AIA, writing down allowance and Structure and Buildings Allowances.
   
7. P11D (Employee Benefits)
   From April 2026, employers will be required to report and pay tax and Class 1A NICs on employee benefits in kind on a real-time basis, except for accommodation and employment-related (beneficial) loans.
   
8. Zero-Emission Cars
   The 100% first-year allowance for qualifying expenditure on zero-emission cars and electric vehicle charge points will be extended to 31/03/2026 for Corporation Tax Purposes and 05/04/2026 for income tax.
   
9. Making Tax Digital
   Those with self-employed and/or rental income of more than £50,000 will be required to submit via MTD from April 2026.
   
   Those with self-employed and/or rental income of more than £30,000 will be required to submit via MTD for April 2027.
   
   It has been confirmed that those with self-employed and/or rental income of more than £20,000 will be required to submit by the end of the current Parliament session.
   
10. Tax Liabilities
    The late payment interest rates on unpaid tax liabilities for employers will increase by 1.5% from 06/04/2025. The current rate is set as the Bank of England base rate plus 2.5%.
    
11. Personal Allowance and Tax Thresholds
    The personal allowance and tax thresholds for England, Wales and Northern Ireland will continue to be frozen until the 2027/2028 tax year. The rates will be changed from the 2028/2029 tax year.
    
    Scotland sets their own rates for Scottish Taxpayers.
    
12. Company Car Tax Rates 2028/2029 and 2029/2030
    The Autumn Budget has set rates for Company Car Tax (CCT) for 2028/2029 and 2029/2030. This will help to provide long-term certainty for taxpayers and the industry.
    
    Appropriate Percentages (APs) for zero-emission and electric vehicles will increase by 2 percentage points per year.
    
    APs for cars with emissions of 1-50g of CO2 per kilometre will rise in 2028/2029 to 18% and in 2029/2030 to 19%.
    
    APs for all other vehicle bands, including the maximum AP, will increase by 1 percentage point per year.

As I develop a better understanding of the Autumn Budget, through information provided by my bookkeeping association, I will update this blog post to reflect that.

During October’s Facebook Live, I talked about how to get started as self-employed in the UK.

Self-employment offers a tantalizing promise of freedom and flexibility, allowing you to be your own boss and control your career path. In the UK, this career option is increasingly popular, with over 4.2 million self-employed individuals as of July 2024. However, diving into self-employment requires careful planning and an understanding of various legal and financial responsibilities. This guide aims to provide you with a comprehensive roadmap to help you get started on your self-employment journey.

Step 1: Evaluate Your Skills and Business Idea

Before you take the leap into self-employment, it’s crucial to evaluate your skills and business idea. Consider the following:

– Skills and Experience: Identify your strengths, skills, and experience. What services or products can you offer? Do you have a unique selling proposition (USP)?

– Market Research: Conduct thorough market research to understand your target audience, competitors, and demand for your product or service.

– Feasibility: Assess the feasibility of your business idea. Can you generate sufficient income to sustain yourself?

Step 2: Choose Your Business Structure

In the UK, you can operate your self-employed business under several structures. The most common are:

– Sole Trader: The simplest form, where you run your business as an individual. You keep all profits after tax but are personally responsible for any losses.

– Partnership: If you’re starting a business with someone else, you can form a partnership. Each partner shares responsibility for the business.

– Limited Company: A more complex structure, where your business is a separate legal entity, and you would be the sole director with no employees. This offers limited liability protection but comes with more regulatory requirements.

Step 3: Register Your Business

Depending on the structure you choose, you’ll need to register your business:

– Sole Trader: Register with HM Revenue and Customs (HMRC) as soon as you start trading. You’ll need to file a self-assessment tax return every year.

– Partnership: Register the partnership with HMRC and each partner needs to submit a self-assessment tax return.

– Limited Company: Register with Companies House and comply with additional reporting requirements.  You must also register with HMRC within three months of starting your business.  If you become employed by the company, you will need to register as an employer.  You may also find you need to register yourself for self-assessment as a director.

Step 4: Set Up a Business Bank Account

Even though it’s not a legal requirement for sole traders, it’s advisable to have a separate business bank account. This helps keep your business and personal finances separate, making it easier to manage your accounts and taxes. For limited companies, having a separate business bank account is a legal requirement.

Step 5: Understand Your Tax Obligations

As a self-employed individual, you have several tax obligations:

– Income Tax: You’ll need to pay income tax on your business profits. The amount depends on your earnings.  If you are set up as a Limited Company, the income tax is dealt with differently as you are taxed on your wages or drawings from the business as well as dividends or any other type of untaxed income you have taken from the company, not on the taxable profits of the business.

– National Insurance Contributions (NICs): As a sole trader, you’ll need to pay Class 2 and Class 4 NICs.  If you are registered as a limited company, you would be responsible for paying Class 1 NIC through the salary you have from the company.  The company would pay both the employee NICs and employer NICs.

– Value Added Tax (VAT): If your turnover exceeds the VAT threshold (currently £90,000), you must register for VAT and charge it on your sales.

– Corporation Tax: If you run a limited company, you’ll need to pay corporation tax on your profits.

Step 6: Keep Accurate Records

Keeping accurate and up-to-date records of your income and expenses is essential for managing your business finances and fulfilling your tax obligations. Invest in good accounting software or hire an accountant to help you manage your records.

Step 7: Get the Necessary Licenses and Insurance

Depending on your business type, you may need specific licenses or permits to operate legally. Check with your local council or relevant authorities to ensure you have the necessary permissions. Additionally, consider getting business insurance to protect yourself against potential risks and liabilities.

Step 8: Market Your Business

Once your business is set up, it’s time to attract customers. Develop a marketing plan that includes:

– Branding: Create a strong brand identity, including a logo, business cards, and a professional website.

– Online Presence: Utilize social media platforms, online directories, and SEO strategies to increase your online visibility.

– Networking: Attend industry events, join local business groups, and network with other professionals to build connections and find potential clients.

Step 9: Continuously Learn and Adapt

The business landscape is constantly evolving, so it’s important to stay informed and adapt to changes. Attend workshops, take online courses, and read industry news to keep your skills and knowledge up to date.

Starting a self-employed business in the UK is an exciting and rewarding venture. By following these steps and being prepared for the challenges ahead, you can set a strong foundation for your business and enjoy the benefits of being your own boss. Remember, success in self-employment comes from continuous learning, adaptability, and perseverance. Good luck on your entrepreneurial journey!financial management and decision-making.

If you have any questions about how to begin your self-employed journey, please feel free to e-mail me.

During September’s Facebook Live, I talked briefly about the requirements businesses in the UK have concerning storing their business receipts and provided some suggestions on how they could do this.

Keeping accurate and organized business records is essential for any business, regardless of its structure. Proper record-keeping ensures that you can efficiently manage your finances, comply with legal requirements, and provide evidence in case of audits or disputes. In the UK, different business structures have specific guidelines and best practices for storing business receipts. We will cover the key aspects of receipt storage for sole traders, partnerships, limited companies, and other business structures in the UK.

What are the legal requirements?

All businesses within the UK must store the paperwork relating to their business transactions so that if HMRC ever inspects, they can prove what each transaction is for.  They must store anything that relates to sales, income receipts, expenses, and purchase receipts. This information can be stored in either paper or digital format, as long as they are easily accessible and readable.  If you do store them digitally, make sure they are backed up to prevent data loss.  All documents should include the date, amount and the nature of the transaction. If your business is VAT registered, you need to ensure that you include all VAT receipts.

The length of time a business needs to store its records does depend on the type of business structure. 

• Sole traders and Partnerships must store their records for at least 5 years after the January 31^st submission deadline for the relevant tax year
• Limited Companies and Charities must store their records for at least 6 years from the end of the last company financial year they relate to

The records that are kept must be accurate, complete and updated regularly to reflect the true financial position of the business.

Failure to keep proper records can result in significant penalties. HMRC may charge fines or even conduct investigations if a business is found to be non-compliant. Therefore, maintaining accurate and comprehensive records is not just a legal obligation but also a safeguard against potential legal issues.

How can I store my records?

Back in the day when things were more paper-based, I would advise clients to have separate files for purchases and sales, as well as paid and unpaid.  In today’s world, a lot of information can be stored digitally – whether this is invoices/receipts that have been sent by e-mail, downloaded from an online platform, or you’ve scanned/taken a photo of them.  It makes it a lot easier to store the information, and share it with staff/bookkeeper/accountant, but also saves you space, paper, and ink.

Now, I advise clients to set up a digital file system to save documents in two different locations – your laptop and a cloud location.  The cloud location could be a shared location with your bookkeeper or accountant.  I use Bright Manager to manage my bookkeeping clients, and there is a document portal where I have clients upload everything I need to.  You could also use Google Drive, One Drive, Dropbox, or another cloud-based storage system.

I advise that you use a folder structure where you have a main folder for the tax year, then inside folders for each month, and inside those folders at least a folder called “Finished With” where you store any files you have processed, even if it’s just sharing them with your bookkeeper or accountant.  You can make the file system as simple or as complicated as you want – as long as you can find the information.

This is very relevant in terms of MTD for VAT, and MTD ITSA (when it comes into play).  It is extremely important for any VAT-registered business.  You need to be able to provide proof of each transaction – which HMRC could ask for.

A great thing about a lot of cloud-based accounts software is that you can attach files to a transaction in the software, meaning you have a third storage system and if HMRC want to see the proof for a transaction, you can just open it and show it straight away.

There are also several apps that can help with getting your purchase information into your cloud-based software, and these apps can also act as a storage system.  They allow you to take pictures of receipts, upload them, or even e-mail them, and then once they are processed, that information is sent straight to your accounts software.

Now that the records businesses need to keep can be stored digitally, it makes it a lot easier.  You don’t need to worry about physically storing all the pieces of paper and the space that takes up, or that the records will degrade over time.

If you want to keep physical records, it is important that you use a proper filing system, such as labelled folders or binders to organise all receipts by month or category.  This method is traditional but it is effective for those who prefer physical copies.  For added security, especially for essential documents, consider storing physical receipts in a fireproof safe.

Make sure you get into the habit of regularly scanning/uploading your receipts to avoid a backlog.  Set aside time each week or month to ensure all receipts are accounted for and stored correctly.  Ensure that if you have any staff involved in financial transactions they understand the importance of keeping accurate records and know the process for storing them.

By adhering to these legal requirements and employing effective storage solutions, businesses in the UK can ensure they are prepared for any financial scrutiny and maintain accurate financial records. This not only helps in legal compliance but also contributes to better financial management and decision-making.

If you have any questions about how you should be storing your business receipts, please feel free to e-mail me.

During July’s Facebook Live, I talked briefly about the UK anti-money laundering regulations and what they mean for bookkeepers and their clients.

In the United Kingdom, bookkeepers play a crucial role in ensuring the financial integrity of businesses. One of their key responsibilities is adhering to the Anti-Money Laundering (AML) Regulations. These regulations are designed to prevent the misuse of the financial system for money laundering and terrorist financing. Here, we delve into the specific responsibilities a bookkeeper in the UK holds under the AML framework.

Understanding the AML Regulations

The UK’s AML Regulations are primarily governed by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, updated in 2019. These regulations align with the European Union’s Fourth and Fifth Anti-Money Laundering Directives and require businesses, including bookkeepers, to implement rigorous measures to detect and prevent money laundering activities.

Bookkeepers have had to legally follow the AML regulations since 2007.  We are required by law to have AML Supervision either with a recognised professional body or directly with HMRC.  Failure to comply with the regulations can result in the bookkeeper receiving hefty fines and even losing their practice.

What is Money Laundering?

Money laundering is where proceeds of crime are made to appear legitimate.  Some common examples of money laundering are:

• Real Estate Transactions: criminals purchase properties at inflated prices and later sell them at a loss to “clean” the money; properties are bought and sold multiple times to create a complex trail of transactions
• Cash-Intensive Businesses: using businesses like restaurants, bars and car washes to mix illegal funds with legitimate earnings; paying salaries to non-existent employees and reclaiming the money
• Bank Transactions: breaking large sums of money into smaller, less suspicious amounts and depositing them into bank accounts over time; moving money through accounts in countries with strict banking secrecy laws to obscure the money trail
• Trade-based money laundering: manipulating invoices (over or under-invoicing) to transfer value without attracting attention; using multiple shipments of goods to complicate tracking and auditing
• Gambling: purchasing chips with illicit money, gambling minimally and then cashing out; using online gambling platforms to place bets and cash out winnings
• Professional Services: using professionals like lawyers and accountants to create complex legal structures that disguise the origin of funds; setting up trusts or shell companies to hide the true ownership and source of funds

There are a number of other common ways money is laundered including art and antiques, digital currencies and loan-back schemes.  These methods are often combined to make detection more difficult, involving layers of transactions and various financial instruments.  The UK has stringent anti-money laundering (AML) regulations, but criminals continuously adapt their strategies to evade detection.

Key Responsibilities of Bookkeepers under AML Regulations

Bookkeepers who often act as the first line of defence against financial irregularities, are directly affected by AML regulations.

1. Customer Due Diligence (CDD):

   – Identification and Verification: Bookkeepers must identify and verify the identity of their clients and, where applicable, the beneficial owners. This includes obtaining and confirming details such as names, addresses, and dates of birth. 

   – Risk Assessment: Each client should be assessed for potential risks of money laundering and terrorist financing. High-risk clients may require enhanced due diligence (EDD).

– Bookkeepers also need to do these checks for any financial related volunteer positions they undertake and even on close friends and family if they are receiving help with their accounts

– this information needs to be reviewed on annually or when any of the client’s details change

2. Ongoing Monitoring:

   – Bookkeepers need to continuously monitor client transactions and business relationships to ensure they are consistent with their knowledge of the client and the client’s risk profile.

   – Any suspicious activity or transaction must be reviewed and reported if necessary.

3. Reporting Suspicious Activity:

   – If a bookkeeper identifies a suspicious transaction or activity, they are obligated to report it to the National Crime Agency (NCA) through a Suspicious Activity Report (SAR). This step is critical in preventing potential money laundering activities.

   – It’s important to maintain confidentiality and ensure that the client is not made aware of the report to avoid tipping off.

4. Record Keeping:

   – Accurate records of all CDD information, transaction monitoring, and SARs must be maintained for at least five years. This includes copies of documents used for identification and transaction records.

   – These records should be readily available for inspection by relevant authorities, such as HM Revenue and Customs (HMRC).

5. Internal Controls and Procedures:

   – Bookkeepers should have robust internal controls and procedures in place to detect and prevent money laundering. This includes policies for CDD, record keeping, risk assessment, and reporting.

   – Regular training for staff is essential to ensure everyone is aware of their obligations under AML regulations.

6. Training and Awareness:

   – Continuous training is crucial. Bookkeepers must stay updated on the latest AML regulations and best practices. Training should cover how to recognize and deal with potential money laundering risks effectively.

   – Awareness programs can help in understanding the evolving nature of money laundering and terrorist financing tactics.

Impact on Clients

Clients, particularly small and medium-sized enterprises (SMEs), also feel the effects of AML regulations through their relationship with bookkeepers. Here’s how:

1. Increased Scrutiny: Clients may experience more in-depth scrutiny of their financial transactions. This can be particularly challenging for businesses with complex financial structures or those in high-risk industries.

2. Documentation and Transparency: Clients are required to provide extensive documentation to prove their identity and the legitimacy of their transactions. This can be burdensome, particularly for smaller businesses.

3. Potential Delays: Enhanced due diligence and compliance checks can lead to delays in financial transactions and the onboarding process of new clients.

4. Cost Implications: The administrative burden of compliance can lead to increased costs, either directly through fees for additional services provided by bookkeepers or indirectly through the time and resources spent on compliance.

5. Awareness and Training: Clients need to be aware of their responsibilities under AML regulations and may require training to understand their obligations and how to meet them.

AML regulations in the UK are essential for combating financial crime but come with significant responsibilities for bookkeepers and their clients. By understanding these regulations and implementing best practices, bookkeepers can help their clients navigate the complexities of compliance, ensuring both legal adherence and the integrity of the financial system.

If you have any questions about the anti-money laundering regulations, please feel free to e-mail me.

During June’s Facebook Live, I talked briefly about the pros and cons of running a limited company in the UK.

Starting and running a business in the UK offers several structures, with the limited company being a popular choice. While this approach has clear benefits, it also comes with certain challenges. This post explores the key pros and cons of operating a limited company in the UK.

Pros of Running a Limited Company

1. Limited Liability Protection:

One of the most significant advantages is the limited liability protection it provides. This means that the personal assets of directors and shareholders are protected; they are only liable for the company’s debts up to the amount they have invested.

2. Tax Efficiency:

Limited companies often benefit from favourable tax rates. The corporation tax rate is typically lower than personal income tax rates, allowing for potential tax savings. Additionally, company directors can optimize their tax position through dividends, which are taxed at a lower rate than salaries.

3. Professional Image:

Operating as a limited company can enhance your business’s credibility and professional image. Clients and partners may view a limited company as more established and reliable compared to sole traders or partnerships.

4. Access to Funding:

Limited companies may find it easier to secure funding from banks and investors. Equity financing through the issuance of shares is another option, which is not available to sole traders or partnerships.

5. Perpetual Succession:

A limited company has perpetual succession, meaning it continues to exist even if the ownership or management changes. This provides stability and can ensure the business’s long-term survival.

Cons of Running a Limited Company

1. Complexity and Cost:

Setting up and running a limited company involves more complexity and higher costs compared to other business structures. There are legal requirements for company formation, and ongoing administrative tasks such as filing annual accounts, returns, and maintaining statutory records.

2. Regulatory Compliance:

Limited companies must adhere to stricter regulatory requirements. This includes compliance with the Companies Act, maintaining proper accounting records, and ensuring timely submission of financial statements to Companies House and HMRC.

3. Public Disclosure:

Limited companies are required to disclose certain information publicly, such as company accounts, director details, and shareholder information. This level of transparency may not be desirable for all business owners.

4. Directors’ Responsibilities:

Company directors have legal responsibilities and fiduciary duties. Failure to comply with these duties can result in personal liability and disqualification from acting as a director.

5. Profit Distribution Restrictions:

The process of distributing profits in a limited company can be more restrictive. Dividends can only be paid from profits, and some specific rules and formalities must be followed to ensure compliance.

Choosing to run a limited company in the UK presents a mix of opportunities and challenges. The decision hinges on various factors, including the nature of your business, your financial goals, and your willingness to navigate the regulatory landscape. Limited liability protection, tax benefits, and an enhanced professional image are significant advantages, but they come with increased administrative burdens and regulatory responsibilities. Careful consideration and, often, professional advice are essential to determine if this structure aligns with your business objectives.

If you have any questions about the pros and cons of running a limited company, please feel free to e-mail me.

During April’s Facebook Live, I talked about the pros and cons of being self-employed in the UK.

In recent years, self-employment has been on the rise globally, and the United Kingdom is no exception. With the advent of the gig economy and technological advancements enabling remote work, more people are opting to become their own bosses. However, like any career path, self-employment comes with its own set of advantages and disadvantages. Let’s delve into the pros and cons of being self-employed in the UK.

Pros:

1. Flexibility: One of the most attractive aspects of self-employment is the flexibility it offers. You have the freedom to set your own hours, choose your clients, and work from any location with an internet connection. This flexibility allows you to balance work with personal commitments, such as childcare or pursuing hobbies.

2. Control: As a self-employed individual, you have full control over your business decisions. You can determine your pricing, choose the projects you want to work on and set your business goals according to your vision. This autonomy can be empowering and fulfilling, as you are responsible for your own success.

3. Tax Benefits: Self-employed individuals in the UK can take advantage of various tax deductions and allowances not available to employees. These include deducting business expenses such as equipment, travel, and professional fees, as well as claiming tax relief on pension contributions. Additionally, you may be eligible for the Flat Rate Scheme or the Annual Investment Allowance, reducing your overall tax liability.

4. Potential for Higher Earnings: While income can fluctuate in self-employment, successful entrepreneurs and freelancers have the potential to earn more than their employed counterparts. By building a strong client base, delivering quality work, and continuously improving skills, self-employed individuals can command higher rates for their services and increase their earning potential over time.

5. Diverse Opportunities: Self-employment opens doors to a wide range of opportunities across industries and sectors. Whether you’re a graphic designer, writer, consultant, or tradesperson, there is a market for your skills and services. This diversity allows you to explore different avenues and find the niche that best suits your talents and interests.

Cons:

1. Irregular Income: One of the biggest challenges of self-employment is the irregularity of income. Unlike traditional employment with a fixed salary, self-employed individuals may experience fluctuations in earnings due to factors such as seasonality, market demand, and project delays. This inconsistency can make budgeting and financial planning more challenging.

2. No Guaranteed Benefits: Unlike employees, self-employed individuals do not receive benefits such as paid sick leave, holiday pay, or employer pension contributions. You are responsible for managing your own insurance, retirement savings, and other benefits, which can add to your financial responsibilities and require careful planning.

3. Administrative Burden: Running a business as a self-employed individual entails administrative tasks such as bookkeeping, invoicing, and tax compliance. Without the support of an HR department or accounting team, you must handle these responsibilities yourself or invest in professional services, which can consume time and resources.

4. Isolation: Working for yourself can be isolating, especially if you primarily work from home. Without colleagues or a traditional office environment, you may miss out on social interactions, collaboration opportunities, and networking events. Maintaining a healthy work-life balance and combating feelings of loneliness requires proactive effort and seeking out community support.

5. Uncertain Future: Self-employment can be inherently risky, as your success is dependent on market conditions, client demand, and your ability to adapt to change. Economic downturns, industry shifts, or personal circumstances can impact your business viability and financial stability. It’s essential to have contingency plans in place and continuously evaluate and adjust your business strategy to mitigate risks.

In conclusion, self-employment in the UK offers numerous benefits, including flexibility, control, tax advantages, and diverse opportunities. However, it also comes with challenges such as irregular income, lack of guaranteed benefits, administrative burdens, isolation, and uncertainty. Whether self-employment is the right path for you depends on your individual goals, preferences, and risk tolerance. By carefully weighing the pros and cons and planning accordingly, you can navigate the self-employment journey successfully and achieve your professional aspirations.

If you have any questions about becoming self-employed in the UK, please feel free to e-mail me.

During March’s Facebook Live, I talked about the responsibilities that charities in the UK have regarding their accounts.

In the realm of philanthropy, transparency and accountability are paramount. Charities play a vital role in society, addressing various social issues and contributing to the betterment of communities. However, with great power comes great responsibility, particularly when it comes to financial management and reporting. In the UK, charities are subject to stringent regulations to ensure transparency and accountability in their financial practices. In this blog post, we delve into the responsibilities that charities have regarding their accounts in the UK.

1. Compliance with Regulatory Requirements:

Charities in the UK are governed by the Charity Commission, an independent regulator responsible for registering and regulating charities. One of the primary responsibilities of charities is to comply with the regulatory requirements set forth by the Charity Commission. This includes submitting annual financial reports and accounts, which are made available to the public to ensure transparency and accountability.

2. Accurate Financial Reporting:

Charities must maintain accurate and up-to-date financial records that reflect their income, expenditure, assets, and liabilities. Financial reporting should adhere to recognized accounting standards, such as the Statement of Recommended Practice (SORP) for Charities, which provides guidelines for accounting and reporting specific to the charitable sector. Ensuring the accuracy of financial reports is crucial not only for regulatory compliance but also for building trust with donors, beneficiaries, and the public.

3. Proper Use of Funds:

Charities have a fiduciary duty to ensure that funds are used for their intended charitable purposes. This requires prudent financial management and oversight to prevent misuse or misappropriation of funds. Trustees, who are responsible for the governance and management of charities, play a vital role in overseeing the use of funds and ensuring that they are directed towards achieving the charity’s objectives. Transparency regarding the allocation and expenditure of funds is essential for maintaining the trust and confidence of stakeholders.

4. Independent Examination or Audit:

Depending on their size and income, charities in the UK may be required to undergo an independent examination or audit of their accounts. This serves to provide assurance regarding the accuracy and reliability of financial statements. An independent examination involves a review of the charity’s accounts by a qualified examiner, while an audit entails a more comprehensive examination conducted by a registered auditor. The purpose of these reviews is to identify any discrepancies or irregularities and provide recommendations for improvement.

5. Disclosure and Transparency:

Transparency is a cornerstone of effective charity governance. Charities are obligated to disclose relevant financial information to the public, including details of income, expenditure, and key financial policies. This information is typically published in annual reports and accounts, which are accessible to stakeholders via the Charity Commission’s website or the charity’s own website. Additionally, charities must adhere to transparency requirements when soliciting donations or engaging in fundraising activities, providing donors with clear and accurate information about how their contributions will be used.

In summary, charities in the UK have significant responsibilities when it comes to their accounts and financial management. Compliance with regulatory requirements, accurate financial reporting, proper use of funds, independent examination or audit, and transparency are key aspects of fulfilling these responsibilities. By upholding high standards of financial governance and transparency, charities can build trust, demonstrate accountability, and maximize their impact in serving their beneficiaries and fulfilling their charitable missions.

If you have any questions about the responsibilities a charity has regarding their accounts, please feel free to e-mail me.

On March 6th, 2024, the Chancellor, Jeremy Hunt, announced several changes during the annual spring budget. I will be looking at the announcements that will affect businesses in the UK.

1. All tax rates and bands for Income Tax for those in England and NI will stay frozen until April 2028.
   
   
2. Changes to National Insurance were announced and these will take place from April 6th, 2024. These changes affect all employees with category letters A, F, H, M, V, B and I and those that earn between the Primary Threshold and the Upper Earnings Limited.
   
   The main rates of Class 1 Primary (employee) NI will reduce from 10% to 8%. The reduced rate of NI will reduce from 3.85% to 1.85%.
   
   No changes have been made to Employer National Insurance Contributions.
   
   Class 2 National Insurance Contributions which are paid by those who are self-employed will no longer be a required payment for those who have profits below the small profits threshold which is £6,725. However, that will mean they are not entitled to an NI credit, but they can voluntarily pay Class 2 NI which is £3.45/week. For those who are above the small profits threshold, they do not need to pay any Class 2 NI but will receive an NI credit.
   
   Class 4 National Insurance Main Rate will be lowered from 9% to 6% and is charged on profits above the annual allowance of £12,570.
   
   
3. Further clarification has been added by the government as to what types of training costs for self-employed are allowed. Training costs can be claimed as long as it relates to the existing business area. If a sole trader is learning a new skill that is not related to their existing business, the training costs cannot be claimed against tax.
   
   To be able to claim training costs against your profits, it must help you:
   – improve skills and knowledge you currently use for the business
   – keep up-to-date with technology used in your industry
   – develop new skills and knowledge that relate to changes in your industry
   – develop new skills and knowledge to help support your business (for example administrative skills)
   
   You can read about various examples on the Gov.uk website.
   
   
4. Furnished Holiday Lets (residential properties that are let out for short-term periods (less than 31 days), the FHL scheme that is currently in place will be scrapped from 06/04/2025.
   
   
5. VAT – the VAT threshold for registering for VAT is being increased to £90,000 from April 1st, 2024. The level that a business can deregister for VAT is being increased to £88,000.
   
   
6. The Corporation Tax reliefs for theatre, orchestra, museums and galleries have now been made permanent and have also been reduced from April 1st, 2025.
   
   
7. A new Corporation Tax Relief was announced for eligible film studios in England.
   
   
8. The Research and Development Tax Relief will be combined into a new single regime from April 1st, 2024, which includes R&D Expenditure Credit (RDEC) and small or medium enterprise (SME) R&D relief.
   
   
9. Capital Gains Tax on UK residential property disposals will have the higher rate reduced from 28% to 24%. This only affects properties that are not entitled to the Private Residence Relief. It will apply to properties that are exchanged on or after April 6th, 2024.
   
   
10. Not directly related to tax, but it will affect all self-employed and partnerships who submit tax returns using an accrual basis, from April 2024, Cash Accounting will replace Accrual Accounting as the default method for calculating taxable profits from April 2024. You can still use Accrual Basis, but you will need to opt-out of Cash Basis accounting. You will need to select the option on the tax return when it is filed. Speak with your bookkeeper or accountant to check how your accounts have been prepared up to this stage, as it may mean additional work needs to be done on your accounts to change them.
    

This blog post only touches on some of the main highlights from the Spring Budget. You can read the full budget in full on the HMRC website here.

During February’s Facebook Live, I talked about the responsibilities that community interest companies in the UK have regarding their accounts.

In the dynamic landscape of socially conscious business entities, Community Interest Companies (CICs) stand out as champions of community welfare. Born from the desire to blend entrepreneurial zeal with social impact, CICs operate with a dual mission: to generate profits and to serve the greater good. However, with this unique status comes a set of responsibilities, particularly in managing their accounts in the UK.

Understanding the CIC Structure

Before diving into their financial obligations, it’s crucial to grasp the fundamentals of CICs. Established under the Companies (Audit, Investigations and Community Enterprise) Act 2004, these entities bridge the gap between traditional companies and charities. They are designed to ensure that businesses primarily benefit the community rather than shareholders.

Financial Responsibilities of CICs

1. Annual Accounts

CICs are mandated to prepare and file annual accounts with Companies House. These accounts provide a comprehensive snapshot of the company’s financial health, detailing income, expenditure, assets, and liabilities.

2. Financial Transparency

Transparency is a cornerstone of CIC operations. They must make their accounts available for public scrutiny, reflecting their commitment to accountability and trustworthiness.

3. CIC Report

Alongside the annual accounts, CICs are required to submit a CIC report. This report delves deeper into the social impact of the company, outlining its achievements, challenges, and future plans in fulfilling its community objectives.

4. Statutory Requirements

CICs must adhere to various statutory requirements concerning financial matters, such as tax obligations, VAT registration (if applicable), and compliance with accounting standards.

5. Directors’ Responsibilities

Directors play a pivotal role in ensuring financial compliance. They are responsible for overseeing the preparation and accuracy of financial statements, as well as ensuring that the company operates within legal and regulatory frameworks.

6. CIC Regulator

The CIC regulator oversees the activities of CICs, ensuring they operate in the best interests of the community. While not directly involved in financial matters, the regulator plays a crucial role in upholding the integrity of CICs.

Challenges and Considerations

Despite their noble intentions, CICs face several challenges in fulfilling their financial responsibilities:

– Resource Constraints: Many CICs operate on limited budgets, making it challenging to allocate resources for financial management and reporting.

– Complexity: Navigating financial regulations and compliance requirements can be daunting, especially for smaller CICs with limited expertise in accounting and finance.

– Balancing Social and Financial Goals: CICs must strike a delicate balance between generating profits and fulfilling their social objectives. This requires careful financial planning and decision-making.

As beacons of social enterprise, Community Interest Companies play a vital role in fostering inclusive and sustainable communities. However, this noble mission cannot be realized without sound financial management and accountability. By fulfilling their responsibilities in managing accounts in the UK, CICs uphold the principles of transparency, integrity, and social impact, setting a commendable example for businesses worldwide. Through financial prudence and unwavering dedication to their community-centric ethos, CICs pave the way for a brighter, more equitable future.

If you have any questions about the responsibilities a community interest company has regarding their accounts, please feel free to e-mail me.