The cash flow difficulties that late payments cause small businesses are well known. However, the cost of recovering late payments is less well publicised, despite being a major and growing expense – coming in at around £9,000 last year for an average business.
Research by Bacs Payment Schemes found that the cost of recovering late payments has increased considerably in recent months. Collecting money owed to them collectively cost small businesses £6.7 billion in 2018, having risen from £2.6 billion in 2017. The figures comprise costs such as staff time and interest on borrowing taken out to make up for the shortfall caused by late payments.
Small businesses’ efforts to tackle the problem could be beginning to pay off – with the total value of late payments falling from £14 billion in 2017 to £13 billion in 2018.
Paul Horlock, Chief Executive of Pay.UK of which Bacs is a part, said: “When smaller companies do well, so does UK plc; as the backbone of the whole economy, the significance of SMEs cannot be overstated.”
Link: UK small businesses face average £9,000 bill to recover late payments
Confidence amongst small businesses has tumbled to a seven-year low – in part due to the uncertainty of Brexit.
A survey carried out by the Federation of Small Businesses (FSB) has found that nearly one in three small exporters think that sales to overseas customers will fall during the early part of this year.
Meanwhile, one in seven of the more than 1,000 small businesses questioned for the survey said that they plan to cut investment, a figure that was last this low two years ago.
Mike Cherry, Chairman of the FSB, said: “We’ve not seen political uncertainty weighing on small business confidence like this for many years.
“Planning ahead has now become impossible for a lot of firms, as we simply don’t know what environment we’ll be faced with in little more than 100 days’ time.
“A pro-business Brexit is one that ensures we can trade easily with the EU and have access to the skills we need.
“The latter is already proving a challenge and if we crash out of the EU on 29 March without a deal, the former will go out the window.”
Link: Small business confidence hits seven-year low
As a business takes off, the level of investment it needs in order to expand can significantly outpace growth in revenues and profits.
One of the options open to entrepreneurs at this stage in the development of a business is to issue new shares that secure new investment, without the financial pressures that come with loans.
However, until now, this has created the potential for a dilemma to arise over Entrepreneurs’ Relief, which significantly reduces Capital Gains Tax liabilities when selling or otherwise disposing of a business.
Business owners can only claim Entrepreneurs’ Relief if they own five per cent or more of the business, subject to several caveats.
When the issuing of new shares has reduced a business owner’s interest in a business to less than five per cent, that business owner has, until now, been unable to claim Entrepreneurs’ Relief.
This could equate to tens of thousands of pounds or more in additional tax. This has created a strong disincentive, in some circumstances, to businesses seeking investment by issuing new shares.
Under new rules included in the Finance (no.3) Bill, entrepreneurs will be able to make an election to HM Revenue & Customs (HMRC) when a share issue takes their interest below five per cent. When the entrepreneur disposes of the interest in the business later, they will be able to claim Entrepreneurs’ Relief on a pro-rata basis up to that date.
Link: Entrepreneurs’ Relief where shareholding ‘diluted’ below the 5% threshold
According to the Organisation for Economic Co-operation and Development (OECD), UK tax revenue as a percentage of GDP rose to 33.3 per cent in 2017.
This was up from 32.7 per cent in the previous year and was more than double the average rate of increase for nations covered by the OECD’s research.
Of the 36 nations included in its study, 34 provided data, with the UK ranking top among the 19 countries that saw a rise in the tax-to-GDP ratio.
According to the OECD, tax revenues in these advanced nations increased due to taxes on companies and personal consumption increasing total tax revenues as a proportion of GDP. In fact, VAT revenues are the largest source of consumption taxes recorded across the OECD.
France recorded the highest tax-to-GDP ratio during this period at 46.2 per cent, with Denmark coming in second at 46 per cent, and Belgium third at 44.6 per cent.
Tax-to-GDP is now higher than pre-crisis levels in 21 countries. However, eight nations – Canada, Estonia, Hungary, Ireland, Lithuania, Norway, Slovenia and Sweden – have not seen a rise since 2009.
While the UK doesn’t have the highest ratio, it does have the fastest growing tax revenue and therefore businesses and individuals need to plan carefully in future to reduce their liabilities.
Link: The Global Revenue Statistics Database
It should seem obvious whether an individual must submit a self-assessment tax return annually. Yet, each year, thousands of people find themselves brought into the regime unwittingly.
To help taxpayers prepare their affairs accordingly, HM Revenue & Customs (HMRC) is offering a free online tool to help people find out whether they need to submit a return.
Typically, an individual must submit a tax return if, in the last tax year, they were self-employed as a ‘sole trader’ and earned more than £1,000, or a partner in a business partnership.
Most taxpayers will not need to send a return if their only income is from their wages or pensions, which are recorded by employers via PAYE.
However, some individuals may need to submit one if they have any other untaxed income, such as:
- money from renting out a property
- tips and commission
- income from savings, investments and dividends
- foreign income
Taxpayers should be aware that if they use the tool their details will not be sent to HMRC. If you are unsure whether you need to submit a tax return, please click here to use the tool.
The House of Lords Economic Affairs Committee has criticised some of the powers granted to HM Revenue & Customs (HMRC), describing them as disproportionate and lacking effective taxpayer safeguards.
The committee’s latest report says that HMRC’s powers are now too broad and the penalties too high, deterring taxpayers from appealing and creating injustice within the system. It has demanded that the Government reviews the current arrangements.
Lord Forsyth of Drumlean, the committee’s chairman, said that, while the tax authority was right to challenge tax evasion and aggressive tax avoidance, “a careful balance must be struck between clamping down and treating taxpayers fairly.”
The committee believes that the evidence it uncovered suggests that “this balance has tipped too far in favour of HMRC and against the fundamental protections every taxpayer should expect.”
Although the report covers a number of areas of taxation, the committee gave special consideration to “disturbing evidence” on the approach to the loan charge.
This new fee is intended to prevent disguised remuneration schemes, where workers have been paid via a loan with the intention of avoiding tax and national insurance contributions.
However, the committee is concerned that the retrospective nature of the charge could affect those that were unaware of the risks or forced to use this arrangement by their employer.
It has recommended that HMRC urgently reviews these cases where the only remaining consideration is the individual’s ability to pay and establishes a dedicated helpline to support those adversely affected by the loan charge.
The committee has also called on Parliament to consider how it scrutinises the powers it gives to HMRC.
Link: Taxpayers treated unfairly by HMRC, peers find