business. support Archives

Managing significant wealth is no mean feat. If you’re a high net worth individual or part of a high-net-worth family, you’ll be aware of just how complex it can be.

The truth is, managing significant wealth requires more than just basic financial management, and that’s often why people struggle when it comes to doing it alone.

Over the years, Accountants and Financial Advisors alike have become to recognise the need for a more holistic, customised solution – and that’s when the Family Office was born. In this guide, we take a look at what Family Office is, what services are offered, when they’d be required and more.

What Is a Family Office?

A family office is a firm established to oversee and manage the wealth of a single family or multiple families. The core aim of a family office is to provide a comprehensive suite of services, ranging from investment management and tax planning to family governance, estate planning, philanthropy, and more.

Think of a family office as a “one-stop shop” for all financial and non-financial services that may be required. Instead of having to deal with multiple advisors, accountants, and lawyers independently, a family office centralises all of these functions, therefore offering convenience, coordination, and highly importantly, cost efficiency.

Types of Family Offices

There are two main types of family offices: single-family offices and multi-family offices.

Single-Family Office (SFO)

A single-family office is dedicated to serving one family. Typically, this is used by ultra-high-net-worth families who have the financial resources to establish a fully customised office to oversee their wealth. A single-family office is highly personalised and tailored to the family’s specific needs, ensuring that the family’s financial goals and personal values are reflected in all decisions.

Multi-Family Office (MFO)

A multi-family office, on the other hand, serves several families simultaneously. It offers many of the same services as a single-family office but at a lower cost because the expenses are shared among multiple families. While not as bespoke as a single-family office, MFOs provide expert management and strategic advice for families who may not need or want the extensive infrastructure of their own office.

Key Services Offered by Family Offices

The services provided by family offices are highly diverse and are often tailored to meet the specific needs of the family they serve. However, there are some services which are most commonly used. We take a look at these below.

Investment Management

Family offices often oversee all aspects of a family’s investments, from developing strategies to managing portfolios and selecting asset managers. Investment management is one of the core services, and it typically includes:

Asset allocation and diversification strategies.
Risk management and performance tracking.
Alternative investments (real estate, private equity, hedge funds).
Impact investing, where the family’s values are aligned with their financial objectives.

Wealth and Estate Planning

Preserving wealth across generations is a critical priority for many families, and family offices excel in estate and wealth planning. These services ensure that wealth is passed down efficiently and according to the family’s wishes. Examples include:

Succession planning: Ensuring a smooth transition of wealth to future generations.
Trust and estate management: Creating trusts, drafting wills, and other estate planning vehicles.
Tax efficiency: Using strategies to minimize taxes on wealth transfer and asset growth.

Tax Planning and Compliance

A family office works closely with accountants and tax professionals to develop effective tax strategies while ensuring compliance with local and international tax laws. Services include:

Income tax planning.
Capital gains tax strategies.
International tax planning for families with global investments or members living abroad.

Philanthropy and Charitable Giving

Philanthropy is a key aspect of many wealthy families’ legacies. Family offices help families create charitable giving plans that align with their values and goals, often assisting in the establishment of family foundations, donor-advised funds, or charitable trusts. They also manage the legal and financial aspects of giving to maximise impact.

Family Governance

As wealth is passed from one generation to the next, family offices help foster strong governance frameworks that preserve both family values and wealth. This can include:

Family meetings and retreats to discuss financial goals, governance rules, and succession planning.
Education and mentoring of younger family members on financial literacy, investment strategies, and the responsibilities of wealth.
Establishing family councils or boards that govern how family assets are managed and distributed.

Lifestyle and Concierge Services

Many family offices go beyond financial management to offer lifestyle and concierge services that handle personal affairs, allowing the family to focus on their priorities. These services can include:

Travel and vacation planning.
Property management (for multiple residences).
Personal security and risk management.
Healthcare management, including finding the best medical care and managing health-related expenses.
Education planning for family members, including selecting schools, tutors, and managing educational expenses.

Risk Management

Family offices also help families protect their assets through careful risk management. This includes:

Insurance planning (for property, liability, and life).
Cybersecurity to protect digital assets and personal data.
Asset protection strategies to mitigate legal risks.

Why Do Families Choose Family Office Services?

Families with significant wealth face unique challenges that can’t always be handled by traditional financial advisors or wealth management firms.

Some of the solutions to these challenges which a family office provides are:

1. Customisation and Privacy

Family offices provide highly tailored solutions that reflect the family’s personal goals and values. They also offer a high level of privacy, with all financial and personal matters handled discreetly.

2. Centralised Management

Rather than juggling multiple advisors, lawyers, and accountants, a family office centralises all these services under one roof, making wealth management much more efficient and streamlined.

3. Long-Term Focus

Family offices are focused on long-term wealth preservation. This multigenerational approach ensures that wealth is managed not just for the present but for future generations.

4. Objective, Family-Aligned Decisions

Unlike other financial management options, family offices work solely for the family they represent, ensuring that all decisions are in the best interest of the family and are aligned with their unique values and objectives.

Is a Family Office Right for You?

Family office services aren’t just for ultra-wealthy individuals—they can also benefit families looking for highly coordinated and comprehensive wealth management services. If your family has complex financial needs, multiple income sources, significant assets, or requires help with non-financial services such as philanthropy or lifestyle management, then exploring a family office might be a wise decision.

A family office offers the chance to simplify the management of your family’s wealth, protect assets for future generations, and maintain privacy and control over financial matters. Whether through a single-family office or a multi-family office, the advantages of having a dedicated team of professionals managing your affairs can be invaluable.

Contact Us to Learn More About Family Office Services

If you’re interested in exploring how a family office can help your family manage its wealth and plan for future generations, contact us today. Our experienced team can guide you through the process of setting up and optimising a family office tailored to your unique needs.

You might have received an Employment Allowance letter in the post this month and be left wondering what is it is.

If you’re feeling unsure as to what it is, why you’re eligible and what it involves, we can help.

Our quick guide gives you all the information you need on the £5,000 Employment Allowance for small business owners.

What is Employment Allowance?

Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £5,000.

The allowance was put into place to support small businesses with their employment costs.

Each time you run your payroll you’ll pay less employers’ Class 1 National Insurance until the £5,000 allowance has gone, or the tax year ends. It is not a lump sum amount paid to an employer or business.

How do I know if I’m eligible to claim?

In order to be eligible for Employment Allowance you’ll need to tick a few boxes:

You must be registered as an employer

Specifically, a sole trader, limited company or partnership that has employees

You can also be registered as a limited company that employee only directors, where two or more directors earn more than the secondary threshold for Class 1 NI contributions

Employers’ Class 1 National Insurance liabilities need to be less than £100,000 in the previous tax year

Don’t include off-payroll workers in your calculations, they don’t count towards the £100,000 threshold

You can find more eligibility information on the Government website here: https://www.gov.uk/claim-employment-allowance/eligibility

How does the allowance work?

Firstly, you need to note that the £5,000 allowance applies to your business, not to individual employees.

If you have more than one payroll, you can only claim against one of them. Similarly, in groups of companies or where there is common control across multiple companies, the allowance can only be claimed in one company.

You can claim at any point during the tax year as part of your Real Time Information submission to HMRC and you can start utilising your allowance as soon as you submit the claim.

Note, claiming Employment Allowance isn’t an automatic process – you’ll need to tell HMRC that you qualify and want to claim. You’ll also need to claim every tax year to ensure you’re still eligible.

Tip – you can backdate claims for four previous tax years. So, if you haven’t claimed and think you’re entitled to claim, it’s worth doing now.

Seeking support?

Here at Shenward we help our clients with claiming their Employment Allowance where it is tax efficient to do so. If you want assistance on making your claim please contact us today:

+44 (0)1274 722666

hello@shenward.com

Taxes are a fact of life. No-one likes paying them but if we didn’t there would be no NHS, no welfare state and no public services.

As the saying goes ‘Money Makes the World Go Around’ and without people paying taxes the world would stop turning. Not literally, but you know what we mean!

Given that tax is intrinsically unpopular, it’s no surprise that the Government prefers them to be…less obvious. We won’t say “hidden” because that suggests skulduggery but if they are not quite so blatant, all the better.

So what are these, ahem, “less obvious” taxes and how can we spot them?

National Insurance – it’s just another tax

National Insurance – or “paying your stamp” – comes off your wages. It’s right there, it’s a big chunk and it doesn’t make happy reading on your pay slip. The impression given is that it’s going towards your pension. It actually isn’t. It’s paying for today’s pensions.

So NI isn’t hidden. Or at least YOUR part of it isn’t hidden. What’s not so obvious is that your employer also pays a contribution on your wage. So your boss pays for the privilege of employing you! Critics would call it a tax on jobs. In total NI can be more than the Income Tax on your wage.

Excise Duty – it’s a tax on a tax!

The tax we pay on petrol has become more obvious in recent years but we’ve still come to accept high prices at the pumps.

You only have to fill up a hire car abroad or do a double-take at the prices at the filling stations to see a huge discrepancy in fuel prices in the UK and Europe, for example. Oil is oil. The difference is tax.

The UK has excise duty on fuel and we see the Chancellor often tinker with it at Budget time. The oil company and the retailer calculate their costs and then add the excise duty. Then they add VAT on top. So we end up paying a tax on a tax. I’ll leave you to digest that one…

Air Passenger Duty – a holiday tax

When you’re all packed and ready to go on holiday the last thing you want to think about is tax. But in 1994 the UK Government introduced Air Passenger Duty and it costs up to £176 per flight from UK airports. It was brought in as a revenue raiser and had little to do with cutting the environmental impact of flying.

Insurance Premium Tax – a tax on something else we don’t like to pay out for

This was another tax introduced in the 1990s when the Government decided the insurance industry was “under-taxed” because it wasn’t subject to VAT. Car insurance, home insurance and pet insurance are taxed at 12% while travel insurance, electrical appliance insurance and some vehicle insurance is 20%.

Tariffs – don’t mention Brexit!

Consumers may be blissfully unaware of import tariffs and excise duty on goods coming in from overseas. With negotiations over a Brexit deal underway these are the kind of issues that prove very thorny indeed and we all have to pay.

You can’t avoid most of these taxes if you want to live a “normal” life and we all do need to pay our fair share to help society and protect those less fortunate. So what can we do minimise our tax burden?

Five simple ways to reduce your tax bill and not feel guilty about it

1. Salary Sacrifice

Take a portion of your gross salary and put it into a pension, childcare vouchers or a bike-to-work scheme. The cost comes off your gross salary before the taxman takes his cut, meaning you pay less tax.

2. If you’re self-employed pay into a pension and claim all your allowable expenses

Paying into a pension is a great way to save for the future. For every £100 invested by a basic rate taxpayer the Government adds another £25. Every business can claim expenses against its tax liability but those allowance expenses will be different for each business. Claim what you are entitled to. If you’re not sure, take advice.

3. Marriage Tax Allowance

The marriage allowance lets you transfer £1,250 of your Personal Allowance to your husband, wife or civil partner, reducing their tax by up to £250 in the tax year. It can also be back-dated to 2016. Marriage has a financial perk but you must have tied the knot!

4. Working From Home Tax Relief

If your employer requires you to work from home you’ve always been able to claim for extra costs. That’s become a big issue in 2020 with most people told to work from home during the pandemic. Even if you’ve worked from home for just one day you can claim a whole year’s tax relief. You can claim £1.20 a week if you’re a basic-rate (20%) taxpayer, £2.40 a week if you’re a higher-rate (40%) taxpayer or £2.70/week if you’re an additional-rate taxpayer (45%). So over the year, that’s £62.40 for basic-rate taxpayers, £124.80 for higher-rate taxpayers, and £140.40 for additional-rate taxpayers.

5. Work Clothes Allowance

From hair nets for catering to steel toe-capped boots for builders, if your employer requires you to wear protective clothing at work you can claim an allowance, even if your employer provides the gear for you. It’s not a fortune but every little helps. Basic rate taxpayers can claim back £12 a year, higher-rate taxpayers twice that.

There’s no getting away from tax but you shouldn’t have to pay more than your fair share. It pays to be tax savvy.

Financial Support Available During the Second Lockdown

Last week, just days after the Chancellor Rishi Sunak announced amendments to the Job Support Scheme, we were notified as a nation that a second national lockdown would be enforced and therefore changes would be made to the proposed financial support packages.

Whilst this brings good news to many, the endless changes and amendments to the various schemes is causing widespread confusion. So where do we stand in terms of the financial support available as we head into lockdown?

Let’s explore!

Furlough scheme extended

In a shock turn of events, Chancellor Rishi Sunak announced that the Furlough Scheme would be extended until March 2021, despite originally announcing it would only be available until some point in December.

Whilst the majority of the criteria and rules remain the same as when it was first introduced, there are some significant elements which are worth noting.

As before, the government will pay 80% of employees’ wages up to a cap of £2,500. This grant must be paid to the employee in full.
Neither the employer nor employee needs previously to have used the JRS, however, to be eligible under this extension, employees must be on an employer’s PAYE payroll by 23:59 30th October 2020. This means a Real Time Information (RTI) submission notifying payment for that employee to HMRC must have been made on or before 30th October 2020. This is a significant change from the JRS in recent months, employees could only be furloughed if they had been prior to 30 June 2020.
Employers should continue to pay the employee for hours worked in the normal way.
Employers will only be required to cover National Insurance and employer pension contributions for employees on furlough.
There’s no change to the level of the scheme available in August i.e. employers can claim a grant of 80% of hours not worked however they are required to settle employers’ national insurance contributions and pensions contributions.
The Job Support Scheme (JSS) which was due to replace the furlough scheme has been postponed until the furlough scheme ends.
Flexible furloughing will continue to be available, as well as full-time furloughing.

The government has announced they will soon be confirming when claims can first be made, but as far as we know, there will be no gap in support between 31 October when the scheme was originally due to end.

Financial help for the self-employed

The Self-Employed Income Support Grant is being extended from 40% to 80% for the period of the lockdown and up to March at the latest.

The government is providing a total of £4.5 billion worth of grants between November and January.
Maximum grants increase to £5,160.
You must have qualified for the first and second grants earlier this year to be eligible for the new grant, which is the third round of grant funding for the self-employed. However, you do not need to have claimed these earlier grants to be eligible for this new grant.
The grants are available to the self-employed and those in partnerships, but not for limited company directors.
To qualify, you must declare an intention to continue trading.
You will need to be experiencing reduced demand due to Covid-19 or have been previously trading but unable to do so now because of the pandemic.
The grant claim will be based on your trading profits in the 2018/19 tax year, or average profits in 2018/19, 2017/18 and 2016/17.

Despite this extension, there are still thousands of self-employed who will be excluded from any form of financial support, raising cause for concern as the pandemic continues to disrupt their ability to earn.

New Style Jobseeker’s Allowance (JSA) and Universal Credit

The new style jobseeker’s allowance has been introduced for those who are unable to work due to the pandemic and do not qualify for other forms of support.

You could get this if:

you usually work less than 16 hours a week
you are under State Pension age
you have made enough National Insurance contributions over the last 2 to 3 years

It’s worth noting that your savings and partner’s income will not affect how much you can claim.

Depending on your circumstances, you may also be able to claim Universal Credit at the same time as JSA. This can include additional amounts for things like rent or the costs of raising children.

The criteria for Universal Credit states:

you must have less than £16,000 in savings
you or your partner must be under State Pension age

As always, if you require support or have any questions in relation to the updated schemes, please get in touch with Sherad Dewedi via sherad@shenward.com.

Getting to grips with the new Job Support Scheme

It comes as no surprise that as of the 31 October 2020, the Job Retention Scheme that has kept so many businesses afloat throughout the pandemic will come to an end.

However, the good news is that Rishi Sunak announced a new support scheme will come into effect, leaving many business owners feeling relieved. The difficulty is, with so much information floating around, it can be difficult to get to grips with what it means for you and your business.

Here, we break it down so that you’re fully in the loop with how the new Job Support Scheme works.

What is the Job Support Scheme?

The Job Support Scheme has been designed to support those businesses who expect to face lower demand during the winter period as a result of Covid-19. It aims to protect viable jobs and allow business owners to keep their employees attached to the workforce. To put it simply, it is a joint effort from the government, the employee and the employer to ensure that a job remains, and a salary continues to be paid. The government expects this will reduce the amount of redundancies and the number of people facing hardships throughout winter.

How does it work?

A company must continue to pay an employee for the time they have worked at a minimum of a third of their usual hours, with the government providing wage support for some of the remaining hours not worked, and the employee accepting a wage reduction for the rest of the hours.

Eligibility

Whilst the criteria of the Job Support Scheme are slightly less restrictive than the Job Retention Scheme, there are certain criteria in which must be met.

Any employee employed as of Wednesday 23^rd September is eligible.
All small and medium-sized businesses are eligible, but larger businesses must show their turnover has fallen during the crisis. Employers can use it even if they have not previous used the furlough scheme it replaces
Employees are protected from redundancy whilst on the scheme.
There will be restrictions on capital distributions (dividends) to shareholders who are in receipt of the scheme – for large companies.

Example

If an employee earns a salary of £2,000 per month and works 70% of their hours, they will earn £1,400 normal pay plus £200 extra from their employer and £200 from the government being £1,800 in total.

How to make a claim

The scheme will be open from 1 November 2020 to the end of April 2021. Employers will be able to make a claim online through Gov.uk from December 2020 and will be paid on a monthly basis.

Grants will be payable in arrears meaning that a claim can only be submitted in respect of a given pay period, after payment to the employee has been made and that payment has been reported to HMRC via an RTI return.

HMRC will be checking the information and claims and will have the right to withhold claims that are deemed to be fraudulent.

What other support has been made available?

In addition to the Job Support Scheme, the government has announced a series of changes to existing support packages with a view to further helping businesses and business owners survive the next six months.

Self-Employment Income Support Scheme

Self-employed grant will be extended to 30 April 2021 covering 20% of average monthly trading profits

Bounce back Loans

Greater flexibility for repayment, currently borrowed over 6 years.
Pay as You Grow Scheme announced – Loans can now be extended from six to ten years
You can also move to interest-only or suspend payments for up to 6 months

Coronavirus Business Interruption Loans

Extended from 30 September to 30 November 2020.
Facility term extended to 10 years

VAT Deferral

VAT payments between 20 March and 30 June 2020 deferred to 31 March 2021 can be paid over 11 monthly instalments, interest free.

Self-Assessment Income Tax

Income tax due by 31 January 2021 can be paid over 12 monthly instalments, interest free.

VAT for Tourism & Hospitality

5% VAT rate extended to 31 March 2021, originally due to end on 13 January 2021.

Our reactions

Like always, we welcome any additional support given to businesses throughout this time and agree with the rationale put forward by the Chancellor regarding viable jobs and furlough not being sustainable. However, we do not believe that the Jobs Support Scheme goes far enough to prevent significant unemployment. The fact that businesses have to pay for hours not worked means that there is very little incentive for employers to use it.

The arithmetic of the scheme means that it would cost a firm £1,500 to employ one full-time worker on £17,000, but more than £2,000 a month to employ two half-time workers on the same full-time equivalent salary. For many, this won’t be achievable.

The JSS is intended to limit the reduction of household income compared with say losing their employment completely and moving to Universal Credit but the scheme is much less generous for businesses which gives them little or no incentive to use it. Those employees who work in closed businesses e.g. nightclubs, soft play centres may lose out if they are not working at all.

On a positive note, we welcome the measures set out for the self-employed, bounce back and CBILs, however once again, there’s a whole market of directors who are not paid via PAYE who are not eligible for support. This is of course saddening and worrying.

With regards to the VAT & Income tax deferral, it is vital to remember that this is not a tax saving or reduction. It still needs to be paid albeit at a later date. Therefore, the cash flow will certainly benefit but if businesses and individuals take this to the full advantage, there will come a time when tax liabilities from 2020 will need to be paid along with the future tax liabilities e.g. 2021.

Our advice is to carefully plan ahead where possible do start to pay instalments to smooth cashflow.

How much do you know about quarterly Corporation Tax payments?

Written by Michael Gough, Senior Accountant at Shenward, Leeds.

For small companies, corporation tax is payable by nine months and one day after the end of your accounting period. For example, if your company’s year-end is 31 December 2019, the corporation tax, if you are a small company, would be due by 1 October 2020.

You might not be aware but ‘large’ companies as defined by HMRC are required to make quarterly Corporation Tax payments. It is noteworthy that HMRC’s definition of a ‘large’ company is not the same as the definition set out in the Companies Act 2006.

Put simply, if you’re classed as a large company by HMRC – your company’s profits for an accounting period are expected to top £1.5 million a year – you must pay the tax due electronically and in four instalments.

Confused? Let’s explore.

HMRC characterise a large business as one with an annual profit of between £1.5 million and £20 million.

Under Corporation Tax self-assessment large companies must pay in quarterly instalments if they expect their annual profits to be above the £1.5 million threshold. This threshold is known as the Upper Relevant Maximum Amount (URMA) and the current rate of Corporation Tax is 19%.

Most companies won’t fall within the quarterly payment regime, but the directors of fast-growing businesses need to be aware of their obligations as their companies expand and profits rise.

There are exceptions, of course, and that is where taking specialist advice from your accountant is important – and can save you time and money. Tax rules can be complex, every business is unique, and it pays to have an expert on your side.

To help get you started, we’ve answered some of the most frequently asked questions regarding quarterly Corporation Tax.

What are the quarterly Corporation Tax exceptions for growing companies?

A company doesn’t have to pay by instalments for an accounting period even if profits go above £1.5 million if:

The amount of its total liability for the accounting period is less than £10,000, or where the accounting period is less than 12 months;
Its profits for the accounting period do not exceed £10 million and at any time in the previous 12 months it did not exist or did not have an accounting period; or for any accounting period in the previous 12 months either its annual rate of profit did not exceed £1.5 million or its annual rate of tax liability did not exceed £10,000.

How does having a group of companies apply to paying quarterly Corporation Tax?

Where a company owns at least 51% of other companies in a group the URMA is calculated by dividing £1.5 million by the number of companies in the group. This includes the parent company so if a company has another three in the group then the URMA is divided by four.

Group companies can choose to offset an amount overpaid by one company against an amount unpaid by another company in the group.

HMRC also offers Group Payment Arrangements, which allow groups to make instalment payments on a group-wide basis. You can nominate one company in the group to pay the instalments on behalf of the group, rather than company by company.

When do quarterly payments have to be made?

Four equal instalments should be paid for a 12-month accounting period, two within the 12 months and two afterwards.

The dates are:

Six months and 13 days after the first day of the accounting period
Three months after the first instalment
Three months after the second instalment (14 days after the last day of the accounting period)
Three months and 14 days after the last day of the accounting period.

For example, using the same example as earlier, a company with a year-end of 31 December 2019:

14 July 2020
14 October 2020
14 January 2021
14 April 2021

How are quarterly payments worked out?

A company must estimate its current tax year liability, taking into account net reliefs and set offs, and make payments based on that assessment. The estimate is just that, an estimate, and will vary over time.

Companies are allowed to top-up payments at any time. It may also be possible to claim back over-payments if they shouldn’t have been made or were shown to be excessive. Alternatively, HMRC will set any over-payment against future liabilities.

What should growing companies be aware of?

If a growing company is defined as a large company for two consecutive years, the quarterly instalments payments regime will apply for the second of those years. If for example, a company’s accounting period ending on 31 December 2019 is the first accounting period where profits exceed the URMA, it will be required to make payments on account for the accounting period 31 December 2020. Its tax payments will be as follows:

First payment on account (2020): 14 July 2020
Corporation tax liability (2019): 1 October 2020
Second payment on account (2020): 14 October 2020
Third payment on account (2020): 14 January 2021
Fourth payment on account (2021): 14 April 2021

By 14 October 2020, the company will have paid its corporation tax liability for 2019 and potentially up to 50% of its upcoming tax liability for 2020. Therefore, it is absolutely essential that companies plan ahead when budgeting for cash flow.

How should payments be made?

All payments must be made electronically. This can be by direct debit, debit card, credit card, company credit card or your own bank or building society’s internet banking service.

Alternatively, you can use BACS direct credit, your own bank or building society’s telephone banking service, CHAPS or Bank Giro.

What are the penalties for failing to pay Corporation Tax?

HMRC may charge penalties if a company deliberately fails to pay quarterly instalments or doesn’t pay enough. The amount will vary. Interest can also be charged on overdue or under-paid instalments.

Tax can be complex so if you need help with Corporation Tax please speak to one of our experts here Shenward – your leading independent firm of accountants and business advisors. Email michael@shenward.com

Accounting for government grants: What your accountant needs to know

Across the industry, accountants are beginning to prepare year-end financial statements for clients whose accounting periods end on or after 31 March 2020.

Resulting from the various government support made available due to the COVID-19 pandemic, businesses are likely to have received grants, whether from the local authority/self-employed grants and/or in respect of furlough claims.

The accounting and tax treatment of such receipts may become an afterthought, but it is worth considering at the earliest opportunity in case budgeting needs to reflect increased tax liabilities.

We’ve prepared some useful tips that will help sole traders, partnerships and limited companies understand the accounting and tax treatment when preparing financial statements.

Local Authority Grants

Like thousands of people across the UK, you may have received local authority grants, whether that be a Small Business Grant, a Retail Leisure & Hospitality Grant or a Discretionary Grants.

Whichever grant you received; accountants will need to report this in your financial statements, ordinarily as other income which would then be taxed in the year in which received.

However a fundamental accounting concept is the matching basis therefore it is possible, if your year-end was shortly after the grant receipt in your bank account, that you have not yet had the opportunity to reflect how the funds will be utilised in your business.

It would therefore prudent to report the grant in your statement of financial position as a deferred income/long term liability. This means that the grant has been reported in the financial statements but as it has not yet been spent, it is deferred to the next accounting period. It then enables the grant receipt and the related costs to be matched thus having a negligible/nil tax impact, smoothing cash flow requirements during the ongoing pandemic.

For your accountant to correctly account for the grant, you’ll need to provide evidence of what the additional funding was used for. If you use a cloud-based accounting system such as KashFlow, this should be a smoother process. But if not, preparing a list to send to your accountant will help them offset the expenses against the grant.

Self Employed Income Support Grant

As at today, 3 August, accountants have not yet received confirmation from HMRC as to when the SEIS grants will be taxable. However, here at Shenward, we fully expect any SEIS grant received to be taxable during the 2020/21 financial year.

If you were in receipt of the SEIS grant, you’ll need to provide your accountant with exactly how much was received, bearing in mind that there are 2 grants, the second window opening from Monday 17 August 2020.

Job Retention Scheme (CJRS) Grants

The coronavirus job retention scheme is one of the most complex schemes within the government support packages provided throughout the COVID-19 pandemic. With flexible furlough and short-term furlough being part of the equation, payroll records will look a lot different to the ones you provided to your accountant in the last financial year.

No matter how complex they are, one thing is for sure; any furlough claims will need to be reported as other income within your financial statements and will be subject to tax and national insurance (for sole traders and partners).

Eat Out to Help Out Grants

Eat Out to Help Out will operate on Mondays to Wednesdays through the month of August 2020. Its purpose is to incentivise customers to eat in restaurants or other eating establishments by giving them a discount which businesses can then claim back from the government.

The scheme is UK wide and customers will be able to see who is taking part on GOV.UK. The scheme will drum up custom on quieter days of the week.

HMRC has issued extensive guidance on various examples how to calculate the 50% voucher, capped at £10 per head. However, we draw registered businesses of the scheme to the following accounting and tax points:

Claims made will form part of sales and ultimately profit and will be subject to tax and national insurance (for sole traders and partners) as normal
Where restaurants or other eating establishments are registered for VAT, this will be payable on the undiscounted bill, albeit at 5% for food and non-alcoholic drinks

Example

A group of six diners (4 adults and 2 children) spend £90, including £18 on alcoholic beverages.

Bill before discount £90

Amount spent on alcohol £18

Amount discount can be applied to £72

Discount (50%, capped at £10 per head) £36

Bill after discount is applied £54

Total amount the business can claim £36

VAT will be due at 20% of the alcohol amount of £18, being £3.

VAT will be due at 5% on the full undiscounted amount of £72 for the rest of the meal, being £3.43.

Total VAT due being £6.43. As a comparison, if VAT was maintained at 20%, the VAT due would have been £15.

Businesses will be required to retain sufficient evidence to support any claims made e.g. daily gross takings reports (e.g. Z reads and individual meal receipts).

Further information is available below: https://www.gov.uk/government/publications/get-more-information-about-the-eat-out-to-help-out-scheme/get-more-information-about-the-eat-out-to-help-out-scheme

We appreciate the complexity of this year’s financial statement preparation, so please do get in touch with one of our friendly experts if you’d like to discuss your businesses’ position.

How will the furlough scheme change from July?

Since the Coronavirus Job Retention Scheme (CJRS) officially launched on 20 April it has enabled businesses to keep valued employees whilst facing the financial challenges brought about by the pandemic.

Chancellor Rishi Sunak has been clear about the fact that the government has always intended to review the scheme over the coming months, which has led to many rumours within business communities about how the scheme will change.

Fortunately, business owners and employers can now make clear decisions about what actions to take next as the government has confirmed that it will continue to pay CJRS grants from 1 July but will introduce a number of changes.

How will the furlough scheme change for businesses?

You can bring furloughed employees back

From 1 July, you will be able to bring furloughed employees back into work. This will be a relief for both employees and employers, who can start returning to some level of normality.

Employees can work part-time on a flexible basis

You can bring furloughed employees back for any amount of time and any shift pattern, which is known as a ‘flexible furlough’. This means that if you want an employee to come back but are concerned about affording full-time wages, then you can agree to a number of hours for them to work. For example, if an employee works 40 hours, 5 days a week, you could ask them to work for 2 days a week (16 hours).

You will pay for the hours they work

If you do bring a fully furloughed employee back on a part-time basis, you will pay them their normal wage for these hours including NIC and minimum pension contributions.
For the hours they do not work, you will claim furlough pay at 80% of the normal wage. This may mean that you will need to carefully manage payroll if you do make this decision.

The government grants will gradually decrease

As part of its strategy to restart the economy, the government will start to decrease the levels of grants that it is paying in monthly stages.
While the government will still cover the same level of grant for July (80% of wages to a maximum of £2,500pm), it will gradually decrease the grant from August until it closes the scheme on 31 October 2020.

Throughout this period, furloughed employees will still receive 80% of their wages but employers will have to start contributing to this.

This is how each stage will look like this:

From 1 August, employers can no longer claim Employer NI and pension contributions, but the government will continue to pay 80% of wages.
From 1 Sept, employers will have to contribute 10% of wages, while the government will contribute 70%.
From 1 Oct, employers will have to contribute 20% of wages, while the government will contribute 60%.

The conditions for furloughing will also change

From 1 July, the conditions for applying for the scheme will also change.

You will only be able to claim for furlough grants for employees that you have successfully claimed for before.
The employee must have been previously furloughed for at least 3 consecutive weeks between 1 March and 30 June. So, if you had furloughed an employee on the 10 June, they will be eligible, but not after this date as this will not meet the minimum of 3 consecutive weeks.
The cap for the number of employees that you can furlough in a single claim is based on your previous claims. So, if you submitted three monthly claims and the total number employees furloughed in each respective claim was 30, 20 and 50, the maximum number of employees you can furlough in one claim is 50.
Although flexible furlough agreements can last any amount of time, unless otherwise specified the period that you claim for must be a minimum of 7 days.

What does this mean to you as a business owner and employer?

You should support home working or make a safe workspace

If you have employees returning to work from being furloughed, then it is your responsibility to ensure that they are working in a safe work environment.

If possible, do your best to get your employees set up so they can work from home. If this is not possible, then ensure that your work environment is prepared so people can maintain social distancing and other measures.

The government provides in-depth guidance on safe working during the coronavirus which includes working in offices, factories, labs, shops and vehicles.

You should spend some time breaking down the calculations

If you have agreed to put your employees on a ‘flexible furlough’, rather than a full furlough then you will have to spend some time to ensure that they are being paid the correct amount.

You will have to calculate what they are owed in terms of full wages and 80% furlough payments.

If you have been making the claims since April you will probably be familiar with the full list of steps to take before making a claim.

The government has now included guidance on the steps to take to calculate your employees usual hours and furloughed hours.

There is also an example of how to make these calculations, which breaks down each stage including calculating usual hours, furloughed hours, NICs and pension contributions.

Be clear about your agreements with employees

It is advised to put your new flexible furlough agreement with your employees into writing, which must be done in accordance with pre-existing employment law.

Be clear about your criteria for selecting employees

Take care when selecting your criteria for selecting which furloughed workers will return part-time and defining their hours, make sure that you highlight these so that they are fair, reasonable and objective and be wary of discriminating.

Be wary of scams

It is important now, more than ever, as we all get used to working remotely to maintain due diligence when it comes to cyber security.

There have been many reported cases of businesses who have fallen foul of a scam by fraudsters exploiting the challenging situation that we are all facing.

One scam comes in the form of a phishing email scam pretending to be from HM Revenue and Customs. The intention is to trick business owners into providing personal and financial details.

If you suspect a potential scam, you can report it to Action Fraud.

Remember: support is always available from your family-run accountants and business advisors

These are difficult times and we are doing all that we can to support our clients and our community.

If you need advice and support with managing the complexities around furlough and payroll, understanding what the law requires of you as an employer, or support to boost cashflow, don’t be afraid to talk to one of our specialists at hello@shenward.com