Autumn statement 2022

With so much uncertainty around politics over the last few months, the Autumn statement that was delivered by Jeremy Hunt on 17 November was perhaps less dramatic than we had all thought it would be. But in reality, what does it mean for your average owner managed business operating through a limited company?

PERSONAL TAX POSITION

Firstly, with income tax allowances frozen until April 2026, more and more people may find themselves drifting into the higher rates of tax. With prices rising and mortgage rates increasing there may be the need to draw more income from your company to meet day to day living costs. Depending on your personal circumstances and with careful planning it may be possible to get more out of your company and stay within the basic rate of tax.

Although just a small reduction, the Dividend Allowance is being reduced from £2,000 to £1,000 from April 2023 and to just £500 from April 2024. Whilst this sounds painful, for a basic rate taxpayer, the reduction to £500 will cost £131.25 in additional tax a year.

Careful planning is going to be needed to maximise income and keep the tax burden down.

FOR THE COMPANY

The biggest change coming is the introduction of the 25% corporation tax rate which comes in on 1 April 2023. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the 25% rate reduced by a marginal relief adjustment. My colleague Kelly produced an article on the impact of the new rate in our last newsletter and this can be viewed on our website; Corporation Tax Increase in 2023 | Albert Goodman.

Given the increased rate, consideration should be given to factors within your control to reduce taxable profits. Things to consider are: • Investment – the Annual Investment Allowance (AIA) is being kept at £1m. This means that any spend on qualifying plant and machinery will reduce taxable profits. Whilst it’s not sensible to spend just to save tax, considering the timing of planned investment in plant and machinery is important to ensure you maximise tax relief. • For a business owner, look at expenditure being paid for personally out of taxed income. Could the company pay for this and obtain tax relief? Things like pension contributions and life assurance are two possible areas to look at. Going one step further, if you were considering buying an electric car personally, it may be more tax efficient to do this through your limited company. However, it should be noted that from April 2025 electric vehicles will start to pay Vehicle Excise Duty.

Looking at VAT, for businesses that aren’t VAT registered, the threshold at which you must register is being frozen at £85,000. Given the current inflation rates, this may bring more and more business into charge. If your turnover is close to this limit, you need to monitor this and make sure you register if necessary.

Further increases are set for the national living and minimum wage from 1 April 2023. For some small businesses, these rates are becoming unsustainable. Not only do the lower paid staff have to be paid more, but the next tier up also demand a rise. As wage rises generally result in increased employer national insurance payable and pension contributions, consideration should be given to other benefits that could be given to those in this next tier up, rather than outright pay increases. Paying higher rates of pensions contributions or offering company life assurance could be an attractive benefit to some. There are also still some useful salary sacrifice schemes that could be considered.

If you would like to discuss any of the above points please contact me or your usual Albert Goodman point of contact.

Sharron Quick

Senior Manager sharron.quick@albertgoodman.co.uk

TOP TIPS FOR XERO

NEW LOOK XERO

People who use Xero on a regular basis will notice that some of the views that we all know and love have changed and now have a whole new look. However, rest assured that none of the functionality has been lost and there are added benefits. For a breakdown of what has been changed and when, have a look at Xero’s help article - Building on Beautiful – Xero Central. Some of the key pages that have changed already are Sales Invoices, Bills to Pay, Contacts and Inventory.

Thinking of bills to pay, one feature that is really brilliant and I always recommend to clients is the ‘Create bill from email’ function. This allows bills to be emailed directly into Xero. After the initial email Xero will learn from your entry and the next time you email a bill from the same supplier it will fill in as much as it can – supplier, due date, amount, tax codes, etc. It works brilliantly for clients whose bills are in the form of an email attachment with one invoice per file. The invoices sit ready for approval in drafts. I have found many clients really enjoy this function!

REPORTS

- CHARTS, DATE RANGES AND TRANSFERRING OLD REPORTS INTO NEW LAYOUTS

VISUAL ELEMENTS ON REPORTS

Some reports have a nifty chart function - have a look at the Income and Expense reports and see what you think. Look out for the ‘Chart and table option’ at the top of the report where you can customise the visual aspect of the report. I feel sure that there will be more reports with this function coming in the future!

CUSTOMISING DATES

Not everyone realises that it is possible to compare a custom date with the exact same date a year or a month ago – to do this, set the date that you want your report to cover, go into Compare periods and select year or month and you can see that it gives you customised comparison periods.

BRINGING CUSTOM REPORTS INTO THE NEW REPORTING LAYOUTS

As part of Xero’s updated look, many reports have been changed and any custom reports built on the old reports layouts will be removed next year.

If you have set up custom reports you can now easily put them into the new style reports. There are instructions how to do this here: Bring old report layouts over to new custom reports – Xero Central.

CREATE BILL FROM VAT RETURN

There is a new option that has been added to VAT returns to ‘Create draft bill/invoice for return’. This option will appear when you receive the submission confirmation and it will create a bill or invoice coded to the VAT account for the amount of VAT due or receivable. This means when the transaction appears in the bank it will automatically tie up to the bill or invoice, speeding up the reconciliation process.

If you have any top Xero tips, please do let us know and we can feature them here for others to benefit from! becky.rhode@albertgoodman.co.uk

Becky Rhode

Cloud Accounting