Chancellor Rishi Sunak appears to have has mostly ignored the thousands of small businesses hit hard by the pandemic and the struggling self-employed in the Spending Review.
As accountants who work with many small businesses and sole directors, we have seen first-hand the hardship that has been experienced by this large group. Many of our clients held out some hope that help may be coming, but sadly this now looks highly unlikely.
Despite increasing pressure to help the 800,000 company directors excluded from government Covid-19 support, including the mayors of three of England's biggest cities – London, Manchester and Liverpool – there was no early Christmas present in the form of backdated financial support.
A consortium of professional bodies had urged the chancellor to consider proposals for a “Directors Income Support Scheme” (DISS), similar to the Self Employed Income Support Scheme (SEISS), under which sole traders can claim up to £2,500 per month.
Pressure group Forgotten Ltd, Re Legal Consulting Ltd, Federation of Small Businesses (FSB) and the Association of Chartered Certified Accountants (ACCA), claimed a DISS could be set up by drawing on details regarding trading profits and remuneration submitted by business owners to Companies House.
The Treasury had repeatedly refused to help self-employed directors of limited companies who pay themselves in dividends, claiming it would be too difficult to separate company income from passive income, such as property and shares.
This is despite company directors paying themselves through dividends, the standard accounting structure used by around 2m small UK limited companies.
Overall, there have been 3m people excluded from COVID-19 support, which includes company directors, PAYE freelancers and those who recently became self-employed.
There was some good news in the review for those paying business rates, with the chancellor taking the step of freezing any increase in the charge when they resume in April. The Treasury estimates that this move will save businesses £575m over the next five years.
So what can you do if you're struggling to balance the books this year?
How to help cashflow
If your business has been adversely affected by COVID-19 and you think you may make a loss in 2020, one of the first steps you can take is to reduce the payments on account.
These are based on your business profits in the previous tax year and when you notify HMRC that your actual income is less than the amount calculated for payments on account, you can ask for a reduction in those payments. This may result in a refund or a reduction in your liabilities for payment on account.
As a small business, it's also worth checking if you have overpaid tax this year and are due a rebate.
If you have not paid the right amount, at the end of the tax year, HMRC will send you a P800 or a Simple Assessment tax calculation which will tell you how to get a refund or pay tax you owe. Find out more here https://bit.ly/3jfEILL
Spread tax payments
You can also take advantage of the option to spread any deferred tax and VAT payments across monthly instalments, https://www.gov.uk/government/news/self-assessment-customers-to-benefit-from-enhanced-payment-plans
Check your tax liability
This year has been like no other, so it's well worth checking that your tax liabilities haven't increased or decreased and that you're being taxed correctly.
Have your circumstances changed or has anything occurred that would trigger a tax change, such as relocating your business or moving jobs? See the link at the end of this Blog for more information about tax codes.
Get records up to date
Despite the chaos wreaked by COVID-19, you still need to ensure your records are up to date and the onus is on you to prove it if HMRC say you owe more tax than you had anticipated.
Don't leave things until the last minute and do ask for professional help if you need it.
I know that both income and corporation tax can be confusing and complex, so do make sure you understand your tax liabilities and what can be 'offset'. If you're not sure, it's worth asking your accountant.
The business world has changed in so many ways this year – are you ready for the fresh opportunities it may bring?
Check your tax code here https://www.gov.uk/tax-codes.
Why Giltinan and Kennedy?
We work in partnership with many businesses, charities and individuals across West Sussex and beyond. Please feel free to get in contact with myself or one of the team for an informal chat about your business finances. Email me here, direct message or call me on 01403 337490 to see how we can support you.
Read full details of the review here https://www.gov.uk/government/news/spending-review-to-fight-virus-deliver-promises-and-invest-in-uks-recovery