Updated on 20/01/2021
The end of a tax year is an important time for small businesses. Having hopefully kept their tax records up to date throughout the year, they’ll now have a few things to think about as the 5th April 2021 approaches.
The new tax year, then, starts on the 6th April 2021 - and here’s why this year is particularly important.
Quite a lot is unique to this year when compared with recent years. While the best-practices you’ve followed in previous years may still apply (which we’ll dive into in just a minute), it goes without saying that the first year of coronavirus has been incredibly turbulent for businesses.
Not only are revenues more volatile, but there’s been increased unemployment, increased lending via the government’s CBILS and BBLS schemes, and complex changes to payroll brought about by variations of the furlough scheme.
What’s more, a Brexit trade deal was agreed upon by the UK and EU in December 2020. The 2000-page document detailing the intricacies of the deal will have repercussions for many UK businesses, especially those trading with the EU. While we don’t yet know the full extent of its implications, there is a possibility that it will have a short-term financial impact.
With all this in mind, let’s take a look at some of the key things to look out for as April approaches.
From tax to pensions, here are our tips on what to look out for and links to help you learn more about each topic.
Each year, all individuals have a Capital Gains Tax allowance which is £12,300 for 2020/21. Capital Gains Tax is not paid on typical items your business may trade in such as inventory, but on capital investments, such as property, shares, bonds, and the likes.
You can check the government website to see whether this type of tax applies to your assets. There has been some speculation that taxes such as capital gains may see some changes to help the government recover from the heightened borrowing and spending during coronavirus.
Different iterations of the furlough scheme, (which originally started out as a zero-hour working model but evolved into a more flexible furlough scheme with part time working eligibilities) require businesses to be precise and vigilant with how they record the hours worked by employees.
The furlough scheme was extended until the end of April 2021 by the government, meaning factoring in reduced hours worked by employees when submitting payroll information may be essential to ensure that employees are taxed fairly. Employees making less monthly income due to furlough should expect to pay less tax.
It might be wise to consider making capital purchases before the end of the current tax year to ensure that you’re eligible for any forms of tax relief within this period.
For example, if a small construction business were to purchase a new piece of drilling equipment and include it in their records before 5th April, that business would be eligible for Annual Investment Allowance on the item – allowing them to deduct its full value from their profits before paying tax.
Having a clear outline of duties and responsibilities which you can delegate to your team members may be key in making sure you are tax-compliant and position yourself to seize every advantage available to your business.
Being organised can also make it easier to track your progress and coordinate with accountants, with many SMEs opting to use external accountants to handle tasks such as filing tax returns.
Beyond this, you may want to check on any changes impacting your business when the Chancellor announces the Budget on the 3rd March 2021. It may also help to keep an eye on the government website to see what changes are made to taxes, the furlough scheme, and pensions. While the news can be helpful for keeping up to date with changes, it could also be useful to read up on any types of tax (or tax relief) that may apply to your business. You can do so by reading the ‘business tax’ section of the government website, which details what every tax means and how you can ensure your business’ compliance.
This has been prepared by Esme Loans Limited for informational purposes only and should not be treated as advice or a recommendation. There may be other considerations relevant to you and your business so you should undertake your own independent research.
Esme Loans Limited makes no representation, warranty, undertaking or assurance (express or implied) with respect to the adequacy, accuracy, completeness, or reasonableness of the information provided.
Esme Loans Limited accepts no liability for any direct, indirect, or consequential losses (in contract, tort or otherwise) arising from the use of the information contained herein. However, this shall not restrict, exclude, or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.