Getting your business fighting fit for 2021

So far, the new year has presented a variety of challenges for business owners. Nationally, trade has fallen as a result of the third lockdown, the number of furloughed employees has substantially increased, and the implications of Brexit have caused disruption to many supply chains – and all of this within a matter of weeks.

With uncertainty still in the air, forward planning is a must. From streamlining your operations to unlocking trapped cash, I’ve outlined some of the key considerations business owners should have front of mind when getting 2021-ready.

  • BBL, CBILS and CLBILS– businesses have until end of March to apply
  • Deferred VATto be paid on or before 31 March – online applications can be made for again over 11 months
  • Insolvency– the moratorium on winding-up petitions and statutory demands, and commercial eviction ban all end 31 March
  • IR35– off-payroll working rules (IR35) start 6 April which will likely dampen the contract market as businesses contracting out work will be responsible for determining the status of contractors. End clients may not have certainty about their determinations and whether a contractor has employee status to be safe
  • Furlough scheme– closes at the end of April, with businesses having until the end of March to apply
  • Business rates– reintroduced in April 2021
  • The Minimum Income Floor (MIF)for self-employed Universal Credit claimants will be brought in again from 1 May
  • Wage costswill increase from 6 April with National Minimum Wage rates rising around two per cent, plus National Living Wage increases by 2.2 per cent and the threshold to pay NLW also reduces from employees aged 25 or older to aged 23 or older.

In 2021, cash remains king. With nearly a third of businesses having less than 3 months of cash reserves left, it is critical to understand and stay in control of your numbers.

Creating and maintaining a robust cashflow forecast will paint a clear picture of when/where your money is coming in from and going out to. Ideally, you should have a rolling quarterly forecast as well as a ‘what if’ series of options. Accounting systems like Xero provide you with a real-time view of your numbers whilst enabling you to make accurate projections and forecasts.

Having foresight is key, and reviewing your forecasts regularly will improve your ability to plan.

Last year the CBI reported that over two thirds of businesses felt they had not fully explored every area of support available to them. Beyond the Government’s Covid support measures for businesses, there are a range of tax incentives and reliefs you need to be aware of.

R&D relief, capital allowances and creative industry tax reliefs are all valuable incentives that could significantly reduce your corporation tax bill, or even generate a cash refund if you qualify. Last year we helped businesses unlock over £50 million in tax relief, providing a lifeline to many who were struggling with cash.

The Government also recently extended the Annual Investment Allowance cap to January 2022. This is great news if you’re considering investing in plant and machinery, meaning you may be eligible to claim up to £1m in same-year tax relief.

Many businesses have reinvented the way they operate in the wake of the pandemic, and agile working is very much the new normal.

Cloud accounting presents a smart opportunity to transform your financial monitoring and reporting, whilst streamlining processes, keeping overheads down and helping you meet the challenges of running and growing a business. It should be a priority if you want to unlock the real potential of your business.

Outsourcing all or part of your finance function can free you from the distraction of day-to-day accounting matters, enabling you to concentrate on the aspects of your business that drive sales, service, and profitability.

The post-Brexit transition period has been causing a headache for many, with a quarter of international traders having stated that disruption at the borders has affected their ability to import goods.

If you’re importing or exporting goods, knowing where you stand with Brexit is essential. Even though the trade deal removed tariffs on UK/EU goods, tariffs are still due on non-UK or EU goods. Stories of businesses and consumers being hit with surprise charges have been rife since the post-Brexit rules came into play at the start of January – consider the impact of this on cashflow, profit and customer experience.

To avoid being hit by an unexpected VAT bill, knowing the origin of your products and your supply chains is essential.

Having been delayed last year, IR35 and Domestic Reverse Charge are both due to come into play in a matter of weeks. Staying compliant is key and getting it wrong could be very damaging to your business.

If you’re self-employed or working in the construction industry, these changes could impact you. Make sure you’re reviewing your contracting arrangements now to see whether you will be impacted.

As a starting point, HMRC have an online tool to assess whether you’ll be impacted by IR35.

A potential rise in tax rates could be on the horizon. There’s been a lot of focus on Inheritance Tax and Capital Gains Tax – the latter of which was subject to an OTS report which recommended doubling the rate in line with income tax.

Now is not the time to panic and rush a sale, but instead to plan ahead. Looking at your finances now and knowing your options can place you in a much more resilient position.

The Chancellors next Budget is 3rd March, so we’ll likely find out about any changes then. In the meantime, speak to an expert.

Check your tax code carefully because if yours is wrong, you may be due a refund of hundreds or even thousands of pounds.

Jane from Bexleyheath*, was recently sent a cheque for a four figure sum by HMRC. She discovered it had been taxing her as if she was receiving child benefit – even though her daughter is in her 20s.

You should check your tax code yearly to make sure it is correct for your situation as it may be based on outdated or incorrect information.

A tax code is a series of numbers and letters used by your employer or private pension provider to work out how much income tax it should take from your pay or pension.

You will usually receive a “tax code notice” letter in the post from HMRC, telling you what yours is, for the coming tax year and how it has been worked out. If you’re an employee, your tax code can usually also be found on your payslip.

Your code is typically based on the standard tax-free personal allowance of £12,500, minus things such as the value of any benefits you get from your job (such as a company car) and the high income child benefit charge, which affects some people earning more than £50,000 a year.

The most common tax code for 2020-21 is 1250L. That is the code currently used for most people who are receiving their income from one job or pension.

It is also possible that some people may be paying too little tax as a result of having the wrong code.

Tax codes issued are based on the latest information HMRC hold, and will change a customer’s tax code if notified of any change in circumstance.

For more information on Tax Codes

*Not her real name and name used for example purposes 

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