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December 2022

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To December’s Business Companion News. 

Christmas Payroll Deadlines
Please email details of your December payroll to by Wednesday 21st December.  We will then return your payslips and reports to you by Thursday 22nd December to allow everyone time to be paid before Christmas. If there are any late changes they will be processed after 28th December. Wishing you a Happy Christmas and a successful New Year!

Happy Christmas
Jennifer, Mark and Lorraine

December 2022
· Considering selling your business?
· Letters to landlords
· VAT repayment evidence
· Pensions for higher rate taxpayers
· December Questions and Answers
· December Key tax dates
Considering selling your business?
The best way of selling your business is not to sell your business.

There are significant differences between the tax on sale of shares and sale of business out of the company. Imagine Harry Farnsbarns who runs a profitable music publishing company, which owns the rights to a number of tracks. Music publisher Big Co offers £10 million for these high selling tracks. 

Scenario 1: Selling the business
Harry agrees to sell these tracks out of the company for the £10 m valuation. We assume that the other assets and liabilities of the company balance to zero.  The £10 m receipt will count as commercial capital gain. The corporation tax on this (at 19%) is £1.9 m.  
     Following the business sale and the payment of the Corporation Tax (CT) the company is no more than a ‘shell’ with £8.1 m cash in it. As Harry wants to retire he decides to wind up the company to get the cash out.  After paying 20% Capital Gains Tax (CGT) on the gain of £8.1 m, which is £1.6 m, Harry has £6.5 m left available to spend post-tax. 

Now consider the effect of doing things the other way – selling the shares he owns in the company.

Scenario 2: Selling the Shares
Suppose the facts are the same as above, except that now Harry agrees that Big Co will buy his shares in his company, so owning the music assets in the company. Harry now pays only one effective layer of tax on the receipt, rather than the two layers paid in scenario 1. 
     The CGT is charged at two rates – the first rate is 10% because entrepreneurs’ relief applies to the first million of the proceeds and the second rate is 20% on the next nine million of the proceeds. This comes to £1.9m on the total £10m sale.  Therefore, Harry has £8.1 m left after tax rather than £6.5 m.  An improvement of £1.6 m. 

Now unfortunately what is best for the seller is worst for the buyer.  For the Big Co Scenario 1, the business sale, is more profitable.  He potentially claims an extra 19% CT relief on his outlay of £10m.  He cannot get short term tax relief on a share purchase.  
     Say Harry wants to get his £8.1m net and doesn’t mind how the buyer achieves it.  Then Harry has to equalise the two options from his buyer’s point of view.  He would want the buyer to offer £12.5m for a business assets sale or £10m on a share sale.  The first option only costs the buyer £10m net of his tax relief.  £12.5m business sale creates a £8.1m receipt for John.   The second shares option costs the buyer £10m and still leaves Harry with his £8.1m.  

So the key is to realise that to get the best deal a business sale must cost the buyer a significantly higher price than the share sale to get the same overall result net of tax.  Ask for at least 25% more for scenario 1 rather than scenario 2.

After April 2023 the CT rate increases to 25% on earnings above £250k profits with a transition between £50k and £250k.  The corporation tax at the 25% rate exaggerates the effect even more.  If you want £8.1 m net, the buyer of the business will have to offer 35% more.  

Don’t sell the business.  Sell the shares in the business.
Letters to landlords top
VAT repayment evidence
As a landlord letting a residential property you are required by the Housing Act 2004 to protect deposits provided by tenants on assured shorthold tenancies, by using a deposit scheme.

The not-for-profit companies that run these schemes will provide details of their customers to HMRC or to any other Government department that requests the information.
Read More
HMRC are always a little suspicious of businesses that claim a VAT repayment in their first VAT return, or a large refund in a later return. In such cases it will write to you asking for supporting evidence, such as copies of invoices, to be provided within 30 days.
Read More
Pensions for higher rate tax payers top
Higher rate tax employee making personal pension payments? Don’t get ripped off!

Let us say you are an employee on a salary level that makes you a higher rate taxpayer.  If you make a personal pension contribution it is imperative that you get relief at higher rate tax (40%), not basic rate (20%).  Your pension provider will normally only provide 20% relief.  You need to get the extra 20%.  This normally involves providing a personal tax return, so making a claim for extra relief back the HMRC separately from the PAYE system, or the pension system.  

If you are a higher rate tax payer and paying a personal pension contribution, have you been completing Personal Tax Returns to recover the excess?  Can we help you if not?

If this is you, going forwards we suggest that you ask for an element of your package with your employer includes an additional employer pension contribution.  Your employer pays instead of you paying privately from after-tax income.  Perhaps this is funded with a salary sacrifice. As this would be employer paid, no National insurance would be due on the contributions, either employee or employer.

The gains from doing this when you approach the £100k earnings level are even more spectacular:

Here are is a link to our alternative to brief you further:
December Questions and Answers top
December Key tax dates top
Q. The sales representative for my company leaves home early in the morning for a two-day business trip that includes an overnight stay. What can the company pay him as a daily allowance if he does not produce any receipts? Answer

Q. Myself and my husband are both employed by the same company, we work from home, but our employer didn’t pay us the £6 per week working from home allowance. We also jointly own a let property. Can we claim the home working allowance against our salaries and also against our property rental income? Answer

Q. I work through my own company which pays me a salary and dividends, but I’m confused as to whether I should classify myself as employed or self-employed. Answer
7 -If you don’t have a direct debit set up to pay your VAT liabilities, the payment for the quarter or month ending 31 October 2022 must reach HMRC by this date. VAT must be paid electronically.

12 – Where you have a direct debit set up to pay your VAT liabilities HMRC will take the amount of VAT due for the quarter or month to 31 October 2022 from your bank account on this day.

19 – The RTI returns for your payroll for the monthto 5 December 2022 must be filed by this date.

Where you pay your PAYE, Class 1 NIC, and CIS deductions by cheque, this cheque must reach HMRC’s Accounts Office by this date for payments relating to the tax month ending on 5 December 2022.

22 – Electronic payments of PAYE, Class 1 NIC, and CIS deductions for the tax month ended 5th December should clear into HMRC’s bank account.

23 – If you have set up a direct debit to pay your PAYE, HMRC will take the amount due for the tax month to 5 December 2022 from your bank account on this day, if you filed the RTI return on time.

30 – Last day to submit an electronic self-assessment return for the tax year 2021/22 if you wish HMRC to collect the tax due through your future PAYE code if the amount you owe is less than £3000.

31 – The corporation tax return for an accounting period ending 31 December 2021 must reach HMRC by this day.
Need Help? top
New Clients Welcome top
Please contact us if we can help you with these or any other tax or accounts matters.

In addition, if there’s anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.
If you are not already a client and are interested in becoming one, we would love to discuss how we can help and provide you with a competitive quote for our services.

See details of our Business Companion Service.
About Us top
Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Mamut, Freeagent, Quickbooks or Xero.

‘All clients using these software packages can benefit from our support. Visit our website for a look at the resource on offer.’

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