Tag: Professional Services Firm
Coronavirus: additional schemes and updates
Chancellor Rishi Sunak has vowed to “go further” as he announced the government’s latest Plan for Jobs: three new measures to help workers and businesses get through lower demand over the winter due to a coronavirus second spike. The most significant announcements concern the Job Support Scheme (JSS), which will be made up of two parts: JSS Open and JSS Closed. Both will start on 1 November, the day after the Coronavirus Job Retention Scheme (CJRS) finishes, and run for six months.
JSS Open
JSS Open will provide support to businesses that are open where employees are working shorter hours due to reduced demand.
- Employees will need to work at least 20% of their usual hours and employers will continue to pay employees for the hours they work.
- For the hours not worked:
- The UK government will pay a contribution of 61.67% of the usual pay, up to a maximum of £1,541.75 per month.
- Employers will pay 5% of the usual pay, up to a maximum of £125 per month, and can top this up further if they choose.
- Employees should receive at least two thirds of their usual pay for hours not worked, where they earn £3,125 a month or less.
- Employers will need to cover all employer National Insurance and pension contributions.
When JSS was originally announced, the government’s and the employer contribution to wage costs was to be one third each of the hours not worked.
JSS Closed
JSS Closed will provide support to businesses whose premises are legally required to close as a direct result of coronavirus restrictions set by one of the four governments of the UK. This includes premises restricted to delivery or collection-only services from their premises, and those restricted to providing food and/or drinks outdoors.
For JSS Closed, the UK government will fund two thirds of employees’ usual wages for time not worked, up to a maximum of £2,083.33 per month. Employers will not be required to contribute, but they can top up the government’s contribution if they choose to. Employers will still need to cover all employer National Insurance and pension contributions.
Self-employment Income Support Scheme (SEISS) Grant Expansion
It was previously announced that SEISS would cover 20% of monthly profits for the period from November 2020 to January 2021, capped at £1,875 in total. The UK government is now doubling the value of the first grant to 40% of three months’ average trading profits, paid out in a single instalment, and capped at £3,750. HMRC will provide full details about claiming and applications in mid-November. The second grant will cover a three-month period from the start of February until the end of April. The government will review the level of the second grant and set this in due course.
Grants for businesses in Tier 2 and Tier 3 Areas
Businesses in England in Very High alert level areas (Tier 3) will now be able to claim grants, regardless of whether they are legally required to close or remain open. The grant will be:
- £1,300 per month for businesses occupying a property with a rateable value of less than £15,000
- £2,000 per month for businesses occupying a property with a rateable value of less than £51,000 or occupying a property or part of a property with annual rent or mortgage payments of less than £51,000
- £3,000 per month for businesses occupying larger properties
Hospitality, hotel, B&B and leisure businesses in England in High alert level areas (Tier 2) will now also be able to claim grants. The grant will be:
- £934 per month for businesses occupying a property with a rateable value of less than £15,000
- £1,400 per month for businesses occupying a property with a rateable value of less than £51,000
- £2,100 per month for businesses occupying a property with a rateable value of greater than £51,000
Businesses in other sectors may also be eligible at the local authority’s discretion and we urge our clients to maintain communication with their local authority where possible, as discretionary grants are often made available at short-notice.
Businesses in any area which has been under enhanced restrictions can backdate their grants to August.
Whether you’re an existing client or don’t yet use our services, we would be pleased to help you. Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.
Winter Economy Plan
Chancellor Rishi Sunak today delivered a statement setting out plans to help workers and businesses hit by new coronavirus restrictions. With plans for an Autumn 2020 Budget cancelled, the Chancellor announced his Winter Economy Plan. In it he outlined how the various government support schemes to help businesses through the coronavirus restrictions will be extended or remodeled.
Job Support Scheme
As now anticipated, the introduction of the new Job Support Scheme (JSS) will come into effect on 1 November after the Coronavirus Job Retention Scheme (CJRS) ends. Under JSS, which will last for six months, employees who work at least 33% of their hours will be paid for two thirds of the hours they do not work, shared equally between the employer and the government.
The result is that an employee working 33% of their normal hours will receive 77% of their pay: 55% paid by the employer and 22% paid by government.
Other measures
- The self-employed grant is extended on similar terms to the JSS. A grant will be available to those eligible for the Self Employment Income Support Scheme (SEISS) and will cover 20% of monthly profits for the period from November 2020 to January 2021. A further grant to cover February 2021 to April 2021 may become available, depending on circumstances. [22/10/2020 UPDATE]: In his third economic statement within the last month, the Chancellor confirmed more generous terms for the remaining SEISS grants. The level of the third grant will be based on 40% of average trading profits, rather than the previously announced 20%, and will be capped at £3,750. The level of the fourth grant is to be kept under review and announced in due course. [Subsequent UPDATE]: The Chancellor confirmed once again even more generous terms for the remaining SEISS grants. The level of the third grant will be based on 80% of average trading profits, rather than the previously announced 20% then 40%, and will be capped at £7,500.
- Businesses that deferred a quarterly VAT payment during the lockdown previously had to pay this back by 31 March 2021 – now they will be able to spread this over 11 months during 2021/22. Businesses will need to opt in, but all are eligible.
- Individuals who deferred their July 2020 self-assessment tax liabilities till January 2021 will now not need to pay that till January 2022. Taxpayers with up to £30,000 of Self-Assessment liabilities due, including liabilities that will become due in January 2021, will be able to use HMRC’s self-service Time to Pay facility to secure a plan to pay over an additional 12 months. Any Self-Assessment taxpayer not able to pay their tax bill on time, including those who cannot use the online service, can continue to use HMRC’s Time to Pay Self-Assessment helpline to agree a payment plan.
- The VAT reduction to 5% for the hospitality sector will be extended from 12 January 2021 to 31 March 2021.
- The extension of Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) loans from six to ten years.
- BBLS loans will become known as “Pay as You Grow” – businesses will enjoy a flexible repayment system which will include interest-only periods of up to six months and payment holidays.
- Applications for new loans under BBLS, CBILS, the Coronavirus Large Business Interruption Loan Scheme and the Future Fund remain open till the end of November 2020.
Whether you’re an existing client or don’t yet use our services, we would be pleased to help you. Contact Mouktaris & Co Chartered Accountants for expert advice.
Technology and Professional Services Grant for SMEs
The government has announced details of new funding, designed to help small and medium sized businesses (SMEs) access technology and advice. SMEs will have access to grants of between £1,000 – £5,000 to help them access new technology and other equipment as well as professional, legal, financial or other advice to help them get back on track. The programme is due to launch in September.
Funds could be deployed to help businesses in the following ways:
- Advice on implementing technologies to streamline operations, for example apps to organise rotas and reporting for staff
- Equipment to facilitate efficiencies, including with respect to financial reporting or continuing to deliver business activity in response to COVID-19
- Legal advice regarding getting back on track and managing stakeholders, including HR
- Professional advice to review business strategy or business models
- Coaching and mentoring in leadership and management development
- Innovation strategy to adapt and diversify products or services
- Developing or revising marketing or digital strategies to reach new markets
- Mitigating the impact of social distancing measures
- Legal and environmental health compliance
- Skills analysis and development plans
- Employee engagement, welfare and wellbeing
Mouktaris & Co provide many of the services which will be eligible for this support, including accountancy services, business advice, legal services and HR support. If you have considered a project or initiative to develop your business, the grant program may be suitable for you. You can access the funding – provided by the England European Regional Development Fund – as part of the European Structural and Investment Funds Growth Programme 2014-2020, through 38 growth hubs within a Local Enterprise Partnership (LEP) area. If you are interested in support, advice or funding associated with your business venture, please contact your nearest LEP growth hub.
Further information
- The support will be fully funded by the Government with no obligation for businesses to contribute financially.
- Amongst other eligibility criteria, a business must have been trading on or before 1st March 2019 and should still be trading.
- The grant must cover 100% of the service a business is procuring (up to a maximum total project value of £5,000). The grant cannot be used to part-fund expenditure.
- Grants must be claimed within one month of receiving confirmation that the application has been accepted and upon production of an invoice for the claimed service or goods.
- Growth Hubs work across the country with local and national, public and private sector partners – such as Chambers of Commerce, FSB, universities, Enterprise Zones and banks, coordinating local business support and connecting businesses to the right help for their needs. They are locally driven, locally owned and at the heart of the government’s plan to ensure business support is simpler, more joined up and easier to access. A Growth Hub will therefore encourage you to utilise specialist advice from a local supplier.
- The funding being provided to businesses is supported by the England European Regional Development Fund as part of the European Structural and Investment Funds Growth Programme 2014-2020. The funding has been allocated to Growth Hubs within each LEP area in line with the current ERDF Programme.
Whether you’re an existing client or don’t yet use our services, we would be pleased to help you. Contact Mouktaris & Co Chartered Accountants for expert advice, including ideas on deploying funds to help your businesses grow.
Professional Services Firm: LLP or LTD
We are often asked to advise our Professional Services clients, lawyers and accountants, on the optimal business structure: LLP or limited company (LTD).
Whilst the statutory and accounting filing requirements are similar across both structures, the LLP was introduced to offer flexibility in management and pay: both important in human-capital-intensive Professional Services Firms. An LLP is controlled by its Members and governed by the Members Agreement, whilst a company is controlled by its shareholders under the articles of association and shareholders’ agreement.
Soon after their introduction, LLPs became the go-to model for Professional Services Firms because of the ability to:
- split partnership profits between Individual Members, taxed at income tax rates, to reflect profit or performance targets;
- appoint a Corporate Member to absorb “excess partnership profits” in a given financial year, taxed at a lower (corporation) rate of tax and available for reinvestment in the business;
- appoint and remove partners without the complex process and costs of them conferring or relinquishing shareholdings, and without the tax costs were any shares obtained at undervalue.
Tax
We know that LLPs are tax transparent and that Individual Members are usually treated as self-employed and taxed at income tax rates, subject to HMRC tests. On the contrary, a company pays corporation tax on profits: a company’s directors receive salaries subjected to PAYE whilst its shareholders pay income tax on dividends voted by the directors.
Some of the benefits of an LLP therefore centre around the following:
- An Individual Member of a trading LLP is taxed as if they are carrying on a trade directly for income tax purposes. This treatment carries certain tax advantages compared to the treatment of employees:
- Expenses are generally deductible for tax purposes if they are wholly and exclusively incurred for the purposes of the trade. This is in comparison to wholly, exclusively and necessarily incurred for employees.
- Pay as you earn (PAYE) does not apply and tax is generally only payable twice yearly rather than monthly as the individual members are not employees.
- Employer national insurance contributions (NICs) (currently 13.8%) are not payable in respect of the amounts payable to the individual members of the LLP as they are not employees.
- Members can flexibly adjust how the LLP is governed as Members arrive and leave and how Members are remunerated.
Pre-2014: LLP the way to be
Previously and in accordance with a Profit Sharing Agreement (part of the Members Agreement), LLPs enjoyed the ability to apportion taxable profits between Individual Members and Corporate Members, who pay contrasting rates of tax (sometimes 45% vs 19%). LLPs proved to be an effective structure for the governance of a Professional Services Firm, whilst also offering a “hybrid model” of taxation, whereby Individual Members were taxed at income tax rates on income drawn and presumably spent, whilst Corporate Members were taxed at a lower corporation tax rate on excess profits retained for capital expansion of the business.
Post-2014: LLP attack
The mixed membership partnerships anti-avoidance legislation of Finance Bill 2014 brought about a significant change in partnership taxation. Leading up to the change in law, it had become relatively common to see partnerships (including LLPs) with mixed Individual and Corporate Members. In short, the legislation provided for profits allocated to a non-individual partner (B) in a mixed member partnership to be reallocated to an individual partner (A), such that they are taxed at the individual partner’s rate of tax, if either:
- Condition X: it is reasonable to suppose that:
- B’s profit share includes an amount representing A’s deferred profit; and
- A’s profit share and the total amount of tax for which A and B are liable (relevant tax amount) are lower than they would have been absent the deferred profit arrangements.
- Condition Y: B’s profit share exceeds the appropriate notional profit, A has the power to enjoy B’s profit share and it is reasonable to suppose that:
- B’s profit share (or part of it) is attributable to A’s power to enjoy; and
- A’s profit share and the relevant tax amount are lower than they would have been absent A’s power to enjoy in B’s profit share.
Almost overnight, the mixed membership partnership rules led to a decrease in the popularity in the use of LLPs with Corporate Member structures amongst the SME business community and in some cases the unwinding of existing LLP structures.
Action
For mixed partnerships, the following steps could be considered:
- Outright incorporation. This clearly removes the issue of reallocation and provides a deferral of higher tax rates while the company retains the profits.
- Eliminate the corporate members and accept the income tax result. This in effect concedes the full impact of the new rules, so could be combined with exploring other approaches.
- Establish a company owned by the partnership to operate the business with or without the capital assets, ie the corporate is a subsidiary, not a partner. This may provide a possible solution in allowing ownership to change in a partnership rather than a share capital company, but with suitable profit retention for working capital by the operating company.
- Retain the existing structure with corporate members’ shares in amounts that can be justified by the new rules for services or the provision of capital.
- Consider the use of alternative business structures which should not result in reallocations between partners. These require specialist consideration by reference to the case and a range of other relevant legislation.
Clearly the tax effects of making a change will need full review, such as the availability of incorporation relief from capital gains tax, stamp duty land tax, and the impact of entrepreneurs’ relief. You can rely on our expertise surrounding companies, partnerships and tax for the delivery of the sound ideas needed to put plans into action:
- We help businesses manage all aspects of structure from set-up and management to dispute resolution and exit strategies
- We look at tax structures
- We understand the differences in structure between a partnership and a company;
- We advise on adapting a structure that is no longer fit for purpose.
Contact Mouktaris & Co Chartered Accountants for help planning your Professional Services Firm expansion.