2020 presented challenges to many businesses like never before. 2021 will shortly be upon us, and many businesses are now taking stock of their performance over the last 12 months as they enter 2021. With the Brexit transition period ending on 31 December 2020 and Covid-19 continuing to impact businesses, we take a look at what 2021 for UK businesses could bring and how businesses can prepare for the year ahead.
What can we expect in 2021 for UK businesses?
There are two things that are certain to continue into 2021 and impact businesses, Brexit, as the transition period comes to an end and Covid-19 as we hopefully begin to return to some degree of normality later in 2021.
As the country reaches the end of the Brexit transition period, there are many rules and regulations that will automatically apply from 1 January 2021 (regardless of whether a trade agreement is reached), while some are still yet to be decided. COVID-19 is still impacting businesses and whilst there now appears to be a route out of the crisis, it remains largely unknown how long the UK will be affected by the pandemic. As well as these issues, there are many other issues that businesses should be considering, to put them in the best possible position to succeed in 2021.
Brexit, requirements for an EORI number and changes to cross border VAT
From 1 January 2021, Goods will be eligible for import VAT and customs duties and the process of importing or exporting goods to and from EU countries will generally become similar to how goods are currently imported from non-EU countries.
All businesses moving goods between the UK and EU countries will require a EORI number to trade from 1 January 2021 (which can take at least 7 days to obtain).
Alongside changes to VAT and possible additional duties, in 2021 for UK Businesses there will be changes to other areas, including transport and logistics, copyrights, trademarks and patents, environmental industrial standards, product safety and compliance with environmental standards, qualifications and Relevant licences and personal data
You can read all about Brexit and how it will affect your business in our guide, including how Brexit will affect trade between the EU and how employing EU nationals will change
Tax deadlines 2021
Tax is a certainty in life and tax deadlines are again on the horizon. Although, due to Covid-19, some of the payment deadlines for certain taxes have been altered (including important changes to the Self Assessment tax deadline in January), businesses should continue to prepare for 2021 tax deadlines as usual.
You can read more about important 2020/21 tax dates in our guide, or get in touch with our tax team for assistance with all aspects of tax, from personal and corporate tax advice to share schemes and R&D tax relief.
Making Tax Digital in 2021
In April this year, HMRC made a decision to push back the Making Tax Digital deadline to April 2021. This delay has provided many businesses with more time to put their digital links in place. However, if your business is required to do so, it is recommended that action is taken now to avoid any late penalties ahead of the 2021 changes to Making Tax Digital. You can read more about this in our Making Tax Digital 2021 article.
Capital Gains Tax increases?
The Government is considering tax increases to raise revenue following increased spending in 2020 due to Covid-19. It has been widely reported that Capital Gains Tax is one of the areas where the Chancellor is looking to recoup money and plug the hole in the UKs finances.
The Office of Tax Simplification recently reported back to the Government with a number of recommendations, these included:
- Aligning Capital Gains Tax with Income Tax (this would be a significant increase in many cases))
- Significantly reducing the annual level of Capital Gains Tax exemption (this is currently £12,300 and could be reduced a figure as low as £2,000 – £4,000)
- Abolishing Investors’ Relief
- Abolishing Business Assets Disposal Relief (formally Entrepreneurs’ Relief)
- Inheritance Tax uplift to be abolished
Whilst it is unknown what, if any, of these recommendations the Government is going to adopt, it would be prudent for anyone likely to experience a capital gain in the short to medium term to take advice on crystallising this in the current tax year if possible. You can read more about this in our Capital Gains Tax article.
How else can businesses plan for 2021?
Whilst uncertainty still exists in the economy, there are a number of actions businesses can take now to better prepare for 2021.
The turmoil many businesses encountered in 2020 has led to many of them taking stock and reviewing the way in which they work. This has not only included operational matters, but also other areas, where business owners have had greater regard for long-term planning, such as succession planning and tax efficiencies. planning now will help in 2021 for UK Businesses.
Your assets are likely to change during your lifetime and existing wills may not reflect your current situation. Even if they do, regular reviews will make sure that you are looking after your assets in the most tax-efficient way as possible.
Inheritance tax planning is often not considered early enough. Your assets are likely to change during your lifetime, and a review is always useful. With careful planning, there are many ways in which you can reduce potential inheritance tax bills including gifting, life insurance, trusts and discounted gift plans.
Our tax experts will help to make sure you utilise all available reliefs and exemptions available to you. We can structure a bespoke succession plan considering your individual circumstances to make sure the allowances work best for you. You can find further information here.
Business Succession and Shareholder Agreements
Succession planning is crucial to ensure that there is a formal arrangement in place for your business in the case of an expected or unexpected departure of a shareholder or key member of staff this could be following a sudden departure through illness, or due to retirement, for example. Many businesses have learnt first-hand, and the hard way in 2020 the impact not having this in place can cause.
A shareholders’ agreement can alleviate much of these uncertainties. A well prepared and executed agreement will help to protect shareholders’ investment in a company, establish a fair relationship between shareholders and govern how the company operates and is managed.
The agreement will be able to set out the shareholders’ rights and obligations, outline how the company is to be run and regulate the sale of shares in the company amongst the areas it covers. In the event of the death of a shareholder, this agreement can outline how the shareholder’s interest in the company will be dealt with (such as being sold to other shareholders, rather than transferred to a family member, who may not be familiar with the company).
Succession planning is important for all businesses, it is even more salient in family businesses, where they have specific expertise and have assisted for many years. Family businesses have an extra layer of dynamics and we can provide tailored assistance and advice in relation to integrating the next generation into a business. Our family business accountants are here to help.
Due to the impact of COVID-19 in 2020, many businesses had to experience the impact of a shareholder, director or a key member of its team leaving unexpectedly.
Often with a detrimental impact on a business, such departures could result in the loss of clients, depletion of profits or even the inability to offer a key product or service.
In addition to Shareholder Agreements, Shareholder Protection and Key Person Cover are additional ways in which businesses can help to protect themselves against such untimely events. These need to be carefully considered as some business agreements may be liable for inheritance tax and assistance should be sought to structure these in the most tax-efficient way possible, based on personal circumstances. Further information on these and their use can be found here
Annual Investment Allowance
The £1 million temporary cap on Annual Investment Allowance will be extended until 1 January 2022 (after which it is scheduled to fall to £200,000).
This will allow businesses to claim £1m in same-year tax relief for capital investments in plant and machinery assets.
Becoming more efficient in 2021 for UK Businesses
During 2020 many businesses had no choice to adapt fast, whether it was a shift to working from home, moving their business online for the first time, reducing overheads or expanding a new or existing product line. Undertaking a review as you go into 2021, reducing any unnecessary overheads and creating a business resiliency plan are both areas that can help.
Create a business resiliency plan
COVID-19 has displayed vulnerabilities within many businesses, but it’s never too late to develop or improve a firm’s resiliency plan. A business resiliency plan will help you adapt and respond to future events much more rapidly. For example, you may wish to identify areas of weakness that arose during the Covid-19 pandemic and consider how these could be exposed again during future events.
Make sure your management accounts are robust. These are essential in understanding how your business is performing. Understanding these will provide additional insight in identifying areas to control costs, improve cash flow and margins and reduce risk.
Financial forecasting not only helps you keep control of your business, but it is a general requirement when seeking financing. Monitoring and improving cash flow through active cash flow management is an area that can greatly assist a businesses finances. In its simplest terms, managing the outlay of monies, and pursuing monies due is important. Preparing cash flow projections will help identify any pitfalls in the future and allow you to amend future spending patterns.
Tax efficient planning can considerably help the cash flow of a business, taking full advantage of tax incentives to ultimately reduce a businesses tax burden. There are a wide range of tools available here, where a tax advisor can assist. This can include restructuring a business in the most tax efficient way or ensuring all available rebates and incentives are claimed.
Businesses can take action to strengthen their balance sheet through a wide range of actions. This could include revaluing assets, capitalising intangible assets, deferring tax assets or through the issuing of new shares.
Where a business is looking for investment, then can consider attracting this through SEIS (Seed Enterprise Investment Scheme) or EIS (Enterprise Investment Scheme), both of which provide investors with tax incentives.
SEIS offers tax reliefs to individual investors purchasing new shares in a company. A maximum of £150,000 can be received through SEIS investments. Under EIS, up to £5 million can be raised each year (up to a maximum of £12 million in a companies’ lifetime). Both of these are subject to additional criteria.
When faced with financial uncertainty, reducing overheads may be vital when it comes to the future of your business. How to effectively cut costs will vary from industry to industry, but here are some things to consider:
- Consider Time to Pay arrangements. Although this will not save money in the long-term, deferring payments could be used when liabilities cannot be paid at present. We’re here to advise our clients on Time to Pay and, where necessary, negotiate with HMRC. Get in touch for more information.
- Retain staff where you can. Although making redundancies might seem a necessary short-term measure, many businesses will find they struggle to find the right candidates quickly enough when business is back to normal.
- Review costs, given that most industries have been impacted in 2020 to some degree, it would be a good time to renegotiate any contracts you have. As mentioned above, having robust management accounts, cash flow management and tax planning will all greatly assist here.
- Focus on the medium to long-term. Short-term responses, like the furlough scheme, have been implemented effectively, but businesses should prepare for the long-term to successfully emerge from the pandemic and continue their growth. Our business growth advisors can help your business reach its full potential at this challenging time.
Advice to help you into 2021 for UK businesses
During periods of uncertainty, it’s important to spend time on activities that offer the most in return. Our chartered accounting team is here to help you grow and thrive in the New Year.
Not only can we take care of your financial planning, but we can also create a tax-efficient company structure, identify any problems and monitor profit and loss. This will allow you more time to focus on your core business activities, while we work on financial planning and opportunities for business growth.
For more information, get in touch with our team today on 0161 832 4841, email email@example.com or simply fill out the contact form below and we’ll be in touch promptly.