Restructuring and becoming more efficient in 2023 – January’s View from Alexander & Co
Both business owners and individuals may be wondering what is on the horizon in 2023, following several turbulent years. Understanding your business finances better and considering restructuring may be two of several useful actions to consider in 2023 to help you navigate through the year.
Although 2023 has just begun, a lot has already happened this year. Interest rates look set to rise at least one more time before hopefully steadying of (the next announcement from the Bank of England is Thursday 2nd February) and house prices are showing signs of stagnating.
There are also positives on the horizon, The Prime Minister Rishi Sunak has already promised to half inflation this year (although this has already been forecasted by some economic commentators) and there is optimism elsewhere in the economy.
With this in mind, we have highlighted some areas which business owners and individuals should consider reviewing, to help them move through 2023 more resiliently.
Getting a better understanding of the financial position of your business
This might sound obvious, but do you truly understand where your business is financially? The starting point for this will be with your accounts, are these up to date and do you understand what they mean? If they are not up to date, consider this a priority and make sure you understand them.
A good accountant and auditor should understand your business and its finances and be able to talk you through what your accounts mean for the business, if not consider your options. Questions to consider include:
- If you carry stock what are your stock levels, do you have too much, if you carry too little, can you keep up with demand?
- How much debt are you carrying, is it beneficial to reduce or increase this?
- How healthy is your cashflow? Can you weather further interest and cost rises?
- Do you know your most profitable business lines, and what are your growth plans?
A proper accounting review with your accountant can achieve this – do you undertake these?
For those companies that are audited annually, the Audit process can sometimes feel invasive, but hopefully your auditors know your business and the industry you work in and you can build a good relationship with a familiar team which audits your business each year. Find out about our audit services here.
Be more tax efficient in 2023 and make sure you understand the key changes affecting you this year
Individuals and business can usually benefit from a tax review. Tax is a changing, complex and an often perverse area of the law, so it is beneficial to keep up to date.
Additionally, circumstances change, both from a personal perspective and a business perspective, so with it, tax efficiencies are also likely to change.
In 2023 there are several significant changes that need to be considered, including:
- A reduction of over 50% in the annual exempt amount for capital gains tax (your tax-free allowance)
- The dividend allowance is being dramatically reduced
- Diverted Profits Tax is being increased
- A change in how capital gains tax is treated in divorce (more on this below)
- The main rate of Corporation Tax is to rise from April 2023 from 19% to 25% for some companies
- Changes to how research and development tax credit is claimed (more on R&D tax credits here)
- The cut to the additional tax threshold is now going ahead following a u-turn in 2021 by the Chancellor Jeremy Hunt
The above list is not exhaustive, and with a range of other changes, you can quickly see that there is a lot of changes that will impact both individuals and businesses. Even if this was considered a short time ago, a fresh review will benefit.
Business restructuring can offer many benefits and help to meet the evolving objectives of a firm. In the current economic climate, increased costs and higher interest rates are likely to be affecting the profitability of many companies.
Whilst many firms turn to business restructuring during difficult times, restructuring can also be beneficial for those looking to increase profits and reduce tax liabilities at any time in their life cycle. Restructuring is also often required for specific reasons, such as in preparation for a sale or acquisition, or to safeguard assets. Read more on business restructuring here.
Plan for inheritance – with higher taxes it is always important to review and restructure your plans when needed
With inheritance tax and many other tax thresholds again being frozen, the current rate of inflation means that this equates to tax increases in real terms. With these thresholds being frozen for an additional two years to April 2028, a review of inheritance tax planning can be useful. Some of the other frozen tax thresholds include:
- Income tax personal allowance
- Higher rate threshold
- Main national insurance thresholds
- Inheritance tax thresholds
Additionally, the VAT registration threshold will be maintained at £85,000 until at least March 2026, affecting many businesses.
Restructuring your marital status? – tax changes affecting divorce
A change for the better takes affect for divorcing couples from April 2023.
This change amends the rules that apply to the transfers of matrimonial assets between spouses as part of a divorce settlement, extending the time limit in which assets can be transferred with a no gain/no loss. Further information regarding these changes can be found here.
Are your Self Assessment tax returns exhausting you?
Were you one of the 3,000 plus that filed your tax return on Christmas Day or did you leave it until the 31 January deadline to submit it?
With increasing tax complexities and people having more financial interests, such as crypto assets or property investments, it is worth considering how you are going to deal with these for the year ahead.
Completing your Self Assessment in advance doesn’t affect when you are required to pay tax to HMRC, but gives you peace of mind in understanding your tax liability early, and allows you to plan your payments and avoiding making last minute mistakes, rushing to complete a return. Further details on Self Assessments this can be found here.
Pre year-end tax planning
Pre end of year tax planning is an important element of both an individual and a business’s tax strategy which helps to ensure that all available tax reliefs and allowances have been utilised in the current tax year. This is also an ideal opportunity to take a wider review of your circumstances and plan for the year ahead.
With the new tax year starting on 6th April, now is the time to take action to allow adequate time before the end of the tax year to implement any changes required following a review. More information on end of year tax planning can be found here.
Views from Alexander & Co – restructuring and comprehensive accountancy, tax and business advice
Throughout 2023 we will offer different viewpoints from Alexander & Co, focusing on topical issues affecting businesses and individuals. Below is literally a view from Alexander & Co’s Manchester office.
If you would like to discuss how we can assist you in a personal or business capacity with regards to any of the issues discussed in this article, or would like assistance with any other tax or accountancy issue, please contact us for more information.
You can use the form below, or email firstname.lastname@example.org and we will be in touch to discuss how we can assist you.