Abolition of FHL regime

Abolition of FHL regime

If you own property classed as a furnished holiday let (FHL) for tax purposes, then it’s vital that you’re aware of the planned abolition of its favourable tax treatment from 6th April 2025 (1 April 2025 for companies).  

Although new legislation is yet to be drafted, we can expect short-term and long-term residential lets to receive the same tax treatment, meaning that it will no longer be tax-advantaged to commercially let your property for a series of short periods. This comes as the government plans to ‘level the playing field’ between ownership of short-term and long-term lets, with the overall goal of helping people to live in their local area. 

Reminder of the current regime 

At the moment, your FHL benefits from the following tax treatment: 

  • Being able to fully deduct interest incurred on mortgage borrowings from taxable profits. 
  • The availability of a number of capital gains tax reliefs, including business asset disposal relief, rollover relief and business asset holdover relief.  
  • Capital allowances for items such as furniture, equipment and fixtures. 
  • Classing profits as earnings for pension purposes, allowing tax-advantaged contributions.

Uncertainties regarding the new regime 

Without any legislation regarding the changes, right now we have more questions than answers. Some of the key areas of uncertainty are as follows: 

  • Will there be any transitional provisions regarding capital allowances? Without such provisions there would be a balancing charge giving rise to a tax liability when the current regime ends. 
  • What will happen to existing FHL losses, which under current legislation, can only be used against future FHL profits? 
  • Will HMRC give a clear definition of ‘trading’? Getting rid of FHLs means there’s much more of a gulf between a rental property and a B&B. 
  • In the budget it was announced that anti forestalling rules in relation to capital gains tax relief would apply from 6 March 2024. We do not know yet if this will apply to all or just some of the existing capital gains tax reliefs. 
  • Will the current regime regarding business rates and FHLs remain, or will all FHLs become liable to pay council tax instead? This would have an adverse effect on owners currently liable to business rates but qualify for small business relief.

How can you prepare for the changes? 

Firstly, the key preparation for the abolition of the FHL tax regime, is to understand how owning and letting the property will impact your personal finances without the tax-advantaged rules. Secondly, it would be valuable to consider what options are available to you, for example it may be beneficial to incorporate or perhaps accelerate expenditure on items such as furniture, fixtures or equipment to the 2024/25 tax year. Although when considering any planning it would be necessary to wait for draft legislation before any action is taken. 

How can we support? 

If you own a furnished holiday letting, we want to help you navigate the changes that will arise when the tax regime is abolished on 6th April 2025. In the meantime, as the new legislation is announced, we can help you to weigh up available options and consider the most tax efficient routes to take.

Please don’t hesitate to get in touch for further assistance. 

Navigating business obligations: registering with HMRC

Navigating business obligations: registering with HMRC

If you’re at the beginning of an exciting new business endeavour, there is one key step to take before it’s well and truly underway – registering with HMRC. Every business in the UK must be registered with HMRC; it’s a fundamental step which lays the groundwork for financial compliance and legal legitimacy. 

At Fiander Tovell, we are dedicated to assisting businesses at every stage of their journey, from inception to triumph. While registering with HMRC is relatively simple, there are some key considerations that can impact your business in the long run. That’s why our team is here to guide you through the process seamlessly.  

So, are you ready to make your business official? Learn how to register your new business with our comprehensive guide!

 

1. Choosing your business structure  

If you are one of our avid readers, you may have seen our blog about trading options,which covers the different business structures available to start-ups. Whether you chose to operate as a sole trader, partnership or limited company, it’s important to be aware of what each structure would mean for your operations:

 

Sole trader 

An individual operates as the sole owner and is personally responsible for all aspects of the business, including finances and liabilities.

 

Partnership  

A business structure where two or more individuals share ownership and responsibility for the business, including profits, losses, and liabilities.

 

Limited Company  

A business structure where the company is a distinct legal entity from its owners (shareholders), offering limited liability protection and the potential for growth through the sale of shares. A full rundown on setting up a Limited Company can be found here.
  

2. Registering online  

Once you have decided on a business structure, you’ll have to register your business online. HMRC offers an online registration portal designed to streamline the process. You will need to provide information such as your personal details, business name, address, nature of business activities, and relevant financial details.  

When registered, HMRC will issue you with a Unique Taxpayer Reference (UTR) and may allocate other reference numbers depending on your business structure.   

Once you’ve set up your business tax account, you can use it to: 


3. Ongoing compliance  

Once registered with HMRC, it’s crucial to stay compliant with regulations by filling accurate tax returns on time, making payments promptly, and keeping a detailed record of all business transactions. Failure to comply can result in penalties, fines, or even legal action from HMRC, which can have severe consequences for your business’s reputation and financial stability.  

Our experts are fully aware of compliance with HMRC regulations. With our comprehensive understanding of tax laws and diligent approach, we ensure that your business stays on track with accurate tax returns, timely payments, and meticulous record-keeping. This is why we outsource our bookkeeping services to provide businesses with skilled professionals that can streamline the entire process to avoid costly errors.  

There, you should now be fully registered with HMRC! However, our help doesn’t stop here. We have a wealth of articles covering the different aspects of business growth along with the services we provide to ease your stress. Why not take a look at the next step of starting up your business: ‘Sustaining your start-up‘  

If you want more information on our services, or further guidance, don’t hesitate to contact our Commercial Client Director, Fabrice Legris: fabrice.legris@fiandertovell.co.uk  

Financial Check-ups: How we can improve your businesses’ health

Financial Check-ups: How we can improve your businesses’ health

Running a business is like nurturing a child; it requires constant attention, care, and vigilance to ensure its growth and well-being. Just as a parent takes their children for regular check-ups, a business owner should diligently tend to the financial health of their venture. Neglecting such issues is like turning a blind eye to a child’s needs – leading to unforeseen consequences.  

At Fiander Tovell, we act as the doctors for your business. We provide comprehensive financial check-ups tailored to your unique needs. Our analysis and strategic insights serve as the ‘apple a day’, ensuring your business sustains financial heath and keeping you on an upward trajectory!  

So, how is that important? Let’s delve into some of the key benefits of conducting regular financial health checks for your business! 

Importance of Regular Financial Check-ups  

It’s fairly easy as a business owner to neglect your finances while you focus on core operations. However, check-ups are crucial to sustain success and keep your business alive. If left unattended, your business could experience cash flow issues, tax penalties, and in the worst case – bankruptcy. With our accountancy services, we can help you stay on top of your finances and catch any issues early before they develop into serious problems.  

By conducting financial check-ups, you can:  

  • Keep a keen eye on cash flow, adjusting as you go 
  • Find opportunities, increase revenue, or trim expenses  
  • Keep ahead of tax obligations  
  • Identify areas to streamline operations and improve efficiency 

Our Services  

As part of our service, we can provide tailored reports that allow you to plan and forecast effectively, understanding the financial status of your business. The more information we get from you, the more we help you achieve your financial goals. 

Here’s how we conduct your financial check-ups:  

Organising/reviewing financial documents 

We gather all financial documents – this includes bank statements, credit card statements, invoices, receipts, tax returns etc. Each of these transactions are transferred seamlessly to our bookkeeping services, which provide a clear and accurate snapshot of your business’ financial health. This helps us monitor your overall cash flow, enabling us identify areas of savings or increase revenue. Additionally, this can show whether you have enough liquidity to cover expenses and manage any unexpected downturns in revenue.  

Tax planning and compliance  

Staying compliant with tax laws and regulations is critical for avoiding penalties and maximising tax efficiency. We provide proactive tax planning services, helping you to optimise your tax strategy, take advantage of available deductions and credits, and ensure timely and accurate filing of tax returns. 

Financial forecasting and planning 

Using your management accounts, we assist you in developing comprehensive financial forecasts and strategic plans aligned with your business objectives. Whether you are looking to expand, secure financing, or prepare for unforeseen challenges, our forward-looking approach helps you navigate with confidence.  

At Fiander Tovell, we are committed to helping businesses thrive by providing financial check-up services tailored to your unique needs and goals. With our expertise and dedication, you can trust us to safeguard the financial health of your business and pave the way for long-term success.  

If you require any further advice, or would like to enquire about our services, please do not hesitate to get in contact with our Commercial Client Director, Fabrice Legris at fabrice.legris@fiandertovell.co.uk 

Business Basics: Setting up a Limited Company

Business Basics: Setting up a Limited Company

Welcome to our comprehensive guide on establishing a limited company in the UK; we’re here to illuminate each step with clarity and precision. 

In today’s fast-paced business landscape, forming a limited company can offer unparalleled advantages in terms of liability protection, tax efficiency, and credibility. 

However, navigating the incorporation process can seem daunting without proper guidance. So, stay with us as we highlight the intricacies of company formation, empowering you to lay a robust foundation for your business aspirations in the UK market. 

What is a Limited Company?

A limited company is a type of business structure where the liability of its members or shareholders is limited to the amount of money they invest in the company. Additionally, the limited company structure is a separate legal entity from its owners, allowing you to enter into contracts, own assets, and conduct business in your own name. 

Why Choose a Limited Company?

The main advantage of a limited company lies with limited liability. Essentially, it separates you from your business, meaning that as a company director, your liability is limited to the value of your shares in the business. Therefore, if the company is at risk of bankruptcy or legal action, your personal assets would be protected. This is one of the reasons why operating as a limited company may be more favourable, particularly if your business brings a level of risk that may not be covered by your insurance.  

The 6 steps for setting up a Limited Company

If you have choosing to operate as a limited company is right for your business, we have broken down the steps to start your journey below! 

1. Choosing your company name 

Make sure the name you have chosen is available and complies with company names rules 

2. Choose director/s  

You must appoint at least one director, which may include yourself, but you may also choose to have multiple directors. Directors work together to make decisions for the company, adhere to regulations, and bear the responsibility for tasks such as filling accounts and ensuring corporation tax compliance.  

3. Decide on who the shareholders/guarantors are 

A limited company must have at least one shareholder (where limited by shares) or one guarantor (where limited by guarantee). A director can hold shares which can be divided among other directors, should you choose to have multiple. Additionally, a shareholder that holds more than 25% of the shares constitutes as a ‘person of significant control (PSC) which we advise to identify in this step of the process.  

4. Prepare company documents  

Your company must obtain and complete certain documents that show the formation of the company and how it is to be run. These include: 

  • The memorandum of association  
  • The articles of association  

Click here for more information in obtaining and completing these documents.  

5. Check what records you will need to keep 

You will need a full list of company and accounting records that you must keep. This includes records about the company itself such as directors, shareholders, and company secretaries along with internal votes and resolutions from shareholders.  

6. Register with Companies House  

Lastly, you must register your company’s official address and choose an SIC code which confirms what your company does. Additionally, you should register for corporation tax while completing this step.  

And there you have it! A full breakdown of what a limited company is and how to set it up. Choosing a trading option should not be a quick decision, however, and we encourage all businesses to consider each trading option in full and decide on what is most beneficial for your business. Our trading options article provides an overview of each option for you to consider.

What happens next? Check out our guide: Running a Limited Company, for an insight to the stages following incorporation.  

For further guidance, please get in contact with our Client Commercial Director, Fabrice Legris at fabricelegris@fiandertovell.co.uk 

Maximising the wealth of your business: Accounting preparation

Maximising the wealth of your business: Accounting preparation

As a business owner, it’s always wise to look ahead to the future. Any number of circumstances may mean that one day, you’ll consider selling your business. However, before this process can even begin, you will need to establish your exit plan. At Fiander Tovell, we work with our clients to create a solid exit plan that will help them to maximise the value of their business.

As part of the exit plan, we will work alongside you to ensure that your accounts are in order, to help attract potential buyers. This includes bringing attention to the potential issues that may slow down the transaction at a later stage.

In the first instalment of our Exit Planning mini-series, we discuss some of the ways that we can work alongside business owners to prepare their accounts for a smoother transaction.

Management Accounts

Management accounts provide a record of the financial performance of a business. They are usually produced monthly or quarterly, so that you can understand how well your business is doing and can modify your operations to improve the results.

Buyers will usually want to see your management accounts from the previous three years, as well as appropriate forecasts. It is important that they are well presented and consistent with year-end accounts as this will make it easy for the buyer to understand and give them confidence that the finances of the business are well managed. Although management accounts are very much bespoke to your business needs, we would recommend that you include the following:

  • Key performance indicators (KPIs)
  • Profit and loss statement
  • Cash position
  • Balance sheet

We understand and can help you find the most suitable way of formatting and presenting your management accounts. This will help potential buyers to appreciate the value of your business.

Adjusted profits and determining the price

Adjusted profit is a term used to define the reported profits of the business that are adjusted for certain unusual or one-off revenue or costs. Your adjusted profits will act as an indicator of your business’ true profitability and will be the figure the Buyer uses to determine your business’ value.

When you begin forming an exit plan, we would encourage you to be aware of what affects the price of your business. With this in mind, it’s a good idea to minimise ‘lifestyle expenses’ and to normalise other costs as soon as you can within the process, to show a steady improvement in profitability, rather than an unexplained spike.

Accounting estimates and variances

Do you really know how to calculate your profits?

Accounting standards sometimes permit different treatments of items, which can arise as a number of factors:

  • Changes in accounting standards happen from time to time and may not be reflected in your historic accounts but will affect the future reported profits
  • There can be differences between the way UK accounting standards require items to be treated in your accounts and the way international standards treat them.
  • Some accounting requires estimates to be made and these can be subjective. A difference in estimating techniques or values can affect the profits that are reported.

Bearing the above in mind, it is important to be aware of these potential differences. In doing so you will be able to consider whether alternative treatments may be more appropriate, or necessary and whether changes could improve or better reflect the true business profitability. It may also enable you to pre-empt a buyer’s possible challenge to your treatment.

Accurate accounting estimates and variances will be required to help the buyer visualise where the business is going. But how do you go about this process? You should usually start with the most recent accounting year and then predict changes to revenue and costs. We recommend you get used to doing this for a few years before you put the business up for sale so that your forecasting becomes more accurate and the buyer will be able to rely upon them.

Balance sheet and Working capital

As mentioned earlier, the balance sheet is a key part of management accounts. An accurate balance sheet will disclose your business’ assets (what you own) and liabilities (what you owe) at any given time. This will help potential buyers to determine the working capital of your business, which is usually calculated by working out the following:

[current assets] – [current liabilities]

A buyer will be interested in the working capital of your business, because it indicates not only the efficiency of your current operations, but also how viable the business will be in the long term. A sufficient level of working capital must usually be retained within the business at the point of sale to enable the business to continue its normal operations immediately after sale.

You should ensure you understand your business’ working capital requirement and project what it is likely to be at the point of sale, as any shortfalls will usually be knocked off the price of the business.

It’s quite common for a business to have provisions designated for specific expenses that may occur in future, or to reduce the value recoverable value of certain assets. However, it’s important to note that these may affect the valuation of your company when a buyer sees provisions on your balance sheet.

When organising your balance sheet, you may need to consider making stock adjustments. A stock adjustment is an increase or reduction made to your stock, so that the physical quantity matches the digital stock shown in the system, or one that changes the carrying value of stock items Making sure you have a sound stock policy in place well ahead of a sale is important to avoid any nasty shocks or reductions to the selling price of the business.

Completion funds flow

Completion is the final stage of your exit planning process. On this day, your company will pass to the control of the buyer, and the balance of money will change hands. The Sale Contract will determine the financial impact of the sale and the monies that flow on the day itself. There can be many complications that affect the money you received on the day, such as:

  • deferred payments and earn-outs
  • retentions
  • price adjustments
  • share options and rollover
  • professional costs

….. and the list goes on! Therefore, we suggest your advisers pull a draft completion funds flow together at the earliest stage possible in the process so that you have a clear expectation of what you will receive on the day.

At Fiander Tovell, we understand the importance of exit planning in the lifecycle of a business. We help our clients through the exit process, aiming to maximise value and bringing attention to the potential issues that could slow down their sale, to facilitate a smoother transaction with a fairer outcome.

For more information about forming an exit plan, or to enquire about our Business Planning services, please do not hesitate to contact Cathy Revis, Head of Tax, Transactional Support
& Firm Principal, at cathyrevis@fiandertovell.co.uk.

You can find more of the latest accounting and tax news, here!