< Previous East Midlands Business Link www.eastmidlandsbusinesslink.co.uk TAX The times they are a-changing With the upcoming budget expected to bring significant changes, Jennie Brown, tax partner at Streets Chartered Accountants, considers what may be on the way. T he October budget is right around the corner. It could bring major changes to a whole range of estate planning taxes, especially Inheritance Tax (IHT) and Capital Gains Tax (CGT). Set down are some thoughts, identifying possible changes that might be on the way and how they might impact on your personal wealth and the financial well-being of your family. If you’re serious about protecting your wealth, it’s time to brace yourself. Here’s what might change: Inheritance Tax: changes are widely expected The government could be eyeing cuts to IHT reliefs, which may reshape your estate planning strategies. Here’s where the biggest impacts may lie: * Increasing IHT rates An easy win for the Chancellor in terms of raising revenue would be to increase the rate of IHT in relation to very substantial estates. A death tax rate of 40% is relatively low. There is no reason why a gradated rate could not be introduced, which imposes softer rates on smaller estates as well as higher rates of tax, up to say 55%, for the largest estates. In the past the highest rate of IHT was 60%, and in relation to Capital Transfer Tax, which was the precursor to IHT, it was 75%. In the press there has living in substantial mansions. This could well be an area where changes may be introduced. One possibility would be to a put a financial cap on the maximum relief available in relation to a farmhouse. * Nil Rate Band and Residence Nil Rate Band: are limits changing? Again, there has been widely trailed criticism of residence nil rate band relief. This can be worth as much as £140,000 in money terms where husband and wife are concerned. A left wing think tank has urged the Chancellor to scrap the availability of the relief to raise £2bn. In practice, she might be tempted to reduce the level of relief on the basis that the current level disproportionately favours those in the South of the UK as compared to the North. Capital Gains Tax: what’s on the line? CGT could see significant changes too, which might affect anyone looking to sell assets or investments. Here’s what to be aware of: * CGT rate hikes: sell now or risk higher rates There’s speculation about a potential CGT rate hike. This could mean higher taxes on property or investment sales. The difference between the maximum rate of tax on income and capital profits been speculation as to the fairest way to tax billionaires. This might be something on the Chancellor’s agenda. * Business Property Relief (BPR): BPR has been a lifeline for business owners, letting them pass on business assets with significant tax relief. It has been the envy of owner managed business owners in other countries. But many people do not realise that the rate of tax has not always been a maximum of 100%. Various restrictions have been lifted over the course of time, and it is possible that some sort of financial ceiling limits might be imposed where there are substantial BPR holdings. There is a wealth of difference between the owner of a relatively modest OMB and where someone owns a stake in a major financial enterprise. Hence there are growing concerns that the government may reduce this benefit, potentially leading to higher tax bills for their heirs. * Agricultural Property Relief (APR): could farmers get taxed more? APR offers tax breaks on agricultural assets, but this relief might also face cutbacks. For farmers and landowners, this could result in steeper IHT liabilities. It is well known that some oppose the purchase of farms by wealthy investors, who secure valuable IHT reliefs leaving others to farm the land for them whilst www.eastmidlandsbusinesslink.co.uk East Midlands Business Link TAX is very marked. You might need to act fast if you were planning a sale to lock in the current rates. From the Chancellor’s point of view, the fallacy in aligning tax rates to a 45% maximum has an inherent fallacy. Individuals may simply decide to retain their investments, such as development land, until such time as the rates come down. Also, proprietors of owner managed businesses might be deterred from selling. The Chancellor will have to take into account the knock on effect of any tax increases as it might put a brake on future economic activity. It’s a potentially difficult tightrope for the Chancellor to walk, as raising taxes might deter future growth. * CGT reliefs: will entrepreneurs lose out? Key reliefs like Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) and Investors’ Relief could be scaled back, increasing the tax burden on business owners and investors when selling assets. In practice it is probably too late to consider starting transactions to save CGT this close to the Budget. It is simply a factor for proprietors of OMBs to consider, unless they are actively considering making gifts to family members in any event and can afford to pay the CGT due on the disposal albeit at 10%. * Anti-Avoidance Crackdowns: be aware of possible anti forestalling It is important to take into account the possibility that the Government may announce new rules designed to limit the tax saving opportunities that would arise by making disposals in advance of the expected tax increases in the Budget. This suggests that only disposals should be made which are prudent in terms of their size and nature. There is also a long-term factor that needs to be taken into account, in that the number of anti- avoidance rules are more likely to increase than reduce in light of the Government’s drive for increased tax revenue. Post-Budget: a brave new world? The upcoming budget could bring significant changes to estates and businesses. It is going to be important to take stock of both the opportunities as well as the challenges that new rules will introduce. To find out more about how the Autumn Budget 2024 might affect you, why not register to watch or catch up on demand our post Budget webinar. https://www.streetsweb.co.uk/about /events/autumn-budget-2024-what- will-it-mean-you/ East Midlands Business Link www.eastmidlandsbusinesslink.co.uk IT AND COMMUNICATIONS SPOTLIGHT Under constant attack T hey say ‘crime pays’ and unfortunately cybercrime is no different because of the huge financial gains, disruption to competitors’ computer software or data theft that make it worth any cyber criminals’ time. Criminals want to earn money as easy and quickly as they can, and it’s only the difficulty of the anti-virus software and security information that they face, which increases their time in accessing the software or data, that stops them. When it comes to cybercrime and criminals it’s often worth understanding the different types of hackers recognised in the industry. These are, in no particular order: White Hat Hackers (ethical hackers), Black Hat Hackers (who violate computer security out of malice for their own personal profit), Grey Hat Hackers (security experts who may violate laws but don’t often have malicious intent), Green Hat Hackers (who learn the tricks of the trade; in Microsoft’s world, they are employed by the company to find vulnerabilities in unreleased products), Blue Hat Hackers (external computer security consulting firms who are employed to bug test a system prior to its launch) and Red Hat Hackers (hired by government agencies to identify vulnerabilities, mainly identifying and neutralising Black Hat Hackers). Finally, and the most common, are Script Kiddies, who use programs/scripts to attack networks, computer systems and deface websites, and State/Nation Sponsored Hackers; who may be from China, Korea or Russia, who give individuals a ‘Licence to Hack’ to gain valuable intelligence/data that has international significance – it’s important to note following Russia’s invasion of Ukraine, the NCCS (National Cyber Crime Security) is advising that UK companies strengthen their online defences. We live in an increasingly digital world and that has left many systems open to online attack. As scams, hackers and scripts become ever more sophisticated, so too musy the defences of local businesses. 24 Áwww.eastmidlandsbusinesslink.co.uk East Midlands Business Link IT AND COMMUNICATIONS SPOTLIGHT © stock.adobe.com/Philip Steury East Midlands Business Link www.eastmidlandsbusinesslink.co.uk IT AND COMMUNICATIONS SPOTLIGHT However, the most common cybercrime today is ‘Phishing Scams’ that make up 91% of cybercrime, according to PhishMe. They start when curiosity, fear or a sense of urgency entices someone to enter personal data or click on a link often instigated by spam; unsolicited junk email sent out in bulk via electronic messaging systems, text messages or media messaging. Added to this is ‘website spoofing’ where a website is designed to make you believe it’s a legitimate site – all to get access to your systems, steal data, steal money, or spread malware. Companies should also be aware of Ransomware which is a technical twist on extortion. It works when criminals steal something and demand payment in exchange for its return. And IOT Hacking - The ‘Internet of Things’, this is a world that opens insights into our daily routines/business processes to the web. All internet-connected objects are constantly collecting and exchanging data and Keystroke software monitors activity to give hackers information on your personal data, such as credit card numbers and the different web pages you use – done by logging the user’s keyboard strokes. As all data is valuable, the more “things” recorded - the juicier the reward becomes for hackers. Luckily, many businesses consider cyber security a high priority. 95% of large businesses invest heavily in cyber security, 92% of medium sized businesses and the same of high-income charities. The sectors who have to consistently remain vigilant are finance and insurance, health/social care and Councils. In the past Lincolnshire County Council had to act quickly, another good practice, and shut down all of its computers after an alleged ransomware attack began to spread throughout its systems. The Chartered Institute of IT reminds us, “It is important to remember that cyber criminals are clever and they try to attack the weakest links in a chain. An example of recent ransomware attack was on the NHS where attackers took aim at one of the suppliers.” Another thing to remember is the good news, there are many ways you can help yourself and your business stay safe from ever evolving cybercrime! Enforcing strong passwords, is one of the best protections against breaches, using upper and lower case, numbers and symbols, may help keep hackers out and of course keeping the passwords safe. Keep computer screens and mobile phones locked when not attended and ensure that passwords/codes can’t be seen when they pop up on a screen, even if it’s locked. Be cautious about all email attachments, avoid suspicious websites (look at spelling carefully); some of the fake websites are surprisingly believable. It is always best to ensure your company emails stands out, with a clear logo, and possibly with regulation warnings for example that ‘staff will never ask for personal details’. Updating passwords regularly adds further security as well as using multi- factor authentication where a user is only granted access to a website or www.eastmidlandsbusinesslink.co.uk East Midlands Business Link IT AND COMMUNICATIONS SPOTLIGHT application only after correctly presenting 2 or more pieces of evidence/passwords. Also ensure a different SMTP (Simple Mail Transfer Protocol) account is created for all senders within a company, this will ensure if someone’s computer is hijacked where spam is sent out from it, it can be disabled rapidly and easily without involving other users. Implementing VPNs (Virtual Private Networks) for all connections is an arrangement whereby a secure, apparently private network is achieved using encryption over a public network, typically the internet. Retiring all unused services, therefore deleting/removing old computer packages and out of date software, is good practice and remember to leverage existing security options by researching, installing and continually updating a high-quality antivirus program. Additional issues you can consider are monitoring personal devices brought in and used by employees, limiting data access to employees, and holding employees accountable for their data use and protecting any devices they may use in the office or working remotely, as out of the office is just as dangerous an environment than in the office for an employee as there is sometimes less exchange of information about the latest ‘scams’. © stock.adobe.com/Rawf8 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk SUPPORTING BUSINESS GROWTH T he reason why the term “supporting business growth” has meant finance for so long is because there were few problems that could not be solved with the application of enough money. Need skilled staff? Advertise to recruit and hire them. Need new facilities? Simply buy them. Need to expand into a new market? Buy out a company already in it and use their expertise. The problems may have been myriad, but the solution was simple – money. We live today in a different world. The stagnant economy that has seen limited wage rises for years or even decades; the soaring inflation after a pandemic, after a recession after a credit crunch, and more and more globalism adding new competition for jobs, customers and market share. All of these have led to harsher trading conditions and a wealth of competition. Now, a new government after sky-high inflation and a budget described as “painful” by its own creators. Furthermore, at a time when wages simply aren’t rising and where companies and people are struggling to earn enough to survive, the focus for employees is on getting the best deal possible. Before, the unemployed were desperate for work and there weren’t enough jobs going around, placing recruiting power in the hand of the employer. That simply isn’t the case today as labour and skills shortages are impacting many sectors, and local businesses are seeing the best and brightest poached by big city firms willing to offer unrivalled packages including not just money, but gym memberships, more breaks, flexible hours, working from home and more. Growing a business in today’s economy In support of growth It used to be that supporting business growth meant gaining more money, finance or capital, but changing working conditions and a new economy have flipped the table. is not as simple a matter as borrowing money and expanding; now, thought has to be put into how to expand, where, how staff will be sourced, how expensive new property might be and – in sectors involving manufacturing or logistics – how few commercial properties are available on the market. There are undoubtedly many businesses 28 Áwww.eastmidlandsbusinesslink.co.uk East Midlands Business Link SUPPORTING BUSINESS GROWTH © stock.adobe.com/ink drop East Midlands Business Link www.eastmidlandsbusinesslink.co.uk SUPPORTING BUSINESS GROWTH in a position to expand who feel it isn’t feasible because recruiting staff would be too difficult, or because rental costs of a new office would be inhibitive, or simply because there’s too much uncertainty in the current economy, and sometimes – especially now – having a large cash flow to fall back on if yet another economic disaster should occur is perhaps a better idea than expanding. We know from conventional business wisdom that it is not. Money wasting time doing nothing is inefficient, and those who do not grow are swallowed up by others willing to take the risk and put in the effort. The stagnation felt by many is, perhaps, more a case of decision makers not moving with the times. Business growth is no longer just a financial matter and shouldn’t be looked at as such. All departments must be involved. When it comes to HR and recruitment, there is increased focus on expanding workforces via training up unskilled employees and apprentices now. It’s hard to compete with the biggest companies, and many local businesses can’t afford to offer working from home or reduced hours as part of their package. In that case, it is better to let the skilled worker pool go rather than compete in an arm’s race with the giants. Instead, consider apprenticeships or even training courses for new employees who might not initially fit the bill. This isn’t a simple matter for accountants and solicitors who need to recruit from universities, but many other companies can involve trainers in bringing new staff up to standard. There are plenty of business schools, independent training groups and programmes available in the region to help with this, and many of them come with regional or Governmental support in terms of financial packages to incentivise their use. On issues of property, modular and virtual office space has grown in popularity in recent years for good reason. While it may not be as impressive from a branding angle to share a building with other companies, the financial savings are monumental and www.eastmidlandsbusinesslink.co.uk East Midlands Business Link SUPPORTING BUSINESS GROWTH leaving all the issues of owning and maintaining the property in someone else’s hands can help limit the number of plates a business needs to juggle. Finance still is an important factor of business growth, and so the issue of how to raise it remains, but there is a wealth of alternative options to bank loans today, including angel investors, crowdfunding, and securing funding from online groups like Funding Circle or, for start-ups or new innovations, even consumer sites like Kickstarter. Many entrepreneurs have raised millions from these sources, all the while dodging the intense paperwork and oversight that most banks will demand. In a sense, business growth has not changed that much – the rules remain the same – but it’s the hoops that must be jumped through that have increased in complexity and number. Given the state of the economy after a painful election, many businesses are looking for exit strategies, making finance even harder to acquire. Business Exits: Choosing the right route As a tax specialist working with lots of entrepreneurs and business owners, I am often asked if I have any tips on how to maximise the proceeds of sale from a business exit. Here are my four top tips. - Know how your business will be valued by a potential buyer - Don’t sell a “fixer upper” – get organised early - Secure and incentivise your key employees - Know your exit route. Have you ever tried selling a car without cleaning it first and without fixing the engine warning light? You’ll get a bad price. So why sell a “tired” business without sorting out the issues first? There are four main ways that people exit their business: - Liquidation - Sell to an external buyer - Sell to an employee or group of employees - Pass the business to the next generation. A lot of entrepreneurs are worried about capital gains tax increases in the next budget, and are looking to liquidate before that date, to ensure they pay at a lower rate. For me, this misses the point. There are tax-free alternatives available for each of the other exit routes, and these should be explored before making a hasty decision to liquidate. The reliefs and exemptions are all in the tax legislation, all established, and are not contentious. In fact, some of them are “very Labour” in what they try to achieve, so my view is that they are unlikely to change in the Budget. Even if they do change, we would usually expect a more favourable regime to be available than the “tax it all” approach that some would suggest is on the horizon. Matthew Evans, Executive Director at WBR Tax For further information call 0333 320 9230 or visit wbrgroup.co.uk © stock.adobe.com/nakophotographyNext >