¶ Introduction to the Podcast
The construction industry can be a tough business to crack from cash flow problems. Struggling to find skilled labor and not making enough money for your efforts leaves many business owners feeling frustrated and burnt out. But when you get the business strategy right, it's an industry that can be highly satisfying and financially rewarding. I'm here to give you the resources to be able to create a construction business that gives you more time, more freedom, and more money.
This is the Develop Your Construction Business podcast, and I'm your host, Greg Wilkes.
Welcome
Back to the podcast everyone. Great to invite a , uh, special guest today who's been on the podcast before. He's been, had had a couple of episodes that have gone down really well, so I thought it'd be really important to invite back Tim Charles, who is , uh, an accountant in West London. He's , uh, got a chartered accountancy there and been practicing that for over 20 years. So highly experienced and he's got a lot to tell us today. So Tim, really good to have you back on the show.
Great. Thanks for inviting me. Great to be here.
Nice, great to have you and really appreciate you coming on and giving us your time. I know I wanted to get you on, Tim, because we've been speaking about this together recently, the turmoil that's been going on politically and economically, and it's left a lot of business owners at the moment in a real mess , uh, trying to understand what is actually going on. We don't quite know what are the new tax implications and whatever else.
We've had a multitude of chancellors over the last few months, so now is probably a really good time for you to come on and give us your expert advice and maybe just clear up for us a little bit of , uh, what's happening and, and what does 2023 potentially hold for construction business owners?
Yeah, that's it because we had unprecedented in, in, in the history of the country, four chancellors in the space of four months. And at one point it felt like they were doing the hokey hokie because we had things in things out and things out again. So , um, for example, they were gonna increase the corporation tax rate to 25%. That was Rishi initially, and then quasi Quang and Liz Truss , they'd come him along and said, Nope , let's go back to 19%.
And then Jeremy Hunt comes in after , um, the fourth chancellor and says, no, it's back in again. And the same applied to this higher rate of tax , uh, which you start paying the higher rate and the higher rate tax rate . So we've had things in and out and some things did go in and out and some things stayed in. So it'd be a good opportunity just to go through what some of these tax changes are. So the new tax year starts in April, 2023, so it's only like, you know, four or five months away.
Yeah, it's coming around really fast. And I, I think the problem is, is even myself, you know, I tried to keep abreast of all this, but if I hadn't have spoken to you , uh, I , I'd be a little bit clueless as to some of what , what some of these changes are. So , uh, I think there's gonna be plenty listening to this that maybe haven't had that chat with their accountants yet and don't really know what's what's around the corner in, in April.
So hopefully this podcast will just educate 'em a little bit as to what to expect. So really appreciate you running through this, Tim. So where , where should we start?
Um, so shall I share my screen and I've got Yes , please . A pretty basic spreadsheet. There's nothing too fancy here, but , um, so
If you , if you listen to this on the podcast , uh, we're just gonna try and talk you through this spreadsheet as best we can. And if you've got a pen and paper, maybe write some of this down to follow along. Uh, we'll also have this uploaded to YouTube. So obviously if you're watching this on YouTube, you're gonna get to see exactly what we're looking at. So yeah, let's, let's go through it. Tim,
Greg, is that sharing? Okay.
Yeah , I
¶ Fiscal Drag
can see that.
Right. Great. So the , the , the , the two, the two two words beginning of earth I thought we'd start with, and the first word is fiscal drag, and the second word is frozen. And the reason why I wanna mention these two, two words is because the tax , the UK government haven't increased, like sort of the basic rate. It's still 20% income tax and 40% at the high rate.
They haven't increased those tax rates, but what they have done if they've frozen the allowances, so you've got the allowance of 12,570 work , the tax free allowance, and then you've got the basic rate band , which is , uh, the 50,000 , uh, 50,000. And that is when you start paying the high rate. And they've frozen that and they've extended, initially it was frozen until 25, but they've now extended it and they said it's gonna be frozen to 27 28. Right .
And um, we were just talking, weren't we about the UK inflation? And you know, depending on what report you read, UK inflation say 11%, there's some reports of that, it's gonna be 14%. So if you can imagine year on year, say, say you had 50,000 pound income, you know, quite a few years ago initially when the , the high rate tax came in that the high rate tax was meant to be paid by the rich people mm-hmm . .
Um, so, you know, say you've got 50,000 pounds worth of income in, in next year, the year after that, year after that, and, and all these years ahead, you can see what 50,000 pounds is not gonna buy you the same shopping basket of goods that 50,000 can buy you today.
Sure, yeah. That's, and that's, that's a significant hit , isn't it? So just to clarify what you mean about the frozen personal allowance, so, so currently 12,570 pound is tax free . You can earn that much without paying any tax. And historically, year on year, they used to raise that by in
Increment . That's it . Yeah . So the allowances, so you got the allowance there of 12,570 and you got the allowance of 50,270 for when you become a high rate taxpayer . Traditionally all, all these thresholds used to increase each year in line with inflation.
Hmm . Yeah , that's it. So, so by them freezing it and not, not doing it in line with inflation, it's actually , uh, so you know exactly what you said there. If someone's earning 50,000 pound or a hundred thousand pound , let's just say a hundred thousand, because it's easier for me to work out, if I'm earning a hundred thousand pounds and spending a hundred thousand pounds, then I'm actually now gonna spend 114,000 pound potentially with 14% inflation.
So yes , if you , if you are gonna , if you wanna maintain your same, same lifestyle and by the same amount of, you know, the same things that you bought the year before, you are gonna need to earn
Yeah .
That , that much more Yeah . To keep up with inflation, just to maintain the same level of standard of living.
Yeah, that makes complete sense. So, so actually by them freezing these allowances, it's a little bit of a, i , I guess it's a another way of doing a bit of a tax
Increase . It is massively, because then that's why I've used that word fiscal drag because you're dragging, dragging more and more people into becoming higher rate taxpayers because by, by the time we get to 2028, 50,270, even if you're a , uh, you know , a construction company of a husband and wife has of 50 50 shareholders and you've got, you know, 50,000 each and you had a hundred thousand income as a family Mm .
That , you know, if that's what you were living on in 2020, by 2028, that's gonna be vastly diminished and what you can get with your a hundred thousand income
Yeah. That , that, that could be quite significant, especially if, I mean, we don't know what inflation's gonna do in, in the years to come, but yeah, if that, that inflation compounded year on year, that's gonna be awful, isn't it? So , um, so that , that's quite interesting, Tim, so the , the , the spreadsheet that I'm looking at here, it shows that , um, the, the 40% tax threshold is currently 50,000 pounds, basically 50,270 pounds.
Um, do you find a lot of your clients deliberately try and keep under that threshold? Because I often speak to people and they, they always say to me, oh , I don't wanna go above the 40% tax threshold.
Yeah, I think that's, that's quite a good point to bring, bring into the table actually, because we don't wanna , I have had it said to me that, oh, if I earned 60,000, I'd have to pay four 40% tax. And that , and in their mind, I think they think that they have to pay 40% tax on, on all of the 60,000 or or on everything above 12,570. They have to pay the 40%.
So let's say that you did have a 60,000 pounds income, you still pay , uh, no tax up to the 12, 12,000 and you still 20 pay 20% up to the 50,000 and it's only on the extra 10 that you pay. The extra 20%, which is the 40% is only on that bit from 50 to 60. Yeah . And you know, I'd like to encourage everyone to not have a mindset of restricting themselves and a mindset of thinking, oh, I don't wanna pay too much tax.
But I guess the point of this, of, of , of our conversation today is to try and make people aware of what they will be paying. And also the point is as well, that because of inflation, you do need to earn more just to maintain the same, same standard of living, but let's just be aware that of we will be paying more in tax. But I think , uh, with a mindset of abundance, we want to be trying earning as much as possible.
Yeah, sure. I see that all the time. I mean, just another example , uh, there might be some listeners here that are just starting out as, as tradespeople and they might not be back registered. And I hear this all the time as well. I , I just don't wanna hit the, I don't wanna hit the VAT limit, I don't wanna go over that VAT limit of whatever it is , 83,000 and what , 85 is it now?
Yeah, so what they're really doing is they're just capping , capping their progress in business because I see it all the time. Once people actually do become VA registered and they, they push past that limit. They've released the , they've released the cap, and all of a sudden they can, it doesn't matter where they earn, now they can, they can really go for it and they make tremendous progress.
So I think it's the same thing with your tax, you know, that that limit in mindset and you and you thinking, oh, I don't wanna , I don't wanna earn over 50,000 pounds, I'm gonna pay too much tax. You wanna be paying, you know, if you are paying a lot of tax, it means you're earning a lot of money. ,
Which is a good one . Yeah. . Yeah. Yeah. So , um, yeah, it's good to, just to bear in mind that it's only on income over 50,000 that you, you pay the extra 20% to make it 40% and just to , while we're on the subject of V A t Yeah . That they , that 85,000 pound limit has been , uh, 85,000 for quite a few years now. And it's also, they've announced that's frozen as well. So more and more trades, tradesmen and, and all businesses more and more will be earning over that 85,000 limit. Mm-hmm .
Um , it is good as well to keep track of your income because sometimes if you are quite small, they don't regularly do their accounts. And I had an , a client recently that went over the VA threshold quite a few months ago, didn't know, only sent me his spreadsheets and then I found out cuz he's, he's a sole trader and then , uh, he was shocked and he didn't know. So , um, and he said, oh , if I'd have known, I'd have done things differently.
So just a little heads up there that if you could keep on top of your, some basic sets of accounts to at least know how much money you are owning , uh, for a 12 month period, then , um, yeah.
Yeah, a hundred percent . Cause you don't wanna get caught out by the Batman . That's, that's for sure if , uh, you , you're well over it and not declaring it. So that , that's important. Um, so you've got just an example here, Tim, about , uh, in this spreadsheet about potentially someone earning a hundred thousand pound and this could be potentially split into two. So where , where would this apply?
What , what sort of examples where people could earn a hundred thousand pound and have it split? Does that make sense?
No, I didn't get your question, sorry.
That's all right . So, so you've, you've got in, in this example here, you've got , uh, someone could earn a hundred thousand pounds and they potentially might not go over the 40% tax threshold. And that would be, because I don't think we touched on this, did we? If there was a potentially a husband and wife.
Yes . Sorry . Yeah . So , um, I mean , um, many construction owners, they're , they're owned, they're family owned, and they might have the husband and wife as 50 50 shareholders each. So many would maybe might set them set initial set , set setting their goal of earning 50,000 pound each. Because another thing to mention here is the child benefit charge.
So , um, if when your income goes over 50,000, you start to lose your child benefit if you've got , um, children and , um, when it gets to 60,000, you've lost it completely. Mm-hmm . so many couples, they might set a goal if their , if their , their business is , is starting to grow a bit of earning 50,000 each. So you've got a hundred thousand household income and then , uh, everyone's just paying the 20% tax rate and you still get the child benefit charge. Yeah .
Uh , you don't, you don't get the child benefit charge, you actually get the child benefit. But obviously as we've said, if you're capping yourself at a hundred thousand, that a hundred thousand might not be enough to maintain a family as, as inflation grows.
Yeah, no, that , that makes complete sense. Now it's interesting actually, I've done a few , um, podcasts , uh, and webinars, sorry, on this recently about people setting goals for 2023 and trying to work out what your earnings are. Now, as you know, most people I work with are generally construction companies that might be doing a million pound plus in turnover.
So when the business is doing a million pounds in turnover, we're generally aiming for about 150,000 pounds in, in net profit, which is a , just a nice, nice sort of target to go for for business owners. But funny enough, 150,000 pound is actually the additional tax rate, isn't it? Of not just 40%, but it goes up to 45%. But there's also been some changes in the additional tax rate too, isn't there?
That's it. So it's been 150,000 for quite a long time. Let , let's not forget that quasi Quan and Liz Trust , they abolished the 45% rate and then , um, Jeremy Hunt came in and, and , and put it back in again. Mm-hmm . So that was in and out very quickly. Um , but then Jeremy Hunt has now gone on to an announce, and this was a surprise to me that he's lowered it from 150,000 to a hundred and twenty five, one forty .
Wow. So when , um, if, if you've got , um, a limit company and you've only got one director and one shareholder, and he's getting 150,000 pound income, he'll now have to pay on the, the bit from 125 to 150 that he's earning, he'd have to pay 45% on that, on that bracket there.
Yeah. So , um, if you are in a situation where , um, you're a married couple or , or, or have some other family members, then obviously splitting the, in , uh, the income between, between you would have a combined family tax lower tax rate.
Yeah. Yeah, that makes complete sense. So that's, that's well worth mentioning and that I didn't even know that, that was a surprise to me that these , that's been lowered. So that's gonna be painful for , uh, a lot of high earners there when , uh, when that comes in in, and that starts in, that starts in April as well. Does it?
Yeah. So , uh, the new tax year, April 20th, 2023, this is when all of these things are kicking and that we're talking about. Yeah , just a , just a bit of a caveat, who knows what's gonna happen because there's another budget statement in March, 2023 , I would've thought it's too late to change it again, but who knows what's gonna happen. But yeah , as, as things stand , this is what we're looking at. Right .
We might have to have you on for another podcast then Tim , spended on how that one goes. Okay . Alright . So that, that makes complete sense , uh, Tim, about the , the tax thresholds and how they've, the , the fiscal drag , how people are gonna be affected by that.
So what does that look like in, in real terms, if we've got business owners, a lot of them are gonna be limited companies if they're running or they should be limited companies, if they're running a sort of million pound construction businesses , um, most people will take , be taking dividends rather than the salary necessarily. So there's been some changes in dividends, isn't there ?
Yeah, that's it. So traditionally if you are director , you might take a fairly low director's salary and you'll take the rest of the balance of the money that you need through dividends, because dividends are the most tax efficient way of taking money from a company. They're a lower tax rate and they don't attract any national insurance contributions. So , um, but uh, this has again , been up and down.
Um, so you've, with dividends on top of the 12,570 tax-free personal allowance, you get an additional tax-free allowance for dividends. So that that's another 2000 , uh, from April 23, they're halving that to 1000 and then the following year they're halving it again to 500 quid . And then the tax rate is at the basic rate 7.5% and at the higher rate, 32.5%, they're both going up by one and one point , um, two 5%. So it's gonna be 8.75 and 33.75.
So say, say someone's just to make things easy, if someone's , um, got a hundred thousand pounds of income, it's gonna be around a thousand pound extra in tax to pay because of this, this increase in tax.
Yeah. Okay. So that's, that's not insignificant, is it? So that's , uh, another thing we need to bear in mind there with , with dividends, but still saying that dividends is still really the way forwards if you're, if you're a big company, dividends is what you should be considering rather than
Yeah .
Going on pet P a y E or as a salary.
Yeah , yeah, for sure. For sure. So just to also clarify, the dividends are distribution of profits, so you need to have the profits there in the first place to be able to distribute 'em as dividends. Otherwise you get involved in overdrawn directors loan accounts and we don't wanna go down that road
. Yeah, that's a really good point. Yeah. So yeah , so , so some if you haven't, if you've, what we often find is sometimes people take too much on dividends and then that , I guess they're , uh, yeah, it gets a little bit awkward then, doesn't it ? We , we won't go into that now, but , um, that ,
That , I guess that's another shout out for doing , um, sort of having regular management accounts and things like that, that so that you know how much profits you're making because , uh, a lot of business owners, they've got a good idea of their sales figure, they know what their turnover is, and you might be setting them goals, right? We're gonna have a million pound turnover, but what are your profits? Mm-hmm .
Uh , so that's , uh, why you , uh, ideally you need to have regular management accounts.
Yeah, a hundred percent. Yeah. Without a doubt. That's, that's so important. Okay . So dividends make sense. Any anything else on that or is that, that dividends wrapped up?
Yeah, I think , um, yes , a small increase there and , um, but that , as we said, it remains the best tax efficient way of, of taking money out of a company. Yeah. Um, it'd be good to now go onto for the company owners the corporation tax rates.
Yeah. So this is maybe one of the more complex things that I haven't really got my head around until you went through this with me. So yeah, let's, let's talk about that. So we know, we know what it's been historically, it's always been, well it's been for a long time, 19% , um, corporation tax isn't it, on profits. So
That's it . And it's been 19% as well for, for everyone across the board for quite a long time. So you've got your big multinational companies, they're , they're paying 19% and a small startup construction firm with, with , with tiny amounts of profits, they're also paying 19%. It's been flat across the board for everyone.
Yeah. That's it. Okay. So now, now there's a change based on profits, isn't there? So what's, what have they introduced?
Yeah , so , uh, this is starting from April 23. So profits up to 50,000 are taxed at 19%. And then between 50 and 250 you have what they call a marginal rate. And then over 250,000 pound in profits, you're paying 25%.
Yeah. Okay .
So just to make that , um, here's an example. We just quickly knocked out. Say you had a limited company which had 150,000 pound in profits mm-hmm . at the moment, they would pay just a flat rate of 19%, which would be 28,500. But under the new system you pay 50,000 at 19% and then a hundred thousand for your 150,000 , you've got a marginal rate, which is 26.5%. So you would pay 36,000 pound in corporation tax, whereas before you'd pay 28,500.
So we're looking at on in that scenario, seven and a half thousand pound increase in corporation tax.
Yeah. Wow. That's , um, let me just to understand that marginal rate, cuz it , uh, it , we've got here that it only goes up to 25%, but you've got 26.5% a mar marginal rate. So does it go over that amount? Does it over the 20? It can go over 25.
What it is , is it's just , um, basically it's a way of working it out. Um, so , um, if you , on your income over 20, over 25, over 250,000, you pay 25%. Yeah . And then under 15% you pay 19%. But as a way to work it out the calculation, you need to have a marginal rate for this. This is is so that 26.5%, I'm not putting that on the whole hundred 50,000
Just on the hundred.
Yeah. Okay . It's just on the hundred because that bit there. So the , so between 50 and two 50 you've got this incre increased amount and that's just a marginal rate just for that margin. Yeah. From 50 to two 50 .
Okay. Right.
Yeah . Like I said that , you know, it was , it was much easier to work all this out when everything was at 19%. Yeah. Um , uh, so as, as, as a marginal rate, it's 26.5%.
Yeah . But the long and short of it is without getting too bogged down into the, into the numbers , um, a business that has 150,000 pound profit now this will capture a load of my clients. And , um, yeah, I was listening to this that are running, you know, million pound plus businesses, they're , if they're earning 150,000 pounds in profits, they are gonna be seven and a half thousand pound worse off with these corporation tax rises. Is that right?
That's it. Yeah. And I guess we've gotta add this up with, you've got the corporation tax rises, we discussed the dividend tax rises and the , uh, the fiscal drag in terms of paying more tax at the higher rate. So , um, when you com put everything together, it's compounded to was paying, you know, significantly more tax.
Yeah . That is for next year. That , that's, that's very big actually. Yeah, that's, that's, that's a , um, that's quite a lot when you look over the whole lot. Okay. That's, that's really interesting. Um, so how would someone find out, because the bit I still don't get fully is this marginal rate bit. So how would someone find out what that is ? They just need to talk to their accountants to work out, you know, if they're sitting somewhere in between 50 and 250,000,
How would they be
Able to work out ?
You , you , you could just, this, this figure here, 50,000 that's fixed. Yeah . And 19%, but if this figure here, say you had 200,000 pounds of of profits in your limited company, you would then do 150,000 at 26.5% .
Oh . So it's always at 26.5% .
Uh , uh, um, um, when your profits are
Over 50,000. 50 . Yeah . Yeah . Okay . Okay. Yeah, I get that. Alright . So that , okay . That's , that's straightforward then. So that's, that's useful to know. Okay. So there's , um, there's, there's something really significant there with corporation tax.
And I know what I've been doing with my companies and my accounts is we always at the end of our profit and loss balance sheet, we always put a 19% , uh, figure in there corporation tax just so we know how much we be put in and , and saving . I know a lot of businesses don't do that, but we've always found that really useful just to, to add that in each month. Um , and then that sits on a balance sheet telling me how much I've got have saved for corporation tax.
But now I guess it gets a little bit more complicated to do that each month.
Yeah. It's gonna be 10 times more complicated because what , what what you're doing there is, is, is, is is excellent because there's no point coming to the end of the year and having a big surprise tax bill. Mm . So if, if, if, and , and we , we , we work on zero and , um, you can just put through a journal to estimate what your corporation tax bill is gonna be each month and have it at the bottom , your p and l in every month and then you can prepare for it.
But yeah, I agree it's gonna be significantly more complicated to work out what that, what that, what that looks like.
Yeah . So I guess , uh, yeah, I guess either people need to be just going on the safe side and putting 26.5% away or, or somewhere in between 19 and 26.5 they left, I left, they just left to talk to their account and work out what that figure should be on average based on previous years potentially. Um, just to make sure you're putting
That , so I , I probably should have mentioned this a minute ago, but there's an effective rate of 22.75%. So you can use that instead just to work out.
Okay, well that's good to know. Yeah. So , so if they use 22.75% , uh, each month off of their profits, if they made 10,000 pounds profit at the end of December, deduct 22.75% off of that and that's the retained earnings . Yeah .
If you think your , if you think that your profits gonna be over 50,000 and ho hopefully they are, then you can use this what we call an effective rate. So just to clarify the effective rate we'd need to apply on the whole lot of, of 150,000 .
I'll use the marginal rate to try and em emphasize the point that of, of you've got 50,000 at 19% and then anything above 50,000 you pay at the marginal rate, but you could just use this effective rate and apply that to the whole lot if you wanna do your journal in zero or QuickBooks, whatever you're using.
Yeah, that makes sense. Yeah. So we probably, anyone that's not looking at this spreadsheet is probably use Now , if you , you just listen to the podcast, so you're gonna have to tune into the YouTube chatter. Would , uh, I've watched this, that , that , that , that will make sense to me , Tim. Okay.
So , alright , now
Go on . What's the next,
Next section ? I was gonna say, now someone could have the bright idea of why didn't I just open 10 different companies, spread my money over 10 different companies and then 50,000 pound in each one and then I don't have to pay in the higher rate. So
You're reading
More than 19%.
You're reading my mind . Right?
So I wanna introduce you to a word that you might not have come across or, or discussed, but associated companies , um, so associated companies, let's, let's not get , um, is basically a company that has common , um, owners and, and , and directors. So say you've got, let's go back to our, our , our husband and wife traditional setup . Let's say they had a, their construction company, but they also had a window cleaning company. So two completely different brands.
They've got two completely different names, but let's say that over the years, the window cleaning company, they hadn't, didn't have enough time to invest in building it up and it was just ticking over and they had , um, their main construction companies got a hundred thousand pounds in in profits and their window cleaning company, it's just ticking over and it makes a couple of grand in profits and they don't spend any time dealing with it.
Uh , you know, as things stand now, they'd have the flat rate of 19%, but to stop , uh, I guess this is, is like an anti-avoidance measure to stop people doing , uh, this in spreading , um, the , the 50,000 across numerous companies. Now if you've got an associated company , so common owners, you would have to split that 50 K across two. So now 25,000 pounds would be given to company one and 25,000 pounds would give to company two.
So for that 19% band , you could see for this small company that they haven't really been spending a lot of time with, but it hasn't been causing any issues, they're wasting 23,000 pounds at the 19%. And company one is suffering by paying the marginal rate so much quicker.
Mm-hmm . . Yeah . So basically you get your allowance reduced if you've got a second company, your 50,000 pound allowance is , is now reduced to 25,000 pound if you've got two companies.
Yeah. And, and if you had four companies, it would be split four ways and five companies that split five. So if you had five limited companies mm-hmm . You would have 10,000 pounds allocated to each one.
Yeah . That's , that's
For the 19% ban . So , um, so in this scenario we see that this company too, the window cleaning company is wasting so much at the 19% band . So what I would recommend in this scenario is, is they look at deciding what they're gonna do with this window cleaning company and they need to make some decisions. So they might say, well , we're not bothered about the window cleaning business. It might be a good opportunity to sell it. You could sell the goodwill, make a bit of money there.
Um, another option is to turn the second limited company, maybe you could turn it into an L L P partnership mm-hmm. , um, or what you could just do is fold in the second limited company the window cleaning one, fold it in to company number one. So you could still have a , a trading name. So if you're called a B C limited and this was the window cleaning company, you could still trade as the window cleaning company. Mm-hmm . And but just it's all taxed under the ABC Limited.
Yeah. Yeah. And, and I think that's a really good idea and I know, you know, I've been guilty of this myself in over the years coming up with companies and you know, doing it for a bit and then not focusing on it because something else was much more successful. Yeah . Um , and we hear this all the time where people, you know, they, they wanna branch off, you know, maybe an electrician then wants to get into solar so he is got a little solar company and that's a completely separate brand.
But actually having a trade in as name can be really beneficial can't it? Because you are , you've only ever got one set of accounts. Um , yes , you're paying , you know, the account at once to do, to do that. But I think what's also really good now is when you are using software like zero, it's actually quite easy to have separate branding and uh, you , you can actually itemize it out quite easily in there, can't you? Different the the different trading companies.
Yeah. So you, so um , in zero you've got different invoice settings. So you could have , um, so you can still send out the invoices from your A , b C limited, but the invoices can be branded completely different mm-hmm . .
And you can use things like tracking categories so that when you've got your profit and loss account, you can still see what is the profit and loss for your main company and what is your profit and loss for the other company that you're tracking so that you can still see things differently between, in this scenario the construction business and the window cleaning business. Yeah .
But um, you could just keep it on in terms of reporting to company's house and in terms of not wasting your 50019% BA brand band you are , you'll be making things easier , uh, and not wasting any tax potential.
Yeah. Because that, that is actually the more you think about that, especially if you've got multiple companies, that is really significant. And, and just to clarify what you've said is that it's an associated company by the directors or the owners rather than it being , um, the same like related. Like it's not, it doesn't have to be two construction companies. Clearly it could be a construction company and a , an accountancy firm. Like you've got it's exactly,
Yeah, yeah, yeah. Just it's re regardless of what they're doing, it's whoever owns it that that's the test for the associated companies.
Wow. Yeah . Okay. So that's , um, yeah, that's really, sorry my brain's just ticking over now thinking about all, all the people that's gonna affect with, I dunno what , how that affects people with property. You know, we've got byec companies and all sorts. There's, there's quite a lot involved in that, isn't there? But that's,
I think, yeah. Have a chat with your accountant on that
. Yeah. Yeah. That's , uh,
That goes back , one thing I just walked also wanted to point out is if you had a dormant company then a dormant company that it wouldn't be affected. Um, so if you , if you had company one and company two was dormant, then Company one would still get all its 50019%. But I just wanted to emphasize something for dormant companies, cuz I've got lots of clients that think in their mind they think that company number two is dormant .
But when I actually get the bank statements for company number two for this so-called dormant company, I can see transactions going through and if there's transactions going through, it's not a dormant company. Right? So make sure that the, that that you have the chat with your accountant to make sure that any extra companies you've got make sure they are genuinely dormant. Otherwise, in your mind you might think, oh yeah, that's, I'm not doing anything that is dormant.
But the, the accountant, he might not, he might not even had the conversation with you cuz it wasn't worth having the conversation mm-hmm . , but it's not been filed as dormant accounts.
Yeah,
Yeah . So you need to Yeah, we need to, we got until April 23. It's not long, but we still got four or five months to, to tidy this up.
Yeah, yeah. That isn't long at all. So Yeah, a hundred percent people need to think about getting their affairs in order if , uh, if they've got multiple companies and, and that is gonna affect so many people because I just know the , I I'm just thinking of all the different people I've worked with and I've spoken to the amount , the amount of people that have more than one limited business. It's , um, that's really significant. So yeah, thanks for bringing up .
Is that , I mean, this is the first time I've heard of this, Tim, so is this, is this, I mean, and we're talking April now that this is coming into play. So is this common knowledge amongst everyone because it's , uh, that's
Funny enough , I was , I was at a accountancy conference last week and uh, I brought it up and not a lot of accountants were, were on the ball with this. And I think it's gonna be a much bigger thing than, than many accountants are thinking because , um, you know, as you just said, so many of my clients have multiple limit companies and sometimes they even open limit companies without telling me because it's just an idea they have mm-hmm . .
Um , and uh , so I, I brought it up as a , as as a topic to discuss with a tax technician who's giving the talk and, and that they ran through this example with me, but many in accountants in the room, they hadn't really switched onto this. So I think it's , uh, it's great that we're highlighting it here.
It really is. Yeah. It really, really important. So yeah, if you're listening to this and you've got multiple limited companies, have an urgent chat with your account and just bring this to his attention about these associated companies because , uh, yeah, you don't wanna come unstuck in from April onwards. Thanks for that, Tim. That's, that's useful. So what's the , uh, what's the , let's , let's talk about something positive
Yes. I , yeah, I feel like we've gone through a lot of doom and gloom so far in our conversation. Um, yeah. Uh, so let's see . Let , let's at least a finish on a positive. So we've got something called super deduction. Um, so , um, actually we've only got three and a half months left of this as we are here in December at the moment. Um, so from the 1st of April 21 to the 31st of March, 2023 , uh, super deduction was introduced. So this is to try and encourage investment.
So it only applies to new assets that you're buying. So for example, if you buy a new van, a new computer, or any new equipment, new tools, new machinery mm-hmm . , you can uplift whatever you buy by 130%. So I thought I'd run through a couple of examples with you. So if you wanna buy a new van, you walk into the showroom and it's 24,000 pounds, obviously you can reclaim the v a t of 4,000. So that actually cost you 20,000 nets with super deduction.
We uplift that by 130%, so that takes it to 26,000. And that 26,000 is used to reduce your corporation tax bill. So as things stand, we're still working on the 19% in this example. Mm . But your corporation tax is 19%, so that's 4,400. 4,940. So the cost to you of that 24,000 pound van is 15,060.
Yeah, that's, that's massive, isn't it? So , um, if, if you're thinking about getting a new van or some new plant or wherever it's gonna be, and there , there is a significant investment to make that investment needs to be made before the fa 1st of March, doesn't it, to benefit from
This to , to get the super deduction. Yeah.
And and is that, is if they said that that's gonna be removed from the next tax or have they not Not
Mentioned as far as I know that, that, that's when it, that's when it finishes. Yeah. In , okay . Yeah .
So we'll watch this space on that one that might go so , and
I thought it'd be good for a go go for another example. I mean , me and you are big iPhone fans , um, and um, you know, this applies to iPads and, and all computers, but , um, having a , you know, a really good iPad and iPhone, I think they're great for boot boosting productivity and helping you work faster and smarter. So I thought I'd go for an example.
I mean, if someone just rocks up to the Apple shop, then you, let's say you had to pay 1200 for an iPhone and that person had to pay that 1200 pound out of their taxed income mm-hmm. , whereas if you've got, you know , limited company, it's , you pay 1200 on your next VA return, you reclaim the two hundreds that cost you a thousand, then we are gonna uplift it by 130% for the super deduction. So then the corporation tax deduction, that reduces your corporation taxes 247.
So that 1200 iPhone actually cost you 753 mm . Yeah . And if that, if that's also boosting your productivity and you're helping you work smarter and faster, then um, you know, that, I think that represents a , a , a good investment for, for business owners to make.
I think so. And um, you've just gimme an excuse now, Tim to go and get a new iPad , You know , I've gotta keep up with the latest model I one , was it 14 ? Not sure , but yeah, that's , uh, that's a good example. So yeah, that's, that's really useful and , um, that is positive because there's a, there's a, you know, a significant tax deduction you can get there and you wanna make the most of that if you are , uh, looking at investing.
Now, just, just a bit of a caveat to that, Tim, again, we hear sometimes people , uh, getting the wrong advice from accountants where they're saying, look, let's get your tax bill down. Let's go out and go and spend some
¶ Introduction to Tim Charles & Tax Implication Changes
money and get a van or get this and get that. Just so you can benefit from that. But what's your thoughts on that? You know, buying things just to get tax bills down. Is that the right, is that the right way to do it?
There's an expression that I've always loved and that's , um, the, the dog must always wag the tail, right ? And, and you can must never let the tail wag the dog and your tax is that , is that tail and you, and you are the business. So you always must make a business decision first. There's no point just doing things for the sake of tax because tax is only a small element. It's only the tail .
Yeah. Um, you know, tax rate is 19% or, you know, we've got a little bit of, we've got increases there, but the tax is only a percentage. The , the business must, first of all, what is a good business decision to make? Do I need a new van? Is the van gonna help us increase our pro productivity? Is it gonna help us work faster and better? Is it gonna be a good impression for, for customers? So you must always think about return on investment.
If you spend 24,000 pound on a van, I know you can reclaim the that and the super deduction, but it's still 15,000 pounds that the company's, you know, it's gonna cost the company. Mm-hmm . There's gotta be a return on investment on that. Same with the iPhone and all these things. So there's no point just doing things for the sake of reducing your tax bills , first of all gotta be a great business decision.
Yeah. Yeah. I think that's really important to say that because , uh, again, it's sometimes a , a false belief that a lot have that they just get some wrong advice from accountants. I think that's really sound advice there, Tim. So that's really useful. Um, I really appreciate you running through that . Is there anything else you need to go for on this screen or are you, are you pretty much
No , I , I don't wanna bring any more doom and ggl to your to your listeners.
No , that was brilliant. That was, that was great. Um, what I might do, Tim, is uh, just to make it easy for my listeners on the YouTube channel, I might just put a link to that , uh, spreadsheet that you had there. So maybe you could , uh, you could just send me that after and we'll put that in the link notes and
Yeah, sure.
You also offered kind of , I know you are in my Facebook group, aren't you, Tim? It's the , uh, just if anyone's not joined that on Facebook, it's called the Construction Trades Accelerator. So search for that and you'll be able to get into that group. Lots of free videos and advice and tips on, on how to run and grow your business, but you are also a member of that group, Tim . Um, and you kindly jump in there and help out now and again with any tax tips.
Um, you , you may , you , you sort of made a little offer before you come on the podcast
To Yeah, so I , if anyone's got any questions on, on and we , we brought up a whole bunch of, you know, different topics here. Some of 'em a bit technical, but generally speaking, if anyone's got any questions , uh, put them in the Facebook group and then , um, if you, if you tag me or, or, or or , and then I'll try and try my best to answer any questions in that Facebook group.
And that could be a good way of, because no doubt the questions you've got are the same questions that are other , other members of your Facebook group have got. So it'd be helping everyone to answer those questions.
Yeah, really will. So yeah, really appreciate that Tim, and thanks for offering so much value. Um , just to let you know, your podcasts are one of the high , highest, listened to your previous ones on
My Oh, fantastic.
. That's good to
Know.
. Yeah , that's it . So , um, which is, which is great. You're up, you're up with some good company there. So I hope this one is, is a value. I know it will be because it might go over our heads a little bit. So it might be one of those ones that you just want to maybe listen to again, get that spreadsheet in front of you and really try and get it right in your minds. And if you don't get it, have a chat with your accountant, but at least you're a little bit more aware of, of what's happening.
And as we say, these changes are coming around fast. April is gonna be before , you know . Yeah , it's just three months away, isn't it? That's right. Yeah. So thanks a lot Tim, appreciate your time and we'll, we'll catch up soon. Thanks Greg. Cheers. Thanks for having me
On .
If you'd like to work with me to fast track your construction business growth, then reach out on www.anddevelopcoaching.co uk .