New legislation introduced this year makes it illegal for employers to withhold tips from their staff, overhauling gratuity practices to ensure that from 1st October 2024 workers can keep 100% of the money they have earned in the form of tips and service charges.

Primarily applying to businesses in the hospitality sector, the government expects this change to boost wages by giving around £200 million back to workers each year.

Paying tips is likely to cost both employers and employees through increased National Insurance Contributions (NICs), but employers can circumvent this by using a tronc arrangement.

Read on to learn more about the new tipping laws, troncs, and what your business can do to distribute tips fairly and stay on the right side of HMRC.

The Employment (Allocation of Tips) Act 2023

Following a consultation several years ago, which looked into the unfair distribution of tips due to employer malpractice that was highlighted by the media in 2016, the Employment (Allocation of Tips) Act 2023 was given Royal Assent in May 2023.

This amends the Employment Rights Act 1996 with the introduction of Part 2B, which applies in England, Wales, and Scotland.

While the legislation, often referred to as the Tipping Act, was due to take effect in July 2024, delays caused by the general election meant the Act only came into force on 1st October 2024.

Employers must now pass all tips, service charges, and gratuities on to employees without deductions – for example, retaining a portion as an ‘administration fee’ is no longer allowed.

Cash tips given directly to a worker without involving the employer were already legally protected, but the new law covers cashless tips via card payment, too.

Employer obligations for distributing tips

Under this legislation and the Code of Practice on Fair and Transparent Distribution of Tips, which came into effect at the same time, employers must:

• Pass on tips to workers in full with no deductions (other than tax or NICs)
• Have a written tipping policy and keep a record of how tips were managed
• Provide information about their tipping record if a worker requests it
• Pay tips to workers within 1 calendar month of the customer paying the tip
• Not alter an employee’s hourly wage (tips don’t count towards minimum wage)
• Consider different roles, performance levels, seniority, and customer intention

This applies to hospitality businesses like cafés, restaurants, and bars, but also any business that accepts tips, such as hairdressers. The legislation covers all employed workers, including agency workers and those on zero-hour contracts.

The Act regulates the fair and transparent allocation of tips to staff, so if their employer retains their tips, workers can submit an employment tribunal claim against them. Employers found to have acted illegally could have to pay fines or compensation to workers.

Tips, Income Tax, and NICs

Tips are subject to Income Tax and employee NICs, typically through the PAYE system.

Customers giving cash tips directly to individual employees or leaving them on the table are subject to Income Tax, but not National Insurance, as PAYE doesn’t apply. In these cases, it’s the worker’s responsibility to report income from tips to HMRC via Self-Assessment.

In all cases of an employer forwarding tips to an employee, they must operate via PAYE, whether the employer makes the payment or delegates this task to an employee.

When it comes to NICs, gratuity payments paid to employees are exempt if:

• It isn’t allocated by the employer to the employee, whether directly or indirectly
• It isn’t directly or indirectly paid to the employee by the employer and doesn’t comprise of monies paid to the employer previously by customers

On most occasions, an employer passing tips on to an employee will be responsible for both employer and employee NICs, because neither condition is satisfied.

An 8% NIC rate applies when tips (added to normal earnings) reach between £1,048–£4,189 a month. When a threshold of £758 a month is reached, employers must pay NICs, but their liability is usually reduced by the £5,000 annual employment allowance.

As an example, if a restaurant pays £25,000 in tips, the employer could face nearly £3,500 in additional NIC costs, while the extra cost may be up to £2,000 for staff.

In situations like these, tronc arrangements can come into play to help reduce costs.

Troncs and troncmasters

A tronc is an arrangement or system used to divide tips, service charges, and gratuities to pay employees their share. A troncmaster is responsible for managing this.

If a troncmaster decides on tip distribution and not the employer, there are no employee or employer NICs due, but it’s still possible to include the tips on the employer’s payroll.

An employer can appoint the troncmaster, whether it’s a member of staff or a specialist provider, but they must play no part in the actual allocation of tips.

Tips will still be subject to Income Tax, but it will be the troncmaster’s responsibility to set up and run a separate PAYE scheme for this, which can be within the employer’s payroll but must be independent of the employer’s PAYE scheme.

The troncmaster must operate the scheme for tips, report the income to HMRC, and deduct tax accordingly, otherwise they will be held accountable for tax errors by HMRC.

If troncmasters need help with setting up or running a tronc and complying with PAYE requirements, they can consult the government guidance or contact financial advisers like the team at gbac.

What does this mean for your business?

Under the Employment (Allocation of Tips) Act 2023, if an employer breaks the rules, they could be taken to an employment tribunal and made to pay fines and compensation – so it’s essential for employers to stay on top of the changes introduced by this legislation.

Businesses that receive tips, service charges, and gratuities must review their tipping policies, allocation management, and record-keeping practices to ensure they are 100% compliant.

Changing these practices may have an impact on cash flow, but it should also contribute to higher rates of employee satisfaction and retention, saving on recruitment costs while also building trust between businesses and customers who want to tip employees.

It’s important to make sure all employees are on the right tax code, so any Income Tax or NICs due can be taken through PAYE. Using a tronc PAYE scheme can help with this.

If you have any concerns about adjusting your payroll services and keeping everything in order for HMRC to review, why not speak to our accountants in Barnsley?

At gbac, we offer a wide range of financial services, so if your business needs help managing tax liabilities on tips, then call us on 01226 298 298 or email info@gbac.co.uk.

The threshold for repaying student loans in England and Wales, which determines the amount of money a graduate can earn annually before they must begin repaying their university loans, has been frozen at £25,000 until the 2027 tax year.

This applies to ‘Plan 5’ students who started their course from the 2023 academic year onwards. With fewer international students and good A-level results, more UK students are going to university, so this threshold freeze will impact even more people.

Here’s a quick summary of student loan repayments for new students and how parents can help.

Current student loan repayment rules

Students don’t become liable for loan repayments until the April after their graduation. As most university courses last for 3 years, students starting in September 2024 won’t begin repaying their loans until April 2028 at the earliest.

Rather than increasing the threshold to reflect inflation or wages, freezing it at £25,000 a year (£2,083 a month) means that more graduates will begin repaying earlier than they might have if the repayment threshold was increased.

For earnings above the threshold, repayments are taken at 9% of the excess, with interest accrued from the first day of taking the loan and a potential term of up to 40 years.

After 2027, the government may decide to increase the student loan repayment threshold to be in line with inflation, but this will still result in a few years of fiscal drag.

Is it worth self-funding university fees?

Wealthier families may consider self-funding their children’s university tuition fees and living costs themselves, but it’s not so straightforward, as normal debt rules don’t apply to student loans.

If a parent paid the full cost of their child’s university education at around £60,000, but their child never earns more than the much lower repayment threshold during the repayment term, then self-funding will have been an expensive mistake.

Of course, it’s difficult to estimate earnings up to 4 decades in the future, so it’s hard to know whether self-funding will be worth it unless you’re sure your child will go into a high-earning career.

The compromise could be for the child to receive the full student loan, then for the parents to look into paying off the loan early after their child graduates if they get a high-paying job.

However, the pros and cons of this very much depend on personal circumstances.

Official guidance on repaying student loans is available on the government website, or it can help to consult a financial adviser to assess which route would be most salient in your case.

If you would like to speak to our accountants in Barnsley about your family finances and financial planning for your child’s future, please contact gbac by calling 01226 298 298, or send an email to info@gbac.co.uk and we’ll be in touch soon.

HMRC is known to send ‘nudge letters’ to taxpayers who may have undeclared taxable income – from online trading or sales suppression, for example – encouraging recipients to contact the tax agency and provide more information about their earnings.

Unfortunately, scammers are aware of this, and just as there are many email phishing scams, criminals are also sending fake HMRC letters in an attempt to steal sensitive information for fraudulent purposes.

As businesses have become more wary of digital scams, criminals are trying the ‘old school’ method of posting letters with details that make them appear to genuinely be from HMRC.

Would you be able to recognise a fake HMRC letter if you received one?

To avoid falling for this scam, here’s what you should look out for.

What does a fake HMRC letter look like?

These scam letters can be surprisingly convincing, as they feature a realistic HMRC letterhead and claim to be sent by the ‘Indy and Small Business Compliance’ team.

They inform the targeted company that they need to provide evidence verifying their income to ensure they aren’t avoiding tax, threatening a HMRC investigation into the company and potentially freezing their business activities if they don’t comply with the letter.

The fake HMRC letters will usually request sensitive information such as business bank statements, the latest filed accounts, VAT returns, and copies of each director’s ID documents.

If scammers get their hands on a copy of a business director’s passport or driving licence, they can use this to commit fraud and potentially access the company’s bank account.

How can you spot a HMRC scam letter?

It can be a little tricky at first to recognise a fake letter, as they use correct technical and legal terms and typically avoid spelling or linguistic errors that would be a clear giveaway of a scam.

While HMRC does request information from businesses by letter, the two things you should remember to look for that indicate a scam include:

• A fraudulent email address, such as companies-review@hmrc-taxchecks.org
• Lack of your company’s unique tax reference number (UTR)

A legitimate HMRC letter will always include the company’s UTR and official email addresses, which end in @hmrc.gov.uk. You should also be able to double-check communications from HMRC in your online tax account.

To help you confirm whether a letter you’ve received from HMRC is real, a list of genuine letters the tax agency has sent out is available to check on gov.uk.

It can also help to have a tax consultant on your side to manage HMRC enquiries on your behalf, helping you keep your tax accounts up to date and avoid prompting from HMRC.

If you would benefit from the assistance of accountants in Barnsley, contact gbac today to learn more about what we can do for your business. You can reach us by calling 01226 298 298, or email your query to info@gbac.co.uk and we’ll get back to you soon.

Dividend income, which is paid to company shareholders, is taxed like most other forms of income – but there is also an annual tax-free allowance for dividends.

While this allowance was cut from £5,000 a year in 2018, it remained at £2,000 a year until 2022, after which it has been gradually reduced year on year – dropping to £1,000 in 2023 and halving again to £500 from April 2024.

With this latest cut to the dividend tax-free allowance, it’s now expected that the number of people paying tax on dividend income for the 2024–2025 tax year will be double the amount it was three years ago before this round of reductions.

The dividend tax rate depends on the individual’s Income Tax rate, and this latest reduction has impacted basic rate taxpayers the most. While around 700,000 basic rate taxpayers were taxed on dividends for 2022–2023, this number will jump to almost 1.7 million for 2024–2025.

Here’s what this could mean for basic rate taxpayers who may receive dividend payments, and what you can do to mitigate your dividend tax liability.

Tax liability for dividends

While you won’t have to pay Income Tax on dividend income that falls within the Personal Allowance of £12,570, you’ll still have to pay 8.75% tax on dividend income over the £500 allowance if you’re a basic rate taxpayer.

For example, if you had a modest portfolio of £10,000 in shares, a 5% yield would use up that allowance and leave you liable to notify HMRC and pay tax on anything above that.

This means contacting HMRC and either requesting a tax code change so HMRC can collect the tax via PAYE if you’re employed, or declaring the dividend income in a Self-Assessment Tax Return. If you aren’t already registered for this, you must do so by the following October.

The hassle of this can be frustrating considering the low tax bill – with the average being £385 for a basic rate taxpayer this year, compared to £780 three years ago.

It’s even worse if an investor chooses script dividends, as they’re still taxable even though no cash is received, leaving the investor to fund the tax from another source.

As the allowance has been repeatedly cut, dividend payouts have risen to pre-pandemic levels, so it’s important for taxpayers to manage their liabilities effectively.

Dividend tax mitigation

If your dividend income for the year is above the £500 tax-free allowance, there may be some mitigations possible to reduce your tax liability while maintaining compliance.

For example, dividends on shares in ISAs (Independent Savings Accounts) are not taxed, so you should be making full use of ISA allowances for share investments.

Alternatively, you could invest in capital growth rather than dividends, or spread your portfolio across the family to make use of a spouse’s, partner’s, or adult child’s dividend allowances.

Take a look at HMRC’s guide to dividend tax on the government website for more information, or if you need tax advice on dividend income, get in touch with our accountants in Barnsley.

At gbac, we provide professional tax management services to individuals and businesses alike to make sure you manage your savings and investment portfolio efficiently – so call us on 01226 298 298 or email info@gbac.co.uk to get started.

In the Labour Party’s latest manifesto, the party pledged not to increase National Insurance, Income Tax, or VAT to avoid higher taxes for working people.

However, Capital Gains Tax (CGT) was not mentioned in this pledge, with Chancellor of the Exchequer Rachel Reeves receiving many questions about this omission yet providing no definite answer about Labour’s plans for CGT.

This led to predictions about a possible increase in CGT, which is a tax levied on profits earned from the sale of property, shares, or other assets.

There is currently an annual allowance of £3,000, which was already significantly chopped from the previous allowance of £12,300 in 2020. Profits above this allowance are taxed progressively according to your Income Tax band, with gains from selling property taxed at higher rates.

An increase in tax rates or another annual allowance cut would affect owners of second homes, landlords, business owners, shareholders, and anybody planning to sell valuable assets.

Who pays Capital Gains Tax and how much?

In early August, HMRC shared the CGT receipts for the 2022–2023 tax year. The tax-free gains allowance was £12,300 for this year, but the data still reveals some interesting details.

• Only 348,000 taxpayers made enough gains to pay CGT (about 1% of Income Tax payers).
• A total of £13.63 billion was paid in CGT, plus £0.797 billion from trusts.
• Less than 1% of CGT payers (2,000) were responsible for 41% of all CGT receipts from individuals after making at least £5 million in gains.
• Another 4,000 individuals paid 16% of the total CGT collected after making between £2 million and £5 million in gains.
• More CGT was paid in the previous two years – receipts dropped by 15% between the 2021–2022 to 2022–2023 tax years.

It’s uncommon for tax receipts to fall year-on-year, but the explanation behind these figures is the unrealised Office of Tax Simplification review in 2020. The now-defunct OTS suggested cutting the annual CGT exemption and aligning rates with Income Tax.

This prompted individuals to rush to complete asset sales before any such measures came into force, boosting CGT receipts. However, the OTS proposal to align CGT rates with Income Tax rates was ignored – though the annual exemption was indeed reduced.

Will CGT be changing after the Autumn Budget?

As we wait for the new Labour government’s first Budget, the CGT figures provide a lesson that even hints of raising tax rates can help to generate greater revenue – as speculation encourages individuals to pre-emptively realise gains in an attempt to avoid higher rates.

However, as seen with the abandoned OTS suggestion regarding CGT rates, it may turn out that the government doesn’t actually implement this kind of change at all, so individuals could have held on to their assets and investments for longer.

Current speculation suggests that Reeves could increase CGT rates but reintroduce indexation, so capital gains are only taxed after inflation, but could also increase dividend tax.

We will have to wait to find out what’s to come for CGT when Reeves delivers the first Budget this autumn on 30th October – but whatever happens, any changes could be implemented faster than some may be prepared for.

It’s important to make sure your finances, including savings, investments, and other assets, are all managed with an up-to-date approach to tax obligations.

If you would like to ensure you make the most of allowances and exemptions and reduce your liabilities, you could benefit from speaking to professionals like our accountants in Barnsley.

To learn more about how gbac can help you to manage your accounts both before and after the Autumn Budget, get in touch by calling 01226 298 298 or emailing info@gbac.co.uk.

In the beginning…

We began our drive toward net zero in earnest in 2022, having had our efforts restricted in 2021 because of the pandemic.

We realised straight away that Net Zero is a mammoth task and we might not get there, but we were determined to try. In our efforts for success we would risk improvement and failure.

We knew little about the subject matter and we are still learning day by day.

But this is what we did, and it is also what we are still doing. It is a JOURNEY.

1) Found out more about Net Zero to understand the basics

To answer the question, “What does Net Zero mean and why does it matter?”, we:

• Read lots of articles.
• Participated in The Small Business Sustainability Basics Programme
• Attended a Net Zero course
• Increased our knowledge base and improved our understanding of the challenge.

2) Created a greenbac team and regularly reported back to our entire gbac team

We created a small dedicated team with enthusiasm for the issue and a desire to change our practices and improve our carbon footprint.

Our greenbac team then fed back to the entire gbac team through our whole team meetings so the entire office was looped in.

3) Engaged professional external support

As well as completing The Small Business Sustainability Basics Programme, we engaged a consultant through the Low Carbon Business Support Programme.

4) Measured our current carbon emissions and started planning to reduce them

We measured our first footprint in April 2022 with the help of our consultant.

It was a mixed picture, as it covered a 12-month period during which we had a few lockdowns and our team was taking a hybrid approach of working in the office and working from home.

5) Got involved with a movement

We refreshed our thoughts and got further support from the following using two different greenbac teams so that we felt assured and confident in what we could do.

• Low Carbon/Net Zero Barnsley Programme
• SYMCA Net Zero Programme

6) Re-calculated our carbon footprint

Time had passed. With the help of the team via the Low Carbon/Net Zero Barnsley Programme, we learned to calculate our own carbon impact.

We then extended our focus to include Scopes 1, 2, and 3.

7) Made a commitment to climate action and accessed tools to reduce emissions

Team gbac made a commitment to climate action by agreeing on small actions we can take as a firm so that we can reduce our carbon footprint.

We accessed tools to help us reduce emissions and disclosed our progress.

8) Found more support and some funding

The team at the Low Carbon/Net Zero Barnsley Programme helped us with our thinking on the next steps – what was impactful and what was possible.

They even assisted with signposting potential funding support.

9) Kept an eye on what others were doing

Throughout this journey, we have looked with interest at what others are doing to reduce their carbon emissions.

This is a global movement that will benefit everyone. Where we have been able to learn from others, we have done so.

10) Reduced electricity and gas usage

We had our carbon footprint from Scope 1 and Scope 2 emissions measured for the first time, but because we are a firm of accountants, the entirety of Scope 1 (direct) and Scope 2 (imported power and utilities) emissions result from our work in the office: running computers, heating, and lighting.

We immediately took action to reduce the use of electricity and gas as much as we could, which meant we:

• Adopted an “off and completely off” policy to ensure that we did not leave PCs and other office equipment on standby out of office hours.
• Changed our conventional lighting so that LEDs were used across the office.
• Reduced the use of our air conditioning systems.
• Made sure that the central heating system made the maximum use of thermostats and timers.
• Carried out regular operations and maintenance checks.
• Made sure our doors and windows are draught-free
• Turned down our thermostats.
• Adjusted our office blinds to maximise sunlight wherever possible, fitted Electric Vehicle Charging points at the office, and
• Changed company cars to electric cars.

Ongoing considerations: Installation of solar panels on the roof.

The gbac charter: what we committed to do

• Reduce our use of paper with the aim of becoming “paperless”.
• Be flexible so that we can reduce commuting to work and increase productivity by implementing a 4-day week.
• Be efficient in our use of electricity, gas, and water, and reduce overall usage.
• Reduce all waste.
• Recycle more.
• Use sensor-activated lights where possible.
• Be “green smart” with our purchasing choices.

Sustainability Report 2023

Here are the highlights of our 2023 Sustainability Report:

	2023 tCO2	2022** tCO2	Impact tCO2	%
Scope 1	7.59	6.77	+0.82	+12.1
Scope 2	6.29	7.58	-1.29	-17.0
Sub-total	13.88	14.35	-0.47	-3.3
Scope 3	26.50	N/A	N/A	N/A
Water	40.38	N/A	N/A	N/A

 

** 2022 covered a 12-month period in which we had pandemic lockdowns and a hybrid approach to working in the office and working from home.

Other metrics we have been tracking include:

Stationery and paper usage

	31st March 2024	31st March 2023	Impact
Office stationery	£1,195	£1,594	25% reduction
Postage	£435	£1,454	70% reduction

 

Employee travel to work

• 4-day working week – reduces travel to work by 1 day every week.
• As of 31st March 2024, 75% of employees now do a 4-day week (71% in 2023).
• This has resulted in a 6% reduction in travel time, travel costs, and emissions from car travel.

What does 2024 hold?

It seemed clear to us that we needed further help. Having taken part in the Low Carbon/Net Zero Barnsley Programme, we were assisted in identifying the next big push.

Solar power is our way forward to further positive change.

Further electricity use reduction will therefore be achieved through the installation of solar power.

We are now B Corp accredited!

B Corp companies are companies verified by B Lab to meet high standards of social and environmental performance, transparency, and accountability.

Being a B Corp certified company as of July 2024:

• Demonstrates and verifies our desire to use gbac as a force for good.
• Rewards our sustainability drive (ESG – Environmental, Social, and Governance).
• Rewards and complements our investment in people (IIP).
• Complements and underpins our investment in the planet and our journey to Net Zero.

Get in touch

At gbac, we are approaching our commitment to Net Zero with as much dedication as our commitment to delivering the best financial services to our clients.

To learn more about what we can do for you, browse our website or get in touch with our helpful team.

 

Given HMRC’s increasing concerns about electronic sales suppression (ESS), the tax agency is launching a campaign of one-to-many letters, targeting businesses that may have outstanding taxes to pay after misusing their till systems to reduce their recorded sales.

ESS tools allow till systems to alter or hide individual transactions while creating a credible audit trail. This enables businesses to reduce their reported turnover and pay less tax – including Income Tax, Corporation Tax, and VAT – while appearing to be tax-compliant.

Using ESS software or hardware to adjust the value of transactions or only record a portion of sales, for example, is a form of tax evasion. HMRC is therefore sending informal warning letters to discourage this deception and ensure that any guilty parties make things right.

One-to-many ESS letter

Also known as ‘nudge letters’, HMRC sends one-to-many letters with the same information to taxpayers whose data suggests their tax affairs are incorrect. These letters prompt recipients to double-check their tax returns and rectify any issues as soon as possible.

Receiving a letter about electronic sales suppression gives the business the opportunity to voluntarily disclose under-reported sales, and explains what could happen if they don’t.

This can include progressive financial penalties, which may be reduced after full disclosure.

HMRC is expected to run this campaign of one-to-many ESS letters for at least the next year – but if your business is sent one of these letters, you must confirm your sales reports to HMRC within 30 days of receiving it, even if you believe your sales information to be correct.

Sales suppression penalties

Along with general penalties for providing inaccurate information, HMRC can also charge a penalty for being in possession of an ESS tool. This may be any type of software or hardware that a business can use to reduce or hide transaction values on electronic records, thereby suppressing sales.

Even if the business hasn’t used the ESS tool to suppress their sales, simply possessing it is enough to incur an initial penalty of £1,000. HMRC will then charge a £75 daily penalty from this point until the business proves they are no longer in possession of the ESS tool.

‘Possession’ in this case includes a business owning an ESS tool, having access to one, or trying to access one. Again, even if the business doesn’t proceed to use the tool, simply owning, accessing, or attempting to access an ESS tool means HMRC can take action against them.

How to avoid ESS penalties

To avoid receiving a penalty or scrutiny from HMRC, the best thing to do is to simply avoid ESS tools completely. This means that all businesses carrying out electronic sales should not:

• install an ESS tool to any device you own
• configure electronic point of sale (EPOS) system settings to activate an ESS tool
• access an ESS tool on a device owned by anyone else

You can find more information about electronic sales suppression on the government website.

Another way to ensure that HMRC has no reason to penalise your business is to keep comprehensive and accurate financial records to help you prove your compliance quickly.

Maintaining correct business records will also help to prevent genuine accidents in under-reporting turnover figures. If you have concerns about managing your accounts and filing accurate tax returns, you may be better off outsourcing your accounts to specialists.

At gbac, we have a skilled team of accountants in Barnsley who can provide a range of financial services to support business accounts. For more information about our digital accounting services, please call 01226 298 298, or send an email to info@gbac.co.uk and we’ll be in touch soon.

Without a digital invoice processing system, companies leave themselves vulnerable to invoice fraud – a scam that almost a third of businesses have been targeted by in the last year.

Employees can easily process fake invoices if they appear genuine and the amount is below the company’s payment threshold, paying money into the bank accounts of fraudsters.

Though fraud against UK businesses has reduced in the last few years, over £1.2 billion was lost to invoice fraud in 2022, and developing technologies ensure that it remains a growing threat.

It’s vital for all businesses to learn how to recognise potential invoice fraud and avoid falling for this common scam – so here’s what you should know about how to prevent invoice fraud.

Types of invoice fraud to look out for

The most common kinds of invoice fraud include false invoices for non-existent goods or services, where scammers claim to be a supplier or tradesperson the company has previously worked with, or duplicate invoices for legitimate bills that have already been processed.

It’s also common for existing invoices to be altered as a result of criminals hacking into a genuine business email account and changing invoice payment details so they receive the money instead.

Unfortunately, it can be difficult for employees to identify a fake invoice if it appears to be from a legitimate business that the company has worked with and paid before.

Additionally, there’s also the possibility of internal invoice fraud, where senior employees with access swap payment details on invoices to divert the money to their own bank accounts. In a recent case, an employee at a public limited company stole £660,000 through 29 fake invoices in a single month.

Invoice fraud doesn’t only result in financial loss, though – it can also damage a company’s business relationships and brand reputation, and have a negative impact on staff morale.

Invoice fraud prevention tips

There are several things a company can do to avoid falling for false invoices, including:

• Confirming with a trusted person if you receive emails about changing payment details
• Reconciling every invoice by checking against previous records to verify information
• Not sharing supplier names online, as fraudsters can use this to falsify invoices
• Training employees to recognise fraud and implementing an invoice approval system

One of the most effective ways to prevent invoice fraud is to update your accounts with a digital processing system, which will automatically compare invoice details against order and payment information, flagging errors and thereby preventing most types of fraud.

Managing an onboarding process where all suppliers have to use your digital system prevents fraudulent traders from joining your network, reducing the potential for fake invoices.

On top of fraud prevention, digital invoicing comes with many other benefits, as it can also prevent missing due dates, reduce errors, and improve cashflow forecasting for the business!

Update your accounting system

Digital accounting systems make it much easier to keep accurate and accessible records of financial information and process approved payments on time – so, if you haven’t yet, it could drastically help your business to update your accounting with efficient digital services.

Of course, businesses should already be planning to switch to up-to-date digital accounting software if they haven’t already, as the UK government is rolling out its Making Tax Digital plan to improve the process of reporting financial information to HMRC and paying taxes.

Here at gbac, our accountants in Barnsley can help businesses of all sizes with payroll services and bookkeeping and VAT management. If you need assistance with digital or cloud accounting, don’t hesitate to get in touch with our team and discuss our financial services.

Every year, HM Revenue & Customs (HMRC) publishes the latest tax gap figures – revealing the difference between the amount of tax due and the amount that they actually collect.

Compared with a tax gap of 7.4% in 2005–2006, the first year of taking these records, the most recent revised figures for the 2022–2023 tax year put the current tax gap at 4.8%.

While this percentage has stayed the same since 2020–2021, in monetary terms, the tax gap has been increasing along with tax liabilities – rising from £31 billion the previous year to £35.8 billion in 2021–2022, then reaching a record high of £39.8 billion in 2022–2023.

This is the largest the tax gap has ever been in cash terms, and while some of the increase will be a result of non-payment due to the rise in company insolvencies affected by the pandemic, small businesses are now taking the blame for up to 60% of all uncollected taxes.

Small companies defaulting on tax

The tax gap share attributed to small limited companies – with an annual turnover of less than £10 million and fewer than 50 employees – has escalated significantly in the last 5 years.

Accounting for 44% of the overall tax gap back in 2018–2019, small businesses are now responsible for 60% of the gap in expected tax takings in 2022–2023. While the pandemic was the probable cause of the uptick around 2020, the same effect didn’t happen for other business sizes – and the increase in unpaid taxes for small businesses hasn’t slowed down since.

Small companies are the worst offenders when it comes to not paying Corporation Tax, in particular.

Not only has the total of unpaid Corporation Tax bills almost tripled from £3.7 billion in 2018–2019 to £10.9 billion in 2022–2023, but small businesses are responsible for 32.3% of this tax gap – with 45% of small companies submitting incorrect returns and under-declaring liability.

In comparison, mid-sized businesses account for 11% of the overall tax gap and 6.7% of the Corporation Tax gap, while large businesses are responsible for 11% and 2.9% respectively.

Increased liabilities and high tax take

The recent figures also illustrate how much HMRC’s tax take has increased – with the theoretical total growing by about 15% each year, and almost doubling since 2005–2006.

Between the 2020–2021 to 2022–2023 tax years alone, the agency’s tax take rose from £640.1 billion to £823.8 billion, which is a high record of 95.2% of all tax due that year.

As a portion of the GDP (gross domestic product – the market value of goods and services), tax receipts have maintained a steady 28% over the last 20 years, but now represent just over 30%.

However, HMRC clearly has a lot of work to do to address the remaining tax gap, especially where small businesses are concerned. After all, if the Corporation Tax gap hadn’t increased, or had shrunk in line with other business sizes, HMRC could have collected a further £7.5–£9.5 billion in tax.

Non-compliant tax behaviour

The two behaviours that contribute to the tax gap the most are failure to take reasonable care and criminal action. Even if it isn’t done intentionally, like criminal action such as tax avoidance, filing errors resulting from a lack of care are responsible for almost half of unpaid tax bills.

HMRC expects small business owners and limited company directors to take a higher level of care compared to sole traders to ensure they understand and fulfil their tax obligations.

If you own a small company and fail to report accurate financial information to HMRC or neglect to pay outstanding tax without a ‘reasonable excuse’, the agency can also issue tax penalties.

It’s essential for businesses of all sizes to stay on top of their accounts and legal obligations, especially with the roll-out of Making Tax Digital creeping up on previously exempt earners.

So, if you need help managing your tax liabilities and ensuring that your small business is tax compliant, it’s likely you would benefit from contacting our accountants in Barnsley.

Here at gbac, we provide a range of professional financial services for all kinds of businesses and individuals – so why not call 01226 298 298 or email info@gbac.co.uk to speak to our team?