The government’s recently launched Help to Grow: Digital scheme has two aspects: impartial advice and guidance about how digital technology can boost a business’s performance, plus a potential discount worth up to £5,000 towards the cost of buying approved software.

Announced last March ahead of the 2021 Budget, the scheme aims to combat problems of cost and lack of knowledge, often seen as barriers to adopting new digital technologies.

Advice and guidance
The new scheme will help small and medium-sized businesses adopt digital technologies. On the Help to Grow: Digital website you can find:

• Guidance and tools to help understand which digital technology is best suited to your business;
• A software comparison tool;
• Checklists to help you assess whether you’re ready and how to integrate new software; and
• Case studies about similar businesses.

Discount
A 50% discount, capped at £5,000 (excluding VAT), is available towards the retail cost of approved software that helps a business to build customer relationships and increase sales, or to manage accounts and finances. Only one software product can qualify for the discount, and only the first 12 months of software costs are covered.

Additional software products, including e-Commerce software, are expected to become available for Help to Grow: Digital discounts soon.

The eligibility criteria includes:

• Being incorporated and trading for at least 12 months;
• Having between five and 249 employees; and
• Purchasing the approved software for the first time.

Examples of how digital technology can help a business include automatic invoice generation, expenditure tracking, reaching new customers through data collection, using automation to reduce time spent on administration, and storing information in one central, accessible location. Cloud services are increasingly popular, yet many small business owners do not use them.

The new digital initiative sits alongside the Help to Grow: Management scheme launched last year. This provides 12 weeks of management training for just £750. Courses are run at leading business schools across the UK.

More information about the Help to Grow schemes can be found here.

Having a reasonable excuse can be a get-out-of-jail-free card if you are charged a tax penalty. However, there is no statutory definition of the term, and what might constitute a reasonable excuse for one person may not for another. With more individuals and businesses incurring tax penalties due to Covid-related disruptions, HMRC has recently updated its guidance.

The use of a reasonable excuse only removes the penalty – it does not absolve the taxpayer from the tax or any late-payment interest.

Covid-related disruptions
HMRC will usually accept the use of a reasonable excuse for a return or late payment because of the impact of Covid-19. As is always the case with reasonable excuse, the excuse must have existed on or before the date on which the obligation should have been met.

It is also essential that the failure to meet the conditions is rectified without unreasonable delay once the reasonable excuse ends.

For example, if a business is late submitting its quarterly VAT return because the person responsible had to isolate – this should be accepted as reasonable excuse provided the return is submitted as soon as possible after the person returns to work.

What doesn’t count
HMRC’s updated guidance provides some examples of what will not usually amount to a reasonable excuse:

• Pressure of work;
• Lack of information; and
• Lack of a reminder from HMRC.

Lack of funds and reliance on a third party also do not normally count, although there are exceptions. For example, the First-Tier Tribunal held that a taxpayer had a reasonable excuse for the late payment of a capital gains tax liability because the sale proceeds had not been received.

Illness
Illness and domestic problems do not count as valid excuses unless very serious. HMRC expects suitable arrangements to be put in place if a person knows in advance that they will be in hospital or convalescing.

Similarly, the illness of a partner or a close relative will only be accepted as an excuse if the situation took up a great deal of time and resources.
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HMRC guidance on what to do if you disagree with a tax decision – including reasonable excuse – can be found here.

An easy way to reduce a business’s tax bill – and also increase the amount of funds withdrawn from the business – is to put a family member on the payroll. Of course, the salary must be for genuine work, with any tax saving dependent on the overall tax position.

Such salary arrangements are most beneficial if they are in place from the start of a tax year, so right now is a good time to be looking at 2022/23.

When does this work?
Paying a salary to a spouse, partner or child at university makes sense if the recipient is not using their personal allowance. A tax-free salary can be paid, with the business or company receiving a corresponding deduction in calculating their trading profit. For a sole trader, the saving could be as high as 63.25% if caught in the personal allowance tax trap.

However, there will also be a saving if the recipient is using their personal allowance but has a lower marginal tax rate than their self-employed spouse, partner or parent. With a company, there is currently no advantage to taking a salary in this situation, but there will be from April 2023 when higher corporate tax rates come into effect.

One important point to remember is that the salary must actually be paid out for the work, so it should be payrolled and transferred into the family member’s personal bank account.

How much to pay?
There are two main restrictions:

• The amount of salary must be commensurate with the work done; HMRC will refuse a tax deduction if no work or little work is undertaken. Work will obviously depend on the recipient’s skill set, but bookkeeping, payroll, marketing, or website maintenance might be options
• Keeping the national insurance contribution (NIC) cost to a minimum. With employee and employer NICs set to be 13.25% and 15.05% respectively from April, these can easily wipe out any tax saving. An annual salary for 2022/23 of between £6,396 and £9,880 will mean no employee NICs and will also give the recipient a year’s contribution towards the State pension. Paying up to the annual personal allowance of £12,570 can work if employer NICs are covered by the employment allowance.

HMRC’s approach to allowing a deduction for salary paid to dependents and close relatives can be found here.