Back to work means it’s time for business development
For most people the summer holidays will be firmly in the rearview mirror by now and they will be starting to focus on the year ahead. One way to make sure next year will be one to remember is by putting some effort into business development now, so you can start 2024 in good shape.
The EY Item Club said earlier this summer that it expects the UK economy to grow by just 0.8% in 2024, so the sooner you start working on how you can connect more effectively with your customers, whether your business is B2B or B2C, the more chance you have of boosting your profits.
Autumn is a great time for business development, as the months ahead of Christmas are key for many businesses because they plan their budgets and allocate finances to projects the following year. Getting in front of the right people now could give you a better chance of securing a piece of the pie.
Where’s the best place to start?
Most businesses will be doing some form of business development on a regular basis – and if yours isn’t, then this is something to address. Becoming complacent and relying on your current client base to keep your business afloat is a risky strategy.
If you’re new to this, then one of the best places to start is by identifying what your customer looks like. Literally. This may sound extreme, but considering who your customer is, what they are interested in and what they are going to want to spend their money on is the ideal way to target the people or businesses you want to work with.
For example, is your business selling primarily to people or other businesses locally? Could you expand your reach online? Are your customers UK-based, or can you sell your products or services globally? Once you know the answers to these initial questions, you can begin to establish who your customers are.
Where do I find them?
The next step is talking to them. This could be through advertising locally, or perhaps you could harness the power of social media to spread the word about your business. For example, LinkedIn is a great place to do some networking whether your business is B2B or B2C, or both.
Other social media sites, such as X, formerly known as Twitter, Instagram, Facebook, TikTok, Threads and so on, can be just as useful. But you will need to create regular content for them to be effective. This can take time, although there are now some useful AI tools that can do some of the heavy lifting for you. For image creation, you could check out Midjourney, or if you already use Hootsuite to manage your social media channels, then check out its AI content creator OwlyWriter AI.
AI tools aren’t perfect, but they can help take away some of the difficulties that come from starting with a blank page and give you some content to work with. You can even use AI tools to run ads for you now, just be sure you keep a keen eye on how well they are working. This is your brand we are talking about here.
I don’t like social media, what else can I do?
If you’re not a fan of social media, there are plenty of other ways to meet and greet potential new partners and customers. Check out any local trade fairs that are happening and see what it costs to go as a delegate or to exhibit. The latter will usually cost more, so do your research carefully to see who will be there so you know your efforts and money won’t be wasted.
Other business development can be done through business associations, such as the local Chamber of Commerce, or through networking at more social events, such as during a round of golf or at a tennis club.
Once you get into the swing of your business development, use a customer relationship management (CRM) system to keep on top of those conversations and important contacts. This will help you track and action anything you need to so those opportunities don’t get left to wither on the vine. Different CRMs have various pros and cons, so again do your research carefully.
If you are considering spending money on your business development, then get in touch with us first and we will help to make sure you are getting the right tools for the job.
Redundancies expected to rise this year – what you need to know
The latest official figures show that redundancies are on the rise this year. Expected redundancies are up from 22,525 in June to 23,975 in July, based on the number of HR1 forms filed to HMRC. While this data lags behind real-world figures because of the way it is collated, many big companies have already announced redundancies.
The biggest so far includes Wilko. Its collapse has put around 12,500 jobs at risk. But it is far from alone in making layoffs. Deloitte is expected to lose around 800 of its UK staff, while even behemoths like Google, Amazon, Yahoo and Meta have made redundancies this year. As early as February, the Retail Gazette highlighted that 15,000 jobs in retail had been cut by the time this story was published.
Employees can do little to avoid the cull, but the least you can do is understand what you can expect from your employer. If you’re an employer, then you also need to understand your legal obligations.
Responsibilities of an employer
Let’s start with the employer’s responsibilities. To make a person or people redundant, their job or jobs must no longer exist. If this isn’t the case, it won’t be considered a genuine redundancy. Then you must choose who to make redundant.
This must be carefully considered, especially if you are making compulsory redundancies, as the people you choose must be chosen fairly. For example, under the Government’s fair selection criteria, you can consider:
- skills, qualifications and aptitude,
- standard of work and/or performance,
- disciplinary record.
You can use the ‘last in, first out’ approach legally too, providing it doesn’t unfairly impact one group over another. However, you cannot choose people based on:
- pregnancy, including all reasons relating to maternity,
- family, including parental leave, paternity leave (birth and adoption), adoption leave or time off for dependants,
- acting as an employee representative,
- acting as a trade union representative,
- joining or not joining a trade union,
- being a part-time or fixed-term employee,
- age, disability, gender reassignment, marriage and civil partnership, race, religion or belief, sex and sexual orientation,
- pay and working hours, including the Working Time Regulations, annual leave and the National Minimum Wage.
For voluntary redundancies, you must be clear about how you are going to choose people, and ensure they understand you may not give them redundancy just because they applied for it. Another way to reduce staff numbers voluntarily is to offer people incentives to take early retirement. This must be offered across the entire workforce to comply with legislation. But you can’t force someone to retire early.
At all times, good communication between employers and employees is paramount, so everyone knows where they stand, and trust is maintained.
What employees need to know
Employees want to know they are being treated properly, and there are different rules employers must follow depending on how many redundancies they’re making. If it is less than 20, there are no hard and fast rules, but you should still be fully consulted on plans and kept informed of what is about to happen.
If more than 20 people will be made redundant within the same ‘establishment’ as the Government puts it, within a 90-day period, then the company must go through a ‘collective consultation’. Staff or union representatives should be informed initially if they are in your workplace, or the company must speak directly to the staff.
The consultation period must last for at least 30 days if 20-99 people are being made redundant, or 45 days if it is 100 or more. Once this is done, then you will be given notice of your redundancy. At the very least this should include:
- the reasons for redundancies,
- the numbers and categories of employees involved,
- the numbers of employees in each category,
- how you plan to select employees for redundancy,
- how you’ll carry out redundancies,
- how you’ll work out redundancy payments.
How is redundancy pay worked out?
How much redundancy pay you will get depends on a variety of factors, but there are rules around the minimum statutory redundancy pay that should be offered. For example, anyone not under an employment contract, those with the company less than two years, and those who have taken early retirement won’t get statutory redundancy pay. Your employer may still pay you, but it is not compulsory.
Any employee receiving redundancy pay should be told exactly how it has been worked out in a written statement. The statutory redundancy pay rules allow for amounts equivalent to:
- 5 weeks’ pay for each full year of employment after your 41st birthday,
- one weeks’ pay for each full year of employment after your 22nd birthday,
- half a weeks’ pay for each full year of your employment up to your 22nd
The length of service is capped at 20 years under these rules, and the amount you will receive is based on the average of the amount you earned in the previous 12 weeks prior to you being made redundant. Even so, weekly pay is capped at £643 per week, and the total statutory redundancy payout is capped at £19,290. But remember, your employer can decide to pay you more, or you may be able to negotiate more.
This payment should be made when you are made redundant, but if not, or your employer doesn’t agree with the amount, you have up to three months to claim the payment due from an employment tribunal. So, even though this might be an emotional time, keep your eye on the calendar to make sure you don’t miss out. The good news is that even if you miss this deadline, the tribunal would have up to six months to decide whether you should receive the money.
We can help you
If your business needs to make redundancies, or you’re an employee about to be made redundant, please get in touch with us and we will help to either make sure you are complying with all of the relevant regulations, or receiving what you expect.
Don’t miss the October 5 deadline to register for self-assessment
Anyone who has become self-employed, was in a business partnership, earned more than £100,000 or had to pay the High-Income Benefit Charge this year has until October 5 to speak to HMRC to register for self-assessment.
Millions of people each year need to do a self-assessment, and this includes anyone earning money outside of their PAYE job, including commission or tips, or you earn income from renting out a property.
What if I need to claim tax relief?
If you need to claim tax relief on anything, such as items you pay for out of your own pocket which are solely used for your PAYE employment, then you would also need to sign up for self-assessment. You may be due a tax rebate too if you have been made redundant, as you may not have been paid as much as expected across the whole year.
Other tax reliefs might come from Gift Aid donations you have made to charity, or reclaiming the additional tax relief on your pension contributions if you are a 40% or 45% taxpayer.
You can also claim tax relief on maintenance payments if you have to make them to your ex-spouse or civil partner, although this would only apply if one of you was born before April 6, 1935.
Check if you need to make a self-assessment payment by visiting the Gov.uk website.
Can I be fined if I miss this deadline?
If you fail to notify HMRC before the October 5 deadline, then you could face a penalty. If you fail to register and file your return before January 31 of the year following the tax year when the amount was due, you could face another.
The best thing to do is act now and check if you need to file a self-assessment. If so, then get your skates on and register before October 5. If you can’t, then do it as soon as you can afterwards and check if any penalties will apply.
We can help you meet your obligations
If you think you may have a self-assessment liability for 2023/24, then please get in touch and we will make sure you get everything you need in place.
New UK Internal Market Scheme launches
A new UK Internal Market Scheme (UKIMS) has been launched to replace the old UK Trader Scheme, which will enable any registered traders to move ‘not at risk’ of entering the EU goods into Northern Ireland. The legislation, which came into force on September 30, is needed following the UK’s exit from the European Union.
The good news is that from October 2024, these ‘not at risk’ items will also be free to move without any unnecessary paperwork, checks or duties, only the existing commercial information will be needed from then onwards.
What are the changes and what do they mean?
There are three main changes under the UKIMS rules compared with the old scheme. The first is that all companies established in the UK will be able to use the scheme, instead of only those companies with a physical premises in Northern Ireland.
The second is that the turnover threshold below which companies involved in processing can move goods has risen from £500,000 up to £2m, making the scheme more widely available. The third is that even if a business is above this £2m threshold, they will still be eligible to move goods under the scheme if they are for use in healthcare, construction, animal feed or not-for-profit sectors.
All traders operating under the old scheme should have received information on how to become authorised for the new scheme. There are some additional pieces of information that need to be supplied for HMRC to complete the enrolment of these traders into the new scheme. You can get more information and guidance on what these are by clicking here.
Let us help you
If you need or want to move goods into Northern Ireland, then please get in touch with us and we will work with you to ensure you have all the relevant permissions under the new scheme.
Pension tax overpayments – £56m returned in Q2 2023 alone, so here’s how to claim
People making the most of flexible pension withdrawals have been facing tax overpayments due to miscalculations by HMRC. In Q2 2023 alone, the taxman repaid £56,243,842 to people who had been taxed more that they should on their pension withdrawals. This amounts to an average of £3,551 per person.
The figure is up nearly £8m on the amount overpaid in the first quarter of the year and is nearly double the £33.7m collected in the same period last year. As the cost-of-living crisis continues to wreak havoc on people’s wallets, this is money that would be better being with the people who need it most.
How do you know if you have overpaid?
The people affected by the tax overpayment are those who are starting to access their pension, and it is because of an oddity within the PAYE system, according to Jon Greer, head of retirement policy at Quilter.
He added: “This emergency tax situation can be particularly frustrating for people trying to access their funds quickly. It arises due to an oddity within the PAYE system when people start to take money from their pension as they are not taxed using the correct tax code.”
The problem with emergency tax codes is that you will often end up being charged more in tax than you should be, so reclaiming the overpayment is essential. To do this you would need to use form P55 if you have flexibly accessed part of your pension, form P50Z if you have emptied your pension pot, or P53Z if you have received a serious ill-health lump sum or have accessed your pension while you are still working or receiving benefits.
However, you should always check the tax code that is being applied to any income you receive to make sure you are not paying too much tax.
How many people are reclaiming tax?
It seems plenty of people are putting in their tax claims to make sure they are getting the money they are due. For example, just in Q2 2023, HMRC said it has processed 11,232 P55 forms, 2,987 P53Z forms, and 1,620 P50Z forms, suggesting people are accessing their pensions more readily to help cope with the cost-of-living crisis.
Even though inflation has dropped slightly in the last month, wage growth means we could see additional base rate rises implemented by the Bank of England before the end of the year, according to some experts.
Flexible pension access is a way of increasing your income
If you are over 55 and want to access your pension – the minimum age can depend on the scheme rules for your employer or the insurance company that provides your pension plan – then you can begin to make withdrawals.
The first 25% of your pension can be taken tax-free, and this is easy to calculate if you take your pension pot as whole. But if you choose to take your pension out in a flexible way – which means taking a bit at a time – then you will need to pay the relevant amount of tax on that income.
It becomes more complicated if you are still working and have additional income to take into consideration for tax. This is where the tax overpayments are typically happening. One way around this is to work with a tax professional who can help make sure your tax code is correct, and that you are not going to be paying more than you need to the taxman.
This helps to reduce the risk of overpaying your tax in the first place, allowing you to keep the money in your pocket rather than having to wait for the taxman to give it back to you, which can take some time.
If you are considering accessing your pension soon, or you have already accessed it but don’t know whether your tax code is correct, then please get in touch and we will check that you are not overpaying tax or that you have any tax rebates due from HMRC.
Alcohol duty changes – what it means for pubs, stores and small brewers
Up to 38,000 pubs and bars which have seen cuts in the tax they pay on the draught products they serve will be better off thanks to changes to the way that Alcohol Duty is calculated from August 1, 2023.
The cuts will make pints and other products sold on tap 11p cheaper than supermarket equivalents, in a bid to help the hospitality industry. It means they can finally compete on a level playing field with supermarkets and continue to be a key part of their local communities, according to the Government.
What are the new duty rates?
The changes are designed to modernise and simplify the Alcohol Duty system which has been in place for the last 140 years – changes the Government claims are only possible to make now the UK has left the EU.
The key changes are:
- all products taxed in line with alcohol by volume (ABV) strength, rather than different duty structures for different drinks;
- fewer main duty rates, from fifteen to six, to make it easier for businesses to grow and operate;
- there will be lower taxes on lower alcohol products – those below 3.5% alcohol by volume (ABV) in strength – a huge growth area in the drinks industry;
- all drinks above 8.5% ABV will pay the same rate regardless of product type.
This means Irish cream will fall by 3p, cans of 5% ABV ready-to-drink spirit mixers will be 6p cheaper, Prosecco will fall by 61p and 500ml of 3.4% pale ale will cost 20p less per bottle, according to Government data.
However, it also means other drinks with more than 8.5% ABV will become more expensive. For example, those partial to a port or sherry will see their favourite tipple rise by £1.30 and 97p per 75cl bottle respectively, according to the Wine and Spirits Trade Association (WSTA). Vodka will also go up 76p per 70cl bottle, and a typical 12% ABV bottle of red wine will go up by 44p.
New tax relief for small drinks producers to increase innovation
There is also new relief for small producers to help them increase innovation and add to the growth in the UK alcoholic drinks market, which is up 6% year-on-year and is now worth just under £50 billion. Booze sales are forecast to reach £60.9 billion in 2026.
So, the Small Producer Relief extends the Small Brewers Relief scheme and now allows businesses producing alcoholic products with an ABV lower than 8.5% to benefit from reduced rates of alcohol duty on qualifying products. This should help them experiment and innovate in new types of drink production, and also benefit from the increased trend towards lower alcohol drinks.
Barry Watts, Head of Policy and Public Affairs, Society of Independent Brewers, said: “[This] is the culmination of five years of consultation on the future of Small Breweries’ Relief – a scheme that has made the huge growth of craft breweries possible over the past twenty years. These changes will finally address the ‘cliff edge’ which was a barrier to small breweries growing and build on the scheme’s success by applying it to other alcoholic products below 8.5%.”
The Brexit Pubs Guarantee
Along with these changes to alcohol duty, the Government has also promised that the price of alcohol in pubs will always be less than retailers – something known as the Brexit Pubs Guarantee.
Prime Minister Rishi Sunak said: “I want to support the drinks and hospitality industries that are helping to grow the economy, and the consumers who enjoy the end result.
“Not only will today’s changes mean that that the price of your pint in the pub is protected, but it will also benefit thousands of businesses across the country.
“We have taken advantage of Brexit to simplify the duty system, to reduce the price of a pint, and to back British pubs.”
We can help you
If you need help with calculating the duty you need to pay for your business, please get in touch with us and we will help you understand what you need to do.
Deed of assignments won’t be treated as nominations for income tax
The ability to legally assign an income tax repayment, or the right to an income tax repayment, to a third party has been removed by HMRC from March 15 this year, meaning any repayment will remain the legal property of the taxpayer in question.
The change affects those who may have used a business, an accountancy firm, or a tax agent to facilitate their access to a repayment, along with any company involved in helping individuals in this way.
Why has this happened?
HMRC has made this ruling in a bid to protect taxpayers from unscrupulous operators in this sector, and to make the tax rebate system fairer and simpler for all. The Government wants to maintain trust in the sector, and to ensure that when taxpayers are entitled to claim a tax repayment, they can do so “easily and freely”.
There have also been some concerns around consumer protection issues in the “repayment agent” market, according to Gov.uk.
What are people being protected from?
There are contracts that many repayment agents ask their clients to sign which transfer the legal entitlement to the income tax repayment to them. What many people don’t understand is that to revoke this assignment, both parties must agree – it cannot be done by one side alone. Under these contracts, rogue agents can charge excessive fees to their clients and at times the client won’t benefit from other payments that they may not be aware of.
The bottom line is that you should either make the income tax repayment yourself, or work with an accountant you know and trust. In any case, at the very least, you should make sure you understand the implications of any piece of paper you’re signing.
We can help you meet your obligations
If you think you are due an income tax rebate, then we are happy to help advise you on the best way to get this sorted.
ECL now open online for registrations and returns
Any regulated businesses that need to sign up for the Economic Crime (Anti-Money Laundering) Levy (ECL) can now both register and make returns via the online service. Registrations and returns cannot be made by tax agents, so every affected business must sign up and make their returns directly.
To file a return online, businesses must have registered with the ECL and have requested their access code. Once they have both they can file their returns.
The ECL online service is accessible via GOV.UK and if your business needs to register, you will need:
- information about its UK revenue for the last financial year;
- the date when the organisation started anti-money laundering regulated activities;
- the contact details of a responsible person in their organisation, including all the following:
- email address;
- telephone number;
- the business sector the organisation operates in.
How often you file and pay depends on your collection authority
Depending on who your relevant collection authority is, you may need to file a return and pay a fee every year. It will be one of the Financial Conduct Authority, the Gambling Commission, or HMRC. You can find out background information on ECL at GOV.UK.
If your collection authority is HMRC, for example, then affected customer will only register for the ECL once but must submit a return and pay the ECL every year your UK revenue exceeds the threshold. This must be done by September 30 each year, so the payment for April 1, 2022, to March 31, 2023, is due on September 30, 2023.
Let us help you
If you think you may need to sign up to the ECL or have already signed up and need help with filing your returns, please get in touch and we will help guide you through the process.
BoE base rate rises – has your business account kept up?
The Bank of England (BoE) has raised rates 13 times in a row to June this year, with the base rate reaching 5% – a level not seen since 2008 at the height of the financial crisis. Mortgage rates and loan rates have risen alongside the base rate, but savings rates have tended to lag behind.
The base rate rises are designed to rein in inflation, which was still stubbornly high at 7.9% in June, significantly higher than the 2% target for the BoE. Experts at Schroders predict even more rate rises, with the base rate potentially reaching as high as 6.5% by the end of the year, which is bad news for borrowers, but good news for savers.
Easy access business account rates
While personal savings accounts have seen rate rises, the same applies for business account savings rates. So, if your business has excess cash sitting in a business bank account earning little or no interest, then consider opening a separate savings account and allowing that money to work for you.
The rate you can get for your business savings varies depending on how quickly you want to access that money. If you want to be able to make unlimited withdrawals at any time, then you would need an easy access, also known as an instant access, account. But you are likely to get slightly less in interest than you could get if you can give some notice before making a withdrawal.
At the moment, one of the best rates you can get for an easy access account is around 4.65% Annual Equivalent Rate (AER) – this is the actual amount you would receive in interest depending on how often the rate is calculated and then compounded over an entire year. For example, the monthly gross interest rate on this account is 4.65%. But if there is a compounding effect – where interest is calculated and applied more often than annually, meaning the next amount of interest paid is based on the original deposit plus the previous interest added – it could take the overall interest paid in a year to a higher rate.
Usually there will be a minimum deposit amount to open the account, so check any terms and conditions you need to comply with to get the advertised rate. You also should check whether the interest is a fixed or variable rate. If the former, you know what you will receive for the period the rate is fixed for. If that latter, the rate can change at any time, so keep an eye on it and be prepared to move to a better paying account if the rate drops.
Business notice account
If you can keep some money in an account where you give notice before making a withdrawal, it will boost the amount of interest you can earn. The current leading rates for notice accounts are paying around 5.35% AER if you are prepared to tie your money up for three months before making a withdrawal.
Again, watch for any terms and conditions and minimum deposits you might need to make. As you have to give notice before you make a withdrawal, you may face a penalty if you access the account before the notice period has been completed. This is often a reduction in interest, but check the terms to be sure you are able to comply with them before signing up.
Fixed term bonds
If you can afford to tie some of your company’s money up for longer, then you might want to consider a fixed rate bond. These will be offered over various periods, usually one year or more, and again you will not be able to access the money for the agreed term without a penalty.
The benefit for this is a higher rate of interest paid on your deposit. For example, one of the top rates for a one-year fixed rate bond for business customers is currently paying 6.13% AER. But you may find you need to put more money into the bond than some of the other accounts, which could be prohibitive for smaller businesses.
However, if you can keep some money in a product for a longer period of time, this might be worth considering.
Using business savings accounts, particularly when interest rates are rising, is a good way of making your money work harder for you. If you need help in finding out the right account for you, then please get in touch and we will be happy to assist you.
Reduce your company tax bill by doing a good turn
Charitable giving is something many organisations might not be considering in the current climate, especially as everyone is struggling to pay their bills. But if you have money to spare within your business, then charitable giving is a great way to reduce your tax bill on company profits while simultaneously helping a good cause.
The rules around charitable giving for companies are similar to those for Gift Aid for individuals. For companies, the maximum amount of Gift Aid that can be claimed is equivalent to the amount of tax you would have had to pay on the profits made by your business in a single tax year. There are special rules for companies that are wholly owned by charities which your accountant can help you with if you are in this position. But this article is focusing on general companies looking to make charitable donations in a tax-efficient way.
How does a charitable donation reduce Corporation Tax?
If your company has a particular affinity with a specific charity, then not only will your chosen charity benefit from your largesse by making a donation, it can reduce the amount of Corporation Tax you pay too. Gift Aid relief is applied to what the Government terms “qualifying donations” which need to meet certain conditions.
A payment is not a qualifying donation, according to Gov.uk, if:
- It’s a dividend or distribution of profits.
- It is made subject to a condition as to repayment.
- The company or a connected person receives a benefit which exceeds the ‘relevant value’in relation to the payment.
- It’s made by a charity or community amateur sports clubs.
- It’s conditional on the charity acquiring property that has not been gifted to them.
- It’s part of an arrangement whereby the charity acquires property that has not been gifted to them.
There are various ways that you can make your donation, but in each case, you must keep proper records of what was donated and when.
What ways can my business make a donation?
There are a number of different ways that your company can make a donation to a charity. The most obvious is by giving money directly to the charity of your choice. But you can also donate equipment or trading stock, land, property or shares in a company that isn’t your own – your own company’s shares don’t qualify – provide employees on secondment to the charity, and through sponsorship payments.
To claim the relief, you would need to ask your accountant to make sure the donation is listed in the company tax return for the relevant period that the donation was made.
How do I make the claim?
The way you make the claim depends on how you have made your donation. For example, if you have donated money or given or sold land, property or shares to the charity, then you would enter the total value of your donations into the ‘Qualifying donations’ box on the ‘Deductions and Reliefs’ section of your Corporation Tax return.
If you have seconded employees to work with the charity or sponsored the charity, then these would be deducted from your company profits as a business expense.
In both cases, the charitable donation would be paid out of your gross profits, so there is no need for any Gift Aid to be reclaimed by the charity. Remember, you cannot donate more than the profits generated in a single accounting period. The most your profits can be reduced to is ‘nil’, you cannot donate to make your company make a loss for tax purposes.
If you have given or sold land, property or shares to a charity, then there are special rules which apply to how you calculate their value. Your accountant is best placed to help you with this.
We can help you
If you need help to decide whether you should make charity donations from your business, and if so, how much they should be, then please get in touch with us and we will help you understand what you need to do.
What employee perks will the taxman help you fund?
We all love a perk of the job, and a major industry has built up around the types of employee perks companies are able to offer. The best news of all is that most of these will be tax deductible, which means the taxman will fund at least part of them.
Everything from free snacks to mental wellbeing support are now a regular part of the employment landscape, among other employee benefits, as companies push to make themselves the best choice for the top employees, especially in specialist sectors where there is a labour shortage.
What perks and benefits should my company offer?
Choosing the right perks to keep your existing employees happy and to attract high-quality new staff is the Holy Grail, and a lot will depend on the industry your business is in, the age group of your workforce and any specific requirements your staff have. One of the best ways to choose the right perks is to canvas your existing employees and ask them, that way you are going to be more likely to give them what they really want and value.
Alternatively, you could ask one of the employee benefit specialist companies to do the work for you, and give you access to the kind of benefits your staff are asking for. There is a cost involved in this, so make sure you are happy to pay the fee and that you will get the benefit of providing the perks.
What are some of the most common benefits?
There are some pretty standard benefits on offer, including private healthcare, dental care and even optician services. But there are some other benefits that may be less usual that could be good for your business. These could include unlimited and unmonitored flexitime, paying a joining bonus for new staff and/or an annual bonus, or negotiating discounts for staff at local pubs, clubs or gyms.
This last suggestion is one you may be able to deal with yourself, especially if your company employees a relatively high number of staff within the local area. There are lots of other businesses that will see the benefit of encouraging your staff to use their services, so it is always worth asking.
We can help you meet your obligations
If you are unsure about what kind of perks your business should offer, then please get in touch with us and we will help you choose the best options and route to delivery for you.
Why you must keep Companies House data up-to-date
When your business was registered at Companies House, you would have provided lots of detail about the business and the people who run it – including who are your directors, company secretary, the breakdown of share capital, and the type of business your company does. But failing to keep this information up-to-date could land you in hot water with the authorities.
Each year, you are required to file your Confirmation Statement to inform Companies House about any changes that have been made to your company in the previous year. Failing to do this within the allotted time will lead to sanctions, which could include your company being struck off the register if you continually fail to comply.
You must tell companies house about any changes, such as the adding or removal of directors of the business, a change of business or personal address, and any changes to the business sectors your business operates in.
Articles of Association and Memorandum of Association
You also need to sign up to an ‘Articles of Association’ and ‘Memorandum of Association’ when your business is formed, which you can choose to write yourself or you can use the model version from Companies House.
The Articles of Association is a longer document which sets out your company’s constitution, so even if you do use a model version of these, you need to check it carefully to ensure it meets the needs of your business, especially if this changes over time. You can amend these to keep them current.
The Memorandum of Association is a single page document which outlines each person who is going to be a part of the company at the start. This cannot be changed even if the people within the business come and go. It is a historical record of how your company was formed at the time, and by whom.
Even if you think everything has been correctly filed at Companies House, it is always worth checking periodically to make sure, as you might be surprised what may have been done incorrectly without your knowledge.
Let us help you
If you think you may need to amend any details held by Companies House about your business, then please get in touch and discuss this and we will do what we can to help you.
Keep National Insurance numbers in Apple wallets now
Do you struggle to remember – or find – your National Insurance number when you’re asked for it? If so, you’re not alone. So, it will be a relief to many that HMRC has now created a way for iPhones to store someone’s National Insurance number in their Apple Wallet either online or through the HMRC App.
It means you can now check, share, and print your NI number in minutes, instead of having to wait up to 15 days for an NI number confirmation letter to arrive. It can also be saved to be used in future.
While this may seem high-tech, the taxman is keen to reassure employers that “this is genuine and should be accepted in the same way a letter would be”.
Is it safe?
If a fraudster had access to your NI number, it could cause you numerous problems. So, the safety of holding it in your Apple Wallet is a valid question. But given it is where we already hold our credit and debit cards so we can pay with our smart devices, there is no reason to think the NI number would be any less safe. You need a fingerprint, facial recognition, or a passcode to open the Apple Wallet, and this type of biometric security is highly effective.
If you have an employee showing you their NI number on their phone, then check their name corresponds correctly with the number you’re being shown. So you can keep a record of it, ask them to send you a screenshot with the details.
At the moment, this facility is only available on an iPhone, which means Android users will need to struggle on with their memory, their NI cards, or bits of paper for a little while longer. But an Android version is in the pipeline.
Let us help you
If you cannot find or remember your NI number, or you have employees who are struggling to find their NI details, then please get in touch with us and we will do what we can to help you.
P11D and P11D(b) forms must be filed online by July 6
P11D and P11D(b) forms from April 6, 2023, now need to be filed online by July 6 following a rule change from HMRC. If employers need to make amendments to any returns that have already been filed, these should also be made online through a new form via the expenses and benefits for employers page.
If any employer now files their P11D and P11D(b) returns on paper, they will be rejected as not having been submitted correctly. This notification will include details about how to file the forms correctly going forwards. This can take time and cause delays for a business, so it is better to use the correct method in the first place.
If you fail to file the P11D or P11D(b) return by the July 6 deadline, you could face a penalty.
File Class 1A National Insurance Contributions info by July 6 too
Any Class 1A National Insurance Contributions (NICs) will also need to be flagged by employers to HMRC by July 6, and any payments due must reach the tax office on or before July 22 this year.
So your payment is correctly allocated, HMRC advises companies to use their 13-character accounts office reference number without spaces, followed by 2313.
HMRC stated: “Adding 2313 is important because 23 tells us the payment is for the tax year ended 5 April 2023, and 13 lets us know the payment is for Class 1A National Insurance contributions.”
You can find more information about how to pay employers’ Class 1A National Insurance at Gov.uk.
How you submit your P11D and P11D(b) electronically
To file either of these returns online, you can use commercial payroll software or HMRC’s PAYE Online service. You must submit all your P11D and P11D(b) forms online at the same time in a single submission. You can find more information online at Gov.uk relating to expenses and benefits for employers.
Employers must submit a P11D for every employee who gets any benefits or non-tax-exempt expenses, unless the employer registered that they would be taxed on these benefits through payroll before April 6, 2022. Any benefits not dealt with through the payroll for any reason need to be included on a P11D.
Any employer who wants to avoid dealing with P11Ds can register for all benefits to be payrolled for the 2024/2025 tax year.
We can help you meet your obligations
If you are unsure whether dealing with all benefits-in-kind through your payroll or through the filing of P11D and P11D(b) forms is best for your business and your employees, then please get in touch with us and we will advise you on the best course of action.
Self-assessment thresholds change for PAYE workers
The threshold for people taxed through PAYE who are required to file a self-assessment return has increased from £100,000 to £150,000. Those affected should be contacted by HMRC if they need to change anything. That said, there have been times in the past where HMRC hasn’t always been spot on with its own paperwork, so you would be wise to keep on top of this yourself if you think this could be an issue for you.
The threshold rises for this tax year, 2023/24, so those filing returns for 2022/23 will still have to file self-assessments if they earn £100,000 or more. If they have income between £100,000 and £150,000 that is taxed through PAYE in their 2022/23 return, HMRC will send a Self-Assessment exit letter. Then those earning above £150,000 through PAYE would need to continue filing self-assessment returns until their position changes. The exception to this would be if those earning below the £150,000 mark meet any of the other criteria which would require them – or would benefit them – to file a self-assessment return.
Why would you still file a return for income below £150k?
If your income is taxed under PAYE for the 2023/24 tax year, and is below £150,000, then you would not need to file a self-assessment return, unless you are also:
- In receipt of any other untaxed income.
- A partner in a business partnership.
- Have a tax liability to the High-Income Child Benefit Charge.
- Or you are a self-employed individual and with gross income of over £1,000.
You can also find out online via Gov.uk if there are any other circumstances under which you would need to send a Self Assessment tax return.
What if I need to reclaim some allowances?
Self-assessment isn’t all about paying tax. If you have some items you need to reclaim tax relief on, then filing a self-assessment return would be the way to do this. There is no reason for you to pay tax unnecessarily, so make ensure you’re claiming any income tax reliefs due.
These could include items you need to buy out of your own pocket to do your PAYE job that are not reimbursed via expenses, such as membership of professional associations, courses that provide continuing professional development, work uniforms that aren’t supplied by your employer, or textbooks you need for your work. You may also need to pay for professional indemnity insurance to cover your work.
Is there anything else I would need to claim for?
If you are a 40% or 45% taxpayer, then any pension contributions you make may only be given tax relief at source of 20% – the basic rate of tax. It will depend on the scheme you are paying into, but many people will need to reclaim the additional 20-25% tax relief due on your pension contributions if your marginal rate of tax is higher than the basic rate.
You can also reclaim additional tax relief on charity contributions, maintenance payments and for any time you have spent working on a ship.
There are various rules to comply with to get maintenance payments relief, but the main one is that you or the person you are paying maintenance payments to must be born before April 6, 1935. So, there are likely to be fewer of these people qualifying as each year passes.
If you think there are any payments you should be able to get tax relief on, then speak to HMRC directly or to your accountant who will help you navigate the self-assessment maze.
We can help you
If you need help to determine whether you should file a self-assessment return to pay additional tax owing or to reclaim tax relief, then please get in touch with us and we can help you understand what you need to do.
New tax regime for sole traders and partnerships starts
HMRC is changing the way sole traders and partnerships need to calculate profits for their self-assessment returns. The Revenue will require the profits to be declared for the tax year in question, rather than the accounting year as is currently the case.
Any sole traders or partnerships with an accounting year ending at any point other than March 31 or April 5 will be affected by these changes and will need to amend the way they calculate and pay the tax due on their profits. These changes are not influenced by delays to the Making Tax Digital regime.
What do the changes mean?
This tax year – 2023/24 – is a transition year, so sole trader and partnership businesses must declare their profits for two accounting periods – their existing accounting period and any additional time that would take their trading activity to the end of the tax year.
HMRC states: “Businesses will need to declare the total profits from the end of the last accounting date in tax year 2022 to 2023 up to and including April 5, 2024. This means that profits generated over a longer period will be taxable in the transition year.”
However, from April 2024 to 2025 and any future years, the amount of profit made in each of the relevant periods where the accounting period may straddle the tax year will need to be allocated correctly.
Sounds complicated, how does it work?
It may be complicated initially while businesses get used to working out their profits and tax in a new way, but HMRC is working on an online form to make the returns easier. For now, sole traders and partnerships should rely on their accountant to help if they are unsure what to do.
Take an example – if your accounting date is December 31, 2023, then as a sole trader or partnership you need to declare profits from January 1, 2023, to April 5, 2024. This will give you a period for this return of 15 months rather than the usual 12 for the 2023/24 tax year. This must be filed and any tax due paid on or before January 31, 2025.
Some businesses may need to use provisional figures for this period, and they would have the usual amount of time to amend these to final figures on their tax return.
One benefit businesses will have if they need to make this change in the 2022/23 tax year is the ability to use any overlap relief due. Some may change their accounting dates to coincide with the tax year to make life easier. If this is done in the 2023/24 tax year, then the current change of accounting rules will apply.
HMRC stated: “In tax year 2023 to 2024, businesses can use any overlap relief resulting from overlap profit when the business first started. By default, any remaining additional profit can be spread over five years.”
If a business changes their accounting date from 2023/24 onwards, then these rules won’t apply. Also, any future changes can be made no matter what changes have been made in the past.
Get previous overlap relief figures from HMRC
HMRC should be able to provide you with overlap relief figures for any accounting date changes in the 2021/22 tax if you request them, provided they are recorded on its systems.
More staff are currently being trained to deal with these overlap relief queries and eventually HMRC will have a specific form to use to make these overlap relief requests more streamlined. In the meantime, if you want to get overlap relief data, HMRC is asking you to provide as much information as possible from the following list:
- Taxpayer name.
- National Insurance number or Unique Taxpayer Reference.
- Name and description of business.
- Whether the business is self-employment or part of a partnership.
- If the business is part of a partnership, the partnership’s Unique Taxpayer Reference.
- Date of commencement of the self-employment business, or date of commencement as a partner in partnership.
- The most recent period of account or basis period the business used.
Those sole traders or partnerships looking to change accounting dates in 2022/23 and 2023/24 will need to wait for additional information on the “provision of overlap relief figures for these tax years” said HMRC.
There is some additional background information in the ‘Basis period reform’ policy paper.
These changes may create additional complications for your business in the short term, and you need to be sure you’re keeping on top of what you need to file to HMRC, and by when. If you need assistance with this, please just get in touch with us and we will support you.
Base rate rises again – what it means for business
The cost-of-living crisis is taking its toll across all areas of our lives now. While inflation has fallen very slightly this month to 8.7%, food prices remain stubbornly high, and the Bank of England (BoE) is expected to continue with its base rate rises until later this year.
The last rate rise in early May took the base rate to 4.5%, but analysts predict that the BoE could still push forwards with additional rate rises in the coming months and expect the base rate to hit 5% by the end of the year.
What is happening to business borrowing?
Rising base rates impact all types of borrowing – with mortgage borrowers on variable or tracker rate mortgages hit first as lenders are quick to pass these rises on. But businesses are affected too in a variety of ways, because it is also more expensive for them to buy goods and services to keep the business going. Many of these costs would ordinarily need to be passed onto consumers. But as they are already struggling with rising energy bills and mortgages, among other things, the amount that can be passed on without losing customers altogether is minimal.
So, businesses are being squeezed in the middle of these rising costs and many are taking out business loans to cover their outgoings in the short, and sometimes even longer term. The latest official figures from the BoE show that net business borrowing by UK non-financial businesses in March was £2.5 billion in bank and building society loans, including overdrafts.
Large non-financial businesses borrowed £3.2 billion net in March, while small and medium non-financial businesses actually repaid a net of £0.7 billion in March.
This compares with £4.5 billion, £3.7 billion and £0.6 billion of net repayments respectively in February. Borrowing by large businesses rose from 3.1% in February to 3.3% in March, while it fell by 4% in March for SMEs.
Interest rates on business loans have fallen back very slightly, but they are still much higher than they were in December 2021 when the BoE rate rises began. The average cost of new borrowing from banks for non-financial businesses was 5.76% in March, well above the 2.03% average back in December 2021.
For SMEs specifically, the average rate was even higher at 6.36% in March, when in December 2021 it was just 2.51%. But remember, the BoE base rate has risen twice since these figures were collated, so the likelihood is these loans will be even more expensive now.
Reassessing your business needs
These increases in borrowing and the reduction in spending by consumers will put additional pressure on many businesses, prompting them to run leaner and cut costs wherever possible and sensible to do so.
For example, if you hold a lot of stock within your business, you may want to free up some of your cash by either sending that stock back, if it is on sale or return, or putting it into a sale. Your profit margins on that stock may be reduced, but that freed-up cash can be used to plug potential holes elsewhere in the balance sheet.
You may also need to consider reducing staff numbers if you are not as busy as usual. But be careful about doing this because if your service standards reduce, it could drive customers away. Customers are the lifeblood of any business, so prioritise them no matter what is going on in the background.
Get advice on business borrowing
However, if you have cut your costs to the bone and made as many changes to your business as you dare, you may still need to raise funds to get you through a rough patch. You can do this in a variety of ways:
- Borrowing directly from your bank
- Raising money through a fundraiser from investors
- Remortgaging a property you own
The way you choose could depend on how quickly you need the money and what options are available to you. Borrowing directly from your bank would be the simplest and fastest option if your bank is prepared to lend to you. Speak to your accountant to find out what amount you would realistically need to get you through your difficulties based on your income and outgoings.
You don’t want to ask for too little because you will need to raise money again too soon. But you also don’t want too much because you will be paying interest on money you don’t really need.
Raising money from investors can be a good way to get additional investment but will involve parting with a proportion of your business in most cases. This is something to think about carefully, especially if it would involve losing the controlling stake in your business.
Remortgaging a property you own should be a last resort, especially if it is your home. The danger is that if your business ultimately goes under, you could lose your livelihood and your home at the same time. The ultimate double whammy. If things are so bad that the company might fail without remortgaging your home, then think seriously about whether letting the business fail is the best option, no matter how hard that decision might be.
There are many ways to reduce the overheads in your business or to increase the amount of money you have available to boost cashflow, buy machinery or stock, or to hire new employees. If you need to achieve any of these things or want to find out if there is a better way to manage the cashflow in your business, we are here to help. Please just get in touch with us and we will support you.
Can hybrid working boost your business?
The pandemic brought a lot of changes to our businesses, some good and some bad. One that has continued to be a topic of conversation is the desire for more people to be able to work some, or all, of the time from home.
If your business requires people to be onsite – such as a coffee shop, a factory, or a dental practice, for instance – your staff would have little choice about where they are working. But for administrative roles, or those that could be done from anywhere in the world with a phone, a computer and an internet connection, the argument for getting people to come into the office is a harder one to win.
Employers reluctant to allow workers free rein
Some employers are reluctant to allow their employees to work from home, perhaps because they fear they will get less done there than they would in the office. But various pieces of research show that allowing employees more freedom about where and when they work increases productivity rather than decreasing it.
There are fewer distractions when employees work from home compared to the office, and the ability to work as and when it suits them often results in people being more productive than when they are being forced to work specific hours.
A recent report from the ACCA – UK Talent Trends in Finance 2023 – found that the UK is leading the way when it comes to hybrid and remote working.
Jamie Lyon, head of Skills, Sectors and Technology at ACCA, said: “Only one-fifth of respondents in the UK identified as fully office based, with the remaining 80% either adopting a hybrid approach to work or being fully remote. However, globally, the picture is notably different, with over half of respondents being fully office based. And 77% of respondents in the UK feel they are more productive when working remotely.”
Could hybrid working be good for your employees?
Many companies are already allowing some staff to work from home at least part of the time. But if your business isn’t one of them, you may want to consider adding this as an option.
It can provide various benefits, including:
- Being more inclusive for employees who find it difficult to juggle their home and work life around specific office hours.
- Greater productivity.
- Improved employee wellbeing because they have more control over their working and home life.
- Greater flexibility in allowing employees to change their approach based on what the business needs at a particular time.
However, not every employee is keen to work from home. Some people prefer to be in the office full time as they thrive in this more social environment. So, bear this in mind when you are creating hybrid working policies.
Are there other benefits to your business?
One other major benefit to the business could be the reduced amount of office space needed. If your company owns its office building, you may be able to let out part of that building to another business to benefit from additional income. Alternatively, if you use rented office space such as WeWork, you may be able to reduce the size of the office you need there and cut your monthly outgoings.
You may also consider offering employees a one-off payment to set up their home office to ensure they don’t end up with work-related injuries, such as repetitive strain injury (RSI) from having a poor posture at work because they are using the wrong type of chair or desk and so on. Any saving you can make on office space could be used to offset this payment, and remember it would also be tax deductible.
We can help you
If you are considering hybrid working as part of your business strategy, then please get in touch with us and we can help you understand the benefits and costs that could be involved.
Deadline to catch up on National Insurance contributions extended
Anyone with an incomplete National Insurance contributions (NICs) record between April 2006 and April 2016 now has until July 31 to add to their NICs to qualify for a full State Pension after HMRC extended the deadline.
Thousands of taxpayers have incomplete years in their NICs record who could get a higher State Pension if they make voluntary payments to top up incomplete or missing years, according to the Treasury.
The original deadline for voluntary payments to fill any gaps was April 5, 2023, but this was extended after members of the public voiced concerns that this did not give them enough time.
Victoria Atkins, the Financial Secretary to the Treasury, said: “We’ve listened to concerned members of the public and have acted. We recognise how important State Pensions are for retired individuals, which is why we are giving people more time to fill any gaps in their National Insurance record to help bolster their entitlement.”
How would I know if I’m affected?
The easiest way to find out if you have any missing NICs years is to ask for a Pensions Forecast from the Department for Work and Pensions (DWP). The relevant information to get a State Pension forecast, and to decide if making a voluntary National Insurance contribution is the best course of action for you, plus how to make a payment, is available on GOV.UK.
You can also check your National Insurance record, via the HMRC app or your Personal Tax Account. If you aren’t sure how to do this, your accountant will be able to help you. If you choose to make additional voluntary payments, these would be at the existing rates for 2022/23.
NICs to qualify for a full State Pension
To get the full State Pension, you will need to have paid 35 full years of NICs. To get any State Pension, you will need to have paid 10 full years of NICs. If you have paid between 10 and 35 full years of NICs, you will get a proportion of the full State Pension.
This is why it’s important to find out how many full years of contributions you have made. The full State Pension amount is currently £203.85 per week. So, if you had 25 full qualifying years, you would divide £203.85 by 35 and then multiply by 25 to see what you would get. In this example, you would receive £145.61 per week at the current rate.
Remember, you should get advice to see if it is worth making additional voluntary contributions to complete your NICs record. So, speak to your accountant before you make any payments.
Let us help you
Pensions – and especially the State Pension – can be complex to navigate. If you are concerned you haven’t got enough qualifying years for your full State Pension, then please get in touch with us and we will advise you on the best course of action.
How you can benefit from salary sacrifice
Salary sacrifice is something you may have come across before but not fully understood. After all, why would anyone want to voluntarily give up some of their salary? The reality is that, in some instances, using salary sacrifice to get alternative benefits can reduce your tax bill considerably and make buying the things you would buy anyway much cheaper.
Employers have the ability to arrange large discounts if they know a number of employees will take up a specific benefit, because the provider will be able to sell a larger number in one go if the product or service is being paid for through a company payroll.
What can it be used for?
There are many things employers can offer to their employees through a salary sacrifice scheme. Bicycles, bus passes or other transport payments, gym membership and even car parking or laptops can all be offered via salary sacrifice. People can also make pension payments this way.
The main benefit is that by purchasing goods and services through the payroll, the payment is taken from your salary at source which means you don’t pay tax or National Insurance on the amount of money used to pay for these items. For example, a higher-rate taxpayer would save 40% and 2% NI on the amount of money they sacrifice to make the purchase, while a basic rate taxpayer would save 20% and 12% on NI.
If you are keen to get an electric vehicle, using salary sacrifice can be one of the most cost-effective ways to achieve this. Although this is seen as a ‘benefit in kind’, the value applied to electric cars is just 2%, while for petrol and diesel cars it can be as much as 37%.
As the salary isn’t being ‘paid’ to the employee, employers will be able to reduce their NI contributions too, making it a win-win for all.
We can help you meet your obligations
If you are interested in offering salary sacrifice for your employees, or approaching your employer to see if it will offer you a salary sacrifice scheme, then please discuss this with us and we will advise you on how to do this.
Make the most of the new tax year by acting now
The new tax year started on April 6 and while many people will wait until the last minute to maximise the tax benefits available to them, there is a lot to be said for starting your tax housekeeping sooner rather than later.
There are many ways we can benefit from the tax breaks available each tax year. But trying to cram everything into the month before the tax year ends means you are likely to miss out on some of them. Planning ahead from the start of the tax year means you can mop up any allowances you can access.
Use your ISA allowance early
One of the most beneficial allowances to start using early in the tax year is your Individual Savings Account (ISA) allowance. Each tax year – which runs from April 6 to April 5 – we all have the option of putting up to £20,000 into an ISA. You can put as much as you want into any type of ISA, providing you don’t breach the £20,000 threshold in a single tax year. The money grows free of Capital Gains Tax and Income Tax, plus in a cash ISA you will not pay any tax on savings interest.
Using your ISA allowance at the beginning of the year can generate significant benefits, even if you can’t put the whole £20,000 in at once. For example, if you calculate the difference in the value of an ISA with just £3,000 invested at the beginning of every tax year since 1999 compared with the same amount invested on the last day of the tax year over the same period, the early birds will have more than £9,000 extra in their pot based on the performance of the average global equity fund.
If you and your spouse have both used up your £20,000 allowance and you have children, you can also put up to £9,000 for each child into a Junior ISA. This is a perfect way to put money aside throughout their childhood to pay for school fees, university or even to build a deposit to help them buy their first home.
Use your Capital Gains Tax allowance
This tax year – 2023/24 – the Capital Gains Tax allowance has been more than halved, from £12,300 in 2022/23 to just £6,000. So, anyone crystallising gains of more than £6,000 in this tax year will need to pay CGT on any amount above this limit. The rate you pay will depend on your marginal rate of income tax and what type of asset the gain has been crystallised on.
As we all have the same CGT allowance, it is possible for spouses to shelter up to £12,000 from CGT this year, but that will take some planning. So, speak to your accountant to make sure you are making the right decisions at the right time.
Maximise your Inheritance Tax planning by using your annual allowances
Inheritance tax (IHT) is often considered to be a tax just for the rich. But as house prices have risen and the threshold for paying this tax has remained static at £325,000 since 2009, and is likely to remain at this level until 2028, more people than ever are paying IHT. In fact, the latest figures released by HMRC show IHT receipts have soared by £1 billion to £7.1 billion from April 2022 to March 2023, largely due to house price increases, especially in the South East of England.
So, if you own your home, you may want to think about how you can use the annual allowances to reduce your liability when you pass away.
Any amount you have in your estate at death above this Nil Rate Band – which includes all your assets such as your home, cars, antiques, jewellery, collections and so on – will be taxed at 40%. There is an additional allowance of £175,000 per person, called the Residence Nil Rate Band, if you are passing your home to a direct descendant, such as a child or grandchild. But this is not available to those without children.
Spouses or civil partners passing assets between them on death will not be subject to IHT. So, any unused allowance remaining can be used by the second spouse or civil partner on their death, giving a maximum threshold of £1m if none of the Nil Rate Band or RNRB was used on the first death. The allowance can be passed automatically, you would just need to let the executor of the estate on the second death know this as they would need to make the claim when they apply for probate. So, a letter with your will would be a good way to do this, or by discussing this with the person who writes your will with you.
If your estate would still exceed this level, then you can legally reduce your estate’s value each year by making gifts to loved ones. For example, you can make gifts of up to £3,000 each year which will be free of IHT when you die.
You can also make other gifts of any amount you like, and providing you survive those by seven years, they will no longer be within your estate for IHT purposes. But the rules can be complex, so get advice from your accountant if you think you could be affected by IHT.
These are just a few of the ways you can reduce your tax bills this tax year. We can help you make the most of these and other allowances before you lose them. So, please get in touch with us and we will help you make the right financial decisions for you and your family.
Pension Carry Forward rules are now more beneficial
The Chancellor made some major changes to the pension rules in the March Budget, and one key amendment has made using something called ‘Carry Forward’ rules much more beneficial for pension savers.
How does Carry Forward work?
The Carry Forward rules allow you to use up any unused pension allowance from the last three tax years in a single year, which can give a big boost to your pension pot. There is a limit on the maximum amount you can put into your pension each tax year and receive tax relief. For the last three tax years prior to 2023/24 the annual allowance has been £40,000. However, the Chancellor raised this allowance for this tax year to £60,000.
What does this mean for me?
If you haven’t used your entire £40,000 annual allowance for the last three years – 2020/21, 2021/22 and 2022/23 – then you can make additional contributions this year to use up any remainder of the £120,000 worth of contributions you could have made during that period.
Let’s say you made £20,000 worth of contributions in each of these tax years. This would leave £60,000 of the remaining allowances you can now ‘carry forward’. Remember, this figure includes tax relief at your highest level from the taxman. If you are a 40% taxpayer, for example, then adding £40,000 to your pension would cost you just £24,000 with the remaining £16,000 being added by HMRC from the tax you would pay for that year.
You also have a £60,000 annual allowance for the 2023/24 tax year. If you hadn’t put anything into your pension for the previous three years, then this year you could add £180,000 in one go, providing you earn enough to do this. HMRC won’t give you more tax relief in a single year than the tax you have to pay. You would need to earn at least £180,000 this year to qualify for this much tax relief.
If you can’t use all of your allowance for this year, then you can always use the Carry Forward rules next year.
Don’t I have to be careful how large my pension pot gets during my lifetime?
Well, there is still theoretically a Lifetime Allowance of £1,073,100 which was the maximum you could have in your pension fund before you were hit with charges as high as 55% on amounts over this limit. But during the Budget, the Chancellor removed the penalty on this Lifetime Allowance, meaning there is no problem now for breaching it. Legislation is needed to remove the limit completely.
The change applies from April 6 this year. The only thing you can’t do is take more than £268,275 as your tax-free lump sum no matter how big your pension pot gets – which is 25% of the current Lifetime Allowance.
We can help you
Using Carry Forward is a great way to catch up on pension contributions you didn’t make in previous years. It can be especially useful if you are getting close to retirement and want to put more into your pension. If you want to explore Carry Forward, please get in touch and we will be happy to help.
Could you benefit from a free Government midlife MOT?
Our cars go through MOTs each year once they reach a certain age, but have you ever thought of giving yourself an MOT? The Government is offering a free midlife MOT for those in their 40s, 50s and 60s to help them make the right financial decisions for retirement.
The midlife MOT provides free online support to those in the private sector, and can be done face-to-face with Department for Work and Pensions staff in job centres for those looking for work. The aim is to ensure you are giving sufficient thought to your money, work and wellbeing as you head into the later stages of your life.
The online midlife MOT provides a series of prompts to make you think more carefully about what you may need to do as you get older. For example, will you be able to continue in your current job as you get older? Or will you need to learn new skills to continue to provide for yourself and your family?
You are also prompted to consider whether you have enough money to live on to maintain your current lifestyle? Or whether you might need to examine your pension saving and put some extra aside to enjoy your retirement more comfortably.
The specific questions on the midlife MOT site are:
My work: Am I confident I can continue in my current job, or do I need to protect myself by reskilling? Will caring responsibilities or other priorities mean I need to work more flexibly?
My health: Am I taking the right steps to maintain or improve my health? Would workplace adjustments make it easier for me to stay in my job for longer?
My money: Do I have enough savings to maintain my current lifestyle? I’m confused about pensions, what are my options?
My work and skills: As your situation changes as you get older, you may find that flexible working arrangements can make a difference.
Is this relevant to employers or just individuals?
There is a specific section of the website that highlights what employers can do to help their staff access the midlife MOT for their workplace. There are details on how this could work for both larger companies and smaller employers and you can also download toolkits to use within your business for relevant staff.
There are also a number of useful links within the YourPension.gov.uk/mid-life-mot/ webpage to help people navigate to the relevant information they need to check all aspects of their life are on track as they reach this point in their life.
Let us help you
Do you feel like you need a midlife MOT but would rather talk things through with someone than simply navigate this on your own? If so, then we can help you understand whether you are financially ready for the next chapter of your life. Just contact us and we will guide you through everything you need to know.
Check your PAYE code is correct for this tax year
Every employee working for a company has a Pay-As-You-Earn (PAYE) code which denotes how much tax you will pay in a year. If this code is incorrect, it could mean you are paying more or less tax than you should be, and may need to reclaim that money, or pay more. Neither is a good option, so spending a little time at the start of the tax year checking you have the right code could save a lot of hassle later on.
Why your tax code could be wrong
If you have changed jobs recently, got a pay rise, or gone on maternity leave, you could find your tax code hasn’t kept up with the changes in your life.
Your employer and HMRC are not responsible for ensuring you have the right tax code, and while they do their best to ensure you are paying the right tax, ultimately it is your responsibility to make sure your code is correct. They are computer generated by HMRC, so failing to check could mean you have the wrong tax code for an entire year or more.
The question is, how do you check? Helpfully, you can find out what the different parts of your tax code mean online. There are a few things to look for. For example, most people – with the exception of very high earners who have their personal allowance reduced once they reach annual earnings of £100,000 – can earn £12,570 this year before they need to pay any tax at all.
If you don’t have any benefits in kind from your employer, such as a company car, or a season-ticket loan, then you will most likely have the tax code 1257L. The ‘L’ in this code simply means you are entitled to the normal personal allowance.
However, let’s say you have transferred 10% of your personal allowance to your spouse under the Marriage Allowance transfer. In this case, you will have an ‘M’ at the end of your tax code.
A full list of tax code information and what you should expect to see can be found on the Gov.uk website. If you aren’t sure what your tax code should be, then discuss this with your employer or, if you work for a larger company, you can speak to your HR department.
We can help you meet your obligations
If you are still struggling with your PAYE code and want to be sure you are paying the right amount of tax, then contact us and we will go through this for you to make sure everything is correct.
Budget round-up – what’s changed and how it might affect you
The latest Budget on March 15 was a mix of wins and losses for people and companies around the country, with some considerable changes for pensions and the highest rate taxpayers thrown in.
The personal allowances for the 2023/24 tax year were largely frozen once again, which creates what is known as ‘fiscal drag’ where more people are brought into higher tax brackets as a result when they receive pay rises. The one exception was the very highest rate of income tax at 45%, where the amount earned before hitting this level was reduced from £150,000 to £125,140 from April 6.
Help with energy bills extended
The Chancellor extended the Energy Price Guarantee to help keep households sheltered from some of the worst of the energy price rises we have seen in recent months. The guarantee has been kept at £2,500 and extended through April, May and June – taking us to the warmer summer months.
Despite energy prices being around 50% of the level forecast back in October, this measure is still worth around £160 to the typical household. The £2,500 cap is not the maximum an energy bill will hit, but it does cap the amount a typical energy bill will reach.
Prime Minister Rishi Sunak said: “We know people are worried about their bills rising in April, so to give people some peace of mind, we’re keeping the Energy Price Guarantee at its current level until the summer when gas prices are expected to fall.
“Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year.”
As Rishi Sunak said, the move has the double benefit of helping to drive down inflation, which was still in double figures in the 12 months to February at 10.4%, slightly up on the 10.1% we saw over the equivalent period in January. Economists had expected inflation to fall in February, so it came as something of a shock.
ISA Allowance frozen for 2023/24 but SEIS investment access rises
The annual Individual Savings Account (ISA) allowance was also frozen again for the 2023/24 tax year, leaving it at £20,000 for each person.
However, the amount that companies can access, and use, of the Seed Enterprise Investment Scheme (SEIS) is rising. The company investment limit will go from £150,000 to £250,000, while the limit at the date of share issue on a company’s gross assets will rise from £200,000 to £350,000. In addition, the limit of a company’s ‘new qualifying trade’ will go from two to three years for the 2023/24 tax year.
For investors, the annual limits on how much individuals can claim Capital Gains Tax and Income Tax re-investment reliefs will rise from £100,000 to £200,000.
There are also changes to Real Estate Investment Trusts (REITs), which are designed to make them more competitive. For example, REITs have needed to hold at least three properties, but where one commercial property is worth more than £20m within the REIT, this requirement is removed from April. There is also a rule change for properties within REITs that are sold within three years of significant development. These properties have been seen as outside of the property rental business, but this rule is being amended, as are the rules for deducting tax from income distributions generated by a REIT property when they are paid to partnerships.
If you want to find out more about what other measures were introduced, removed or changed in the Budget, you can see details on the Gov.uk website.
There are numerous changes that may affect you and your business in the Budget, so if you want to be sure you are maximising the benefits and minimising the losses, then please get in touch with us and we will help you make the right financial decisions.
Pension changes make retirement saving more attractive
Pensions got a major overhaul in the Chancellor’s Budget announcements, with an increase in the amount you can put into your pension each year and an effective removal of the limit that your pension can reach before facing significant penalties of as much as 55%.
Rise in Annual Allowances
From April, the Annual Allowance – the amount you can put into your pension each year and receive tax relief, providing you have paid enough in tax in a year to warrant it, as the taxman will not give you more in relief than you have paid – will rise from £40,000 to £60,000.
There is also a rise in the Money Purchase Annual Allowance, which is the amount you can pay into a money purchase pension each year once you have vested part of it. This rises from £4,000 to £10,000 for the 2023/24 tax year – taking it back to its previous level.
The Tapered Annual Allowance is also going up from £4,000 back to its original level of £10,000. This taper kicked in at an ‘adjusted income’ level of £240,000, but this also rises to £260,000 for the 2023/24 tax year.
Lifetime Allowance effectively removed from April 2023
One of the most eye-catching measures in the Budget was the effective removal of the Lifetime Allowance, which limited the amount a pension fund could grow to £1,0731,000 before charges of up to 55% were applied on the additional amounts unless someone had a ‘protected pension’.
From April 6, these penalties will no longer apply, meaning there is no longer a penalty for passing this limit. This renders the Lifetime Allowance irrelevant as there will not be a penalty for breaching it. But it will take separate legislation to remove the Lifetime Allowance itself completely.
This is something that will be valuable particularly for some senior NHS doctors, as there has been a rising trend in them leaving the profession through early retirement, in part at least to prevent their pension going over the Lifetime Allowance.
Limit on the tax-free lump sum
However, there is a cap on the amount that someone can take from their pension as a 25% tax-free lump sum, thanks to the removal of the penalties being removed for breaching the Lifetime Allowance.
From April 6, you will only be able to take a maximum of £268,275 tax-free from your pension, which is the same as the maximum you could take under the Lifetime Allowance.
These measures combined are expected to cost the Treasury around £4 billion over the next five years.
We can help you
These pension changes are wide ranging and could significantly change your retirement planning, so if you want to know more about how you can make the most of these changes, then please get in touch and we will be happy to help.
Childcare benefits with a sting in the tail for high earners
Up to 30 hours of free childcare per week will become available for any child older than nine months from 2024, when there is a staggered introduction starting at 15 hours in April 2024, rising to 30 hours in September 2025. This will be a welcome boost for parents struggling to manage what for some is a monthly bill higher than their mortgage. But there is a sting in the tail for higher earners.
However, it may not even be as beneficial as it first seems even for those on more nominal salaries as each local authority calculates the hourly funding rate it will allocate in a different way. So, the Government’s hourly funding rate for children aged two at £5.83, which could save parents an average of £6,646 per year on childcare, could be less depending on where you live in the country, creating something of a postcode lottery for this benefit. Parents would need to make up any shortfall for nursery care from their own pocket.
Also, free childcare only runs during term-time, so any additional childcare would need to be paid for directly themselves. But there is an additional £2,000 of tax-free childcare offered to those who are eligible.
The scheme extension means childcare for two children
The scheme has been extended to allow two children of pre-school age to get access to free childcare under the Budget announcements, which in London could mean an annual saving of around £23,300 for parents under the 30-hours of free care scheme when it finally kicks in.
Add in the additional £2,000 of tax-free care per child and the amount saved rises to £27,300 – but there is a precipitous drop once income reaches £100,000 per year. At this point, all of these benefits are lost, and you would have to pay all of the childcare from your own pocket.
To achieve this and be no worse off, it would mean you need to earn £156,279 before you achieved the same disposable income you had while earning up to £100,000 and benefitting from these childcare schemes in London.
For the rest of England, the average is slightly lower – with the childcare support worth £21,718 and the threshold to achieve the same disposable income once breaching the £100,000 earnings limit also being slightly lower at £146,114. But it is still a real hit to the pocket. It means parents are actually worse off if they are earning between £100,000 and £156,000 according to data from AJ Bell.
Can I do anything about this?
For any parent facing this cliff-edge change in circumstances, there is some good news. The £100,000 threshold is your income minus any pension contributions you make, so it would be wise to consider moving any additional income into your pension to take you back under the £100,000 income threshold.
This has been made significantly easier and more attractive once the penalties for breaching the Lifetime Allowance have been removed, and the other annual allowances are also increased.
Let us help you
If you are likely to find yourself in the position where your earnings will exceed £100,000 and you will benefit from the additional free childcare, then please get in touch and we will help you to maximise the benefits you can receive.
Highest rate of tax will be paid by more people after the top threshold is reduced in the Budget
Higher earners have been dealt a blow after the Chancellor changed the level at which the 45% additional rate of tax applies from £150,000 to £125,140.
The move takes effect in the 2023/24 tax year and brings the threshold in line with the point at which the personal allowance, which is frozen at £12,570 for 2023/24, is removed entirely. For those earning more than £100,000 a year, the personal allowance is reduced by £1 for every £2 earned above this limit.
More than £1,000 due in extra tax
The measure will cost an extra £1,243 a year in tax, said Steven Cameron, pensions director at Aegon, while Kwasi Kwarteng’s short-lived mini-Budget would have removed this additional rate completely.
However, once again it may make it more appealing for higher earners to put money into their pension schemes. Mr Cameron said: “While the freeze on thresholds for basic and higher rate income tax will create more tax take ‘by stealth’, there’s nothing stealthy about the cut in the additional rate threshold which rather than being frozen is being reduced from £150,000 to £125,140.
“But in current conditions, it’s not surprising that those who can afford to shoulder a greater part of the burden of tax increases are being asked to do so.
“Note that the existing gradual phasing out of the personal allowance once individuals earn over £100,000 means earnings between £100,000 and £125,140 are already effectively taxed at 60%. It now means thereafter, the marginal rate will be 45%.
“Together, these higher rates of income tax make paying personal contributions to pensions, which get relief at full marginal rate, particularly appealing.”
We can help you meet your obligations
If this change will affect you, then please get in touch and we will help you to maximise your tax life and work with you to perfect your pension planning.
The cost of divorce – how the pain can be more than emotional
January has earned the dubious distinction of being the month when more couples decide they want to get divorced than any other. The reasons are likely to be myriad, but the likelihood is that they either mark Christmas or New Year as a line in the sand for changing their lives, or simply that spending so much time together during the festive season helps them realise they are no longer compatible.
One law firm has seen an increase of 150% in divorce enquiries this January compared to the surrounding months, possibly boosted by the fact that couples can now have a ‘no fault’ divorce in England and Wales – it was already available in Scotland – after new legislation came into force last April. But the emotional turmoil that divorce brings is only one source of pain, as the financial cost is also considerable.
What does divorce have to do with the taxman?
Splitting assets between couples who have had their lives intertwined for decades is a complicated business. Add into this the emotion involved in such splits and it becomes very difficult to deal with these issues amicably.
However, when it comes to splitting assets, there may be a tax implication depending on what you do and how you do it. For example, if a couple splits a pension pot – which is taken into account as part of the assets held by one or both spouses depending on their financial position – the way this is done could potentially be a benefit for one or both of you. If the pension itself is likely to breach the £1,073,100 Lifetime Allowance threshold, then splitting this could mean both parties are able to add more to their pension without breaching this limit.
However, pensions are often not split in this way. So, often there is an offset of other assets – one spouse may get the family home, for instance, and the other spouse may keep the pension intact. It all depends on the financial agreements you make in the divorce.
What else should divorcing couples consider?
The pension conundrum is definitely not the only issue for divorcing couples to consider when it comes to their finances. There could be Capital Gains Tax (CGT) charges to think about as assets are split between the two parties.
To be sure there is no CGT to pay on the transfer of assets between you, it would be best to transfer assets before you formally separate – as long as you lived together at some point within the current tax year, which runs from April 6 to April 5 the following year, you shouldn’t have a CGT liability on giving assets to the other spouse.
If you split assets after you have been separated and the divorce has been finalised, then there could be a CGT liability. You can find out more on Gov.uk and by speaking to your accountant.
There are other areas to consider too. For example, if you pay spousal maintenance after your divorce, you may be able to claim tax relief on this. Also, if you had a High-Income Child Benefit Charge while you were with your spouse, you may now be able to claim full Child Benefit. Again, more information is available or you can speak to your accountant.
If you are separating from your spouse or civil partner, then please get in touch with us and we can help you make the right financial decisions to keep your costs to a minimum.
Common e-commerce mistakes and how to avoid them
Running an e-commerce business is easier now than ever before. There are a number of ways you can create an online shop without needing to understand coding, whether you want something off-the-shelf or something developed specifically for you. But getting the shop live is just the beginning of your e-commerce journey, and making sure you are managing your accounts and other aspects of your business well will be the key to success.
There are so many things to think about that it is easy to make mistakes when you are a newbie, so here we go through some of the common mistakes that e-commerce business owners make and how to avoid them.
Dealing with online payments
Getting paid is the ultimate goal in business, no matter what you are selling. When you take payments online, the number of choices you have to facilitate those payments is wider than you might imagine. Companies like Stripe, PayPal and Square, to name but a few, can all deal with the payments side for you, but the cost of doing so will vary between each. So, choose carefully because this will immediately impact your profit margin. But there is no point in using a payment partner that is cheap but will not allow you to take all forms of payment you need to.
You also need to think about two-factor authentication and PCI DSS 4.0 which came into effect last year. All of this can be dealt with by your payment services provider, or can be dealt with by you directly. But for most people, taking on this level of complexity in payments is something they would not want to consider. Without being aware of this and understanding how it affects your business, you could be setting yourself up for some serious trouble if you are not compliant.
Reconcile your accounts and identify which regions you are selling to
Depending on how much you are selling, you may need to reconcile your sales each day. This allows you to keep a close eye not just on your successful sales, but also sales that may have failed or were not completed at some point in the process. If appropriate, these can be followed up with marketing emails to get feedback and, perhaps, revive that sale.
By monitoring your sales, you can see which of your products are selling well, which are not, and where geographically your business is most successful. This is a key benefit of an e-commerce business – you can sell worldwide as long as you can deliver the products to customers in various countries. This insight can help you use your marketing spend most effectively too by targeting advertising to the areas where it is likely to have the most impact.
If you hold stock, that is inventory added to your balance sheet, but holding too much will reduce the amount of money you have to run other parts of the business. If you are just starting out, then holding excess stock can be a drain on resources, so keeping tight control of what is selling and what is not, and incentivising purchases for products that are not performing as well with discounts, for example, is very important.
Know your profit margins
Selling online reduces your costs significantly compared to having your own shop. But it can be easy to be so busy selling and marketing your business to get more sales that you forget to work out what your margins are.
Some of your costs will be fluid – for example if you sell more of a particular product, then ordering in bulk may reduce the amount you have to pay to source each item which increases your margin. But some will be fixed, such as design costs to produce clothing items.
By calculating the cost of producing every item – including the design, manufacturing, delivery and any other costs involved in getting the product to you – you will be able to tell which of your products make the most money for you. This means you can focus on promoting the highest-margin products to help boost your business, which is essential especially when you are first starting out.
We can help you
If you would like to know more about how to make the most of your e-commerce business, no matter what stage of the journey you are on, then please get in touch with us and we will be happy to help you get the most out of your business.
IR35 – where are we now?
IR35 has been one of the most contentious pieces of accounting legislation since its introduction in April 2021 as HMRC works to prevent those it deems are employed by an organisation taking their income through a separate company.
Previously, any large company employing a contractor for services did not need to consider that contractor’s status for tax – it was the responsibility of the contractor, not the company to determine how that person dealt with their tax affairs.
However, with the advent of IR35, the onus was placed instead on the company employing the contractor, which has led to a number of court cases between HMRC and those challenging this approach. The companies – known as end-users – who need to consider the IR35 position of contractors they are working with must have a turnover of more than £10.2m, a balance sheet of more than £5.1m or more than 50 employees.
What are the latest cases telling us?
There have been many cases so far where service providers using their own limited companies have chosen to legally challenge the approach taken by HMRC and their employment status under IR35. One of the latest is S & L Barnes vs HMRC. Stuart Barnes is the ex-England rugby union player who works as a pundit for Sky and uses a company to provide his services for the broadcaster, and also for the newspaper columns he writes for The Times and the Sunday Times among other work. HMRC claimed Mr Barnes owed more than £695,000 in unpaid tax and National Insurance contributions as it believed he should have been considered employed by Sky, a position he challenged.
During the 2013-14 to 2018-19 tax years, Mr Barnes earned around 60% of his income from Sky, but this subsequently fell when Sky’s rugby coverage reduced. Case precedents created in particular by the Ready Mixed Concrete case resulted in a so-called ‘three limbed’ approach being taken to determine whether someone should be considered an employee of the company.
What does this mean?
This is a relatively complex legal method which considers whether or not the ‘employer’ has sufficient control over the employee’s work, along with a mutual obligation between the ‘employee’ providing the services and the employer who provides the work and pays for it.
If both exist, then a further test is applied to decide whether the ‘employee’ is in a service contract, or one providing services.
In the case of Mr Barnes, the Tribunal found that he was not to be considered an employee of Sky in this instance as he had a high degree of autonomy in the way he worked with Sky, and also worked with many other organisations using his specialist rugby knowledge at specific times which he was at liberty to choose.
However, every case is different, and each turns on whether certain conditions and parameters are met. This is why the application of IR35 has been so complex for companies to understand. Yet this proves that while HMRC is determined to focus on IR35 cases, there are instances where people can be engaged for work outside of IR35.
Let us help you
If you need to determine whether someone you are working with comes under IR35 rules, then please get in touch and we can help you to get this important decision right.
EU Excise Duty changes now in effect – what this means for your business
Major changes to the way businesses process goods moving between EU Member states and Northern Ireland where excise duty has been paid came into effect on February 13 and anyone dealing with relevant goods must comply.
The new Excise Movement and Control System (EMCS) is replacing the former paper-based system to track the movement of duty paid goods, when it was previously only used to track duty suspended goods.
From February 13, all duty paid goods must use an electronic Simplified Administrative Document (e-SAD) which replaces the paper Simplified Accompanying Administrative Document (SAAD). The former needs to be raised on the EMCS and a movement guarantee – which is a financial guarantee covering the excise duty on the goods – which will be given once the details of the goods being transported are entered.
Has anything else changed?
There are some additional changes to other schemes to accommodate these changes, including the Registered and Unregistered Commercial Importer Schemes being replaced by the Certified Consignee and Temporary Certified Consignor trader types. These are being introduced for traders sending and receiving goods where the excise duty has been paid. Your local Customs authority will need to approve you to give you access to the EMCS.
We can help you meet your obligations
If you need to move goods across borders in EU Member states, then please get in touch and we can help you to navigate these changes.
Self-assessment late payment rates changed this month –what to expect if you miss the deadline
The taxman has been busy this month – no surprise given it is the time when self-assessment returns need to be filed. But anyone who misses the deadline of January 31 faces a new set of interest rates for penalties that were only published on December 20 last year.
The new rates for late payments
The current HMRC interest rate for late payment of tax is the Bank of England (BoE) base rate plus 2.5%. This means that as of January 6, the current rate of interest on late payments is 6%. This applies to Income Tax, National Insurance, Capital Gains Tax, Stamp Duty Land Tax, Stamp Duty Reserve Tax – from October 1, 1999 – and Corporation Tax.
However, if you are owed money by HMRC, the amount of interest you can expect to be paid on that outstanding amount is considerably lower. As of January 6, the amount HMRC will pay you in interest on money owed is 2.5%. You can find out more information about where these figures apply and historical data on Gov.uk.
When do interest rates apply on late payments?
Interest rates apply if you pay your tax later than it is due, and interest will start to accrue from February 1, 2023, if you miss the January 31 payment deadline, and you would also get a £100 late filing penalty. You would then face an additional penalty of £10 per day if your return is up to three months late, with a maximum of £900 fined. If you still have not filed within six months, then you can face a £300 fine or 5% of the amount due, whichever is higher. The same applies if you have failed to file by the time 12 months have passed.
We can help you meet your obligations
If you think you could be facing interest charges from HMRC on the late payment of tax due, then speak to your accountant now and find out what we can do to help.
Filing a self-assessment return for the deceased – can you do this yourself?
It is a fact of life that when we lose a loved one, the loss and grief is not all we have to deal with, even though that would be enough. Sadly, there is also a lot of administration that needs to be done by those left behind.
This can be anything from registering the death and getting multiple copies of the death certificate to provide to the various organisations that will ask for it, to rehoming pets left behind if necessary. So, dealing with the taxman at such a difficult time may not be appealing. But for some, especially where family members or close friends are also executors for the deceased’s estate, it is unavoidable.
Filing returns for the year someone died or earlier
The taxman’s reach goes beyond the grave as we know from Inheritance Tax being applied on estates after death where a liability applies, but there is also a requirement to ensure tax returns for those who have died are up-to-date including for the year in which they died.
This means relatives face collating all their loved one’s tax information for a period prior to their death, even if that information will be sent to an accountant who will deal with the ultimate filing of the return. This is a sensible option, because filing the return themselves mean there are some quirks to the usual system that need to be understood.
Can you file a return online for someone who is deceased?
HMRC will not accept online filing for anyone who is no longer alive. For security reasons, it insists that any returns relating to the deceased are filed in paper form when being dealt with by a family member or friend.
Authorised tax agents, such as your accountant, can file these returns online, including the return for the year in which they died. The tax year runs from April 6 to April 5 the following year, so the last return would need to relate to the period from April 6 in the relevant tax year to the date of their death.
Returns must be filed before January 31 the year after the end of the relevant tax year, or by the date on the ‘notice to file’ letter if one is received and that gives a different date.
However, if a repayment is due to the person’s estate from HMRC, the payment will not be made automatically. Instead, your accountant may need to call the bereavement helpline to get the ball rolling on this repayment being made.
You may need to deal with tax affairs after the person’s death too, and these are dealt with separately and in a slightly different way. You can find out more information on Gov.uk about what to do and how to tell HMRC about a person’s estate. You should also use the Tell Us Once service that the Government has, which means you tell one organisation within government about the death and all departments will be notified.
Let us help you
If you have lost a loved one recently and need help to deal with their financial affairs, then please get in touch with us and we can help you through the process.
New VAT penalty regime – the changes explained
A new VAT penalties regime was brought in this month, and any firms or individuals missing their filing deadline from January 2023 onwards will receive penalty points even if there is no VAT due to be paid.
While this may sound more benign than getting a fine, persistent late filing could lead to more costs as the points add up. You will get one penalty point for each late VAT filing, and these points accrue for every late filing within a specific period. Once you or your business reaches the threshold of points for each time period, which varies depending on how regularly you have to file your VAT returns, you will then face a fine of £200.
How the points system works
The points threshold also varies depending on the frequency you file VAT returns, and how often within that period you file late. For example, if you file your VAT returns annually, the threshold before you get a penalty is just two points. So, filing late two years in a row would mean you hit your threshold and would face a fine.
If you file quarterly, you have a four-point threshold, and monthly you have a five-point threshold. You get a penalty point for each time you file a VAT return late, so if you file quarterly and have previously filed three returns late, then a £200 penalty would be applied if one more return is filed late giving you a fourth point and hitting the threshold.
Removing penalty points
If you do not reach the threshold for your penalty points, then your points will expire automatically and when this happens depends entirely on when your return deadline was. If your filing deadline is a date before the end of the relevant month, your penalty point for that period will expire at the end of that month 24 months later. If your deadline was the end of the month, then any points imposed for late filing will expire 25 months after that date, again providing you have not hit the threshold.
If you have hit the threshold, then you need to keep submitting returns on time for a set period to remove those points and prevent further financial penalties being applied.
How long do I need to comply with the VAT return deadlines to have my points removed?
The companies and individuals who have reached the threshold for points and been hit with a penalty need to file on time for a specific period to clear the points from their record. This is known as ‘the period of compliance’ and how long you need to comply will again depend on how often you file your returns.
For example, those filing annual returns will need to file two returns on time, so it will take 24 months, to clear their points. If you file quarterly, you will need to file four returns on time over 12 months to clear the points, and if you file monthly, then you need to file six returns on time over six months to return to zero points. In addition, you will also need to submit all outstanding returns for the previous 24 months.
However, there is also a new interest penalty imposed for unpaid VAT which will apply for accounting periods starting on or after January 1, 2023. The first penalty would apply if you have not paid the outstanding tax due within 15 days of the date it should have been paid. This would be 2% of the outstanding amount after this period, and if it remained unpaid for 30 days, then the penalty would be “calculated as 2% of the tax outstanding after day 15 plus 2% of the tax outstanding at day 30” according to HMRC. This typically will be a 4% charge at 30 days after the original tax due date.
If the tax is still not paid, then from day 31, a daily accruing penalty at 4% a year will begin to be added to the amount and will only stop when the tax is paid. HMRC will allow taxpayers to request a Time-to-Pay arrangement which will stop the clock on these penalties accruing by agreeing a schedule of payments to deal with the tax due.
You can find out more information about the points regime and any fines that could be imposed, along with how you deal with this points regime if you have a non-standard accounting period, at Gov.uk and about the interest penalties also at Gov.uk.
We can help you
If you have concerns about your compliance with the VAT filing regime, then speak to us and we will work with you to ensure you do not fall foul of the new rules.
MTD for ITSA delayed to April 2026 – what does this mean for you?
Making Tax Digital (MTD) has been on the cards for years now, with businesses already pushed towards dealing with their VAT this way. But plans to extend this for Income Tax Self-Assessment (ITSA) have been put on hold once again until April 6, 2026, eight years later than the original planned launch in 2018.
However, even when 2026 comes, the MTD for ITSA will be phased in rather than applying to everyone at once.
Who will have to go digital first?
The first people doing self-assessment who will need to go digital are landlords and the self-employed who are earning more than £50,000 a year. HMRC estimates that this will mean around 700,000 people are brought into the MTD regime at this point.
The next phase will kick in from April 2027, when landlords and self-employed people earning more than £30,000 a year will be expected to go digital – bringing another 900,000 people into the MTD regime according to HMRC.
What’s the plan?
Victoria Atkins, financial secretary to the Treasury, announced the delay in the House of Commons just before Christmas.
She said: “The government understands businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition to MTD for ITSA represents a significant change for taxpayers, their agents, and for HMRC.
“That means it is right to take the time needed to work together to maximise those benefits of MTD for small business by implementing gradually.
“The government is therefore announcing more time to prepare, so that all businesses, self-employed individuals, and landlords within scope of MTD for Income Tax, but particularly those with the smallest incomes, can adapt to the new ways of working.”
The needs of smaller businesses are going to be put under review to see how they can be helped to “fulfil their income tax obligations” Ms Atkins said in her statement. Once this review is complete and the various stakeholders – businesses, taxpayers, and their agents among others – have been consulted, the Government will outline further plans for MTD for ITSA, said Ms Atkins.
General partnerships will not be expected to go digital in 2025 now as previously expected, but they will see these changes brought in at a later date. But anyone who wants to sign up for MTD voluntarily before they are required to, has that option.
There may be some benefits to using MTD earlier than you need to, but there could also be drawbacks for some people and businesses. If you want to find out more about the right decision for you, then please contact us and we will give you all the help, support, and information you need.
Self-Assessment – now is the time to get your tax return sorted
Yes, here we are again, the Christmas tradition of dealing with your self-assessment tax return is back for another year, and you need to get everything sorted as soon as you can. The final deadline for filing your self-assessment is January 31, 2023, for the 2021/2022 tax year, and you are expected to both file the return and make any payment due by midnight on that day. The tax year runs from April 6 to April 5 the following year.
If you miss this deadline, you could be facing a fine which will increase over time if you continue to either not file the return, not pay the tax due, or both.
Who needs to file a tax return?
Not everyone needs to file a tax return, but if you are one of the people who does, then make sure you get to grips with what is required as soon as you can. Those who need to file a return, according to the Gov.uk website, include:
- Anyone self-employed as a sole trader who earned more than £1,000 before costs.
- Partners in a business partnership.
- Anyone earning more than £100,000.
- Anyone with untaxed income from tips and commission, rental income from property, income from savings, investments and dividends or foreign income.
- Anyone who received COVID-19 support payments or grants during the pandemic.
- If you need to claim income tax reliefs, which could include professional body memberships and other expenses you pay solely to do with your work, even if you pay PAYE.
- To prove your self-employment status to claim Tax-Free Childcare or Maternity Allowance.
- If you or your partner’s income (if you have a partner) exceeded £50,000 and you need to pay the High-Income Child Benefit Charge.
If you are not sure whether you need to file a return or not, you can check on the Gov.uk website, or speak to your accountant who will be able to help you.
What is the penalty for not filing a tax return on time or paying late?
If you fail to file your tax return for up to three months, you will receive a fixed penalty of £100 but it can rise if you file later than this. You will also pay a penalty for paying your tax bill late and you can also be charged interest on late payments.
If you have a reasonable excuse, such as a close relative or partner dying close to the filing deadline, a hospital stay, or a life-threatening illness, for example, then you can appeal any penalty imposed.
Tax returns can be complicated, especially if you are looking to maximise the tax you are reclaiming, so working with an accountant makes sense. If you need help with your self-assessment, then please contact us and we will give you all the help, support, and information you need.
Should your business declare the cost of the Christmas party?
Christmas parties or even regular summer BBQs, or annual team building events may need to be declared to HMRC for the current 2022/23 tax year if they do not meet certain rules, so you need to be sure you meet all the relevant rules for the exemption.
The key conditions are that the party should be exclusively for business purposes, be open to all employees and cost less than £150 a head to qualify. You can offer more than one regular event to employees over the year, but the combined cost of each must be no more than £150 per person, otherwise the employer may have a National Insurance liability. One-off events do not qualify.
Events costing more than £150 per head across the year
However, if you hold several regular events in a year and the total combined cost of these is more than £150 per person, then you would need to report it as a benefit-in-kind and a tax and National Insurance charge may apply.
For example, if your company has a Christmas party at £100 per head and then a summer party which is £80 per head, these combined breach the £150 limit. So, you would have to choose which you want to be exempt. It makes more sense to exempt the Christmas party which had the higher per head value.
If an event exceeds this £150 limit, then the tax and NI charge applies to the entire amount of the benefit provided, not just the excess. You can include close family members as guests in the party, but the cost of their food, drink, accommodation and so on as part of the party must still not exceed £150, the same as any of the employees.
Events not open to all employees
If there is a specific regular event that is only open to a smaller number of staff, such as directors of the company only, then this would not be exempt under this legislation, and the cost of this would need to be declared to HMRC as a benefit and the relevant tax and NI paid.
Do the same rules apply to virtual functions?
If your staff are in a variety of locations, or primarily work from home, then some employers might have decided to provide a virtual Christmas party. This is fine, and it would in theory work in the same way and with the same caveats as an in-person Christmas party.
You would still not be able to exceed a total cost of £150 for each employee attending, and you would also need to ensure that all staff have been offered access to the party, virtual or otherwise. If this is the case, then you should be able to provide the party without any additional tax or NI liabilities.
The complication here is how to ensure your employees are provided with, say, food and drink for the virtual party without the employer simply giving money to the employee. It could be difficult to prove to HMRC that this money was solely used for the party if an audit was undertaken. So, instead the employer should consider providing the food and drink in a specific way to all employees attending, which would allow the cost to be identified centrally.
This could be done by, for example, sending a food and drink parcel or hamper to every employee in advance of the event to be consumed while everyone is at the online party.
You can find out more about what needs declaring on Gov.uk.
We can help you
If you have concerns about whether your annual Christmas party or summer BBQ needs to be declared to HMRC, then speak to us and we will work with you to ensure you do not fall foul of the rules.
New Extended Producer Responsibility rules come into effect on January 1, 2023 – is your business ready?
New Extended Producer Responsibility rules come into effect on January 1, 2023 – is your business ready?
New Extended Producer Responsibility (EPR) come into effect at the very start of 2023, and companies need to be aware of their responsibilities when it comes to every type of packaging from wood, plastic, paper, glass and ‘other’ as determined by the new rules.
Businesses selling, importing or handling packaged goods will need to comply with the new regulations, which mean data will have to be collected from the beginning of January by those businesses affected.
Who do the new rules apply to?
The EPR rules will apply to a wider number of companies than the Plastic Packaging Tax did, and some expect the cost to be much higher than the Plastic Packaging Tax has been. The wider ranging rules will hit companies, according to Gov.uk, who:
- Are an individual business, subsidiary or group – but not a charity.
- Have an annual turnover of more than £1m, based on the most recent annual accounts.
- Are responsible for over 25 tonnes of packaging in a calendar year – running from January to December.
- You carry out any of the packaging activities.
These packaging activities, again according to Gov.uk, include doing any of the following items:
- Supply packaged goods to the UK market under your own brand.
- Place goods into packaging that’s unbranded when it’s supplied.
- Use ‘transit packaging’ to protect goods during transport so they can be sold to UK consumers.
- Import products in packaging.
- Own an online marketplace.
- Hire or loan out reusable packaging.
- Supply empty packaging.
What data will your business need to collect?
The data your business needs to collect will depend on whether you are defined as a small or large business under the rules. Small businesses are considered to be those with a turnover between £1m to £2m a year and that supply more than 25 tonnes of packaging or packaged goods in the UK market, says Gov.uk, or turnover £1m a year and supply between 25 tonnes and 50 tonnes of the above per year.
A large business is considered to be one with a turnover of more than £2m a year and handles or supplies more than 50 tonnes of packaging or packaged goods in the UK.
Both large and small businesses must start collating data about how much packaging weight they deal with each year from January 1, 2023. Small businesses will need to create an account and file returns annually from January 2024, while large businesses need to register by July 2023 and file returns every six months.
There is more detail involved in complying with these new rules than it is possible to relay in this article, so if you need more information go to Gov.uk or speak to your accountant to make sure you address what you need to do in time.
Let us help you
If you think you will be negatively affected by this change, or you simply want to know if it affects your business or not, then please get in touch with us and we can go through the various options you have.
Rateable property values change from April 2023 – find out what this means for you
Working out rateable property values may feel like something of a dark art to those not in the know, and the news that these values are set to change again from April 1 next year could strike fear into the hearts of some.
The Valuation Office Agency (VOA), which is part of HMRC, is making the changes and you will need to check on the VOA website to find out if and how the rateable value of your property is changing. Remember this does not apply to residential properties, only commercial properties.
What can I expect?
It will be a case of checking your property on the site individually to see what the new valuation will be, but the rateable values from April 1, 2017 to March 31, 2023 are based on the market rental value of the property in 2015. But from April 1, 2023, the rateable value will be based on the market rental value from 2021.
Changes to self-catering holiday lets
Self-catering holiday lets which are assessed for non-domestic rates – any properties considered domestic are subject to council tax – currently only need to be available for short-term lets for 140 days a year, and there is no minimum number of days the property needs to be let to qualify as a commercial holiday let.
However, from April 1, 2023, the criteria will change and to be defined as a commercial holiday let it will need to have been let for 140 days or more in the previous year and let commercially for 70 days or more in the last 12 months, if the property is in England.
If the property is in Wales, then it will need to have been available to let commercially for short lets for 252 days in the previous and current year, and actually let for 182 days or more in the previous or current 12 months, according to Gov.uk.
Remember, if you are a small business, then you may qualify for the Small Business Rates Relief Scheme or perhaps one of the other rates relief schemes. This is definitely worth checking as it could significantly reduce your bill, or you may not have to pay anything at all.
We can help you meet your obligations
Speak to your accountant now and ask him or her to help you get the right information so you understand how your rates may change and whether you need to make a change to the status of your self-catering holiday let from April 2023.
Autumn Statement – what you need to know about upcoming changes.
You could be forgiven for thinking Budget statements are a bit like buses lately – we don’t have one for ages, and then three come along almost at once. While the latest financial proclamation from the Government is known as the Autumn Statement, it is a Budget just the same, and there are some changes you need to be aware of that will be implemented in the coming tax year, which begins on April 6, 2023.
Not only has the highest income tax bracket of 45% remained in place, but the point at which you start paying the 45% tax will be lowered from £150,000 to £125,140 from next April, bringing thousands more people into this highest tax bracket. Estimates suggest it could be as many as 250,000 more hitting the 45% level for the first time. The Chancellor also announced that he is freezing all income tax thresholds until 2027/28 which means more people will be pulled into the higher tax bands and will end up paying more tax. This is known as ‘fiscal drag’ and is a way for the Government to increase its tax take without increasing the rates of income tax.
What about the help with energy bills?
Help with energy bills remains in place, but the Chancellor changed his approach by extending the term of the support to March 2024. But this additional support is less generous and is capped at £3,000 which means many people will pay more than the £2,500 which is in place until April 2023.
Those on means-tested benefits will receive an additional £900 to help pay their energy bills, while pensioners will receive £300 as a one-off payment, and those on some means-tested disability benefits will receive £150.
What else will change?
There were numerous other changes to tax allowances announced, as the Chancellor looks to increase the Government’s tax take to plug a £55 billion spending black hole. For example, the Capital Gains Tax allowance which currently stands at £12,300 will fall to £6,000 next year and then £3,000 in 2024. This will affect anyone crystallising portfolio gains outside of an Individual Savings Account (ISA) and landlords who are selling buy-to-let properties.
The dividend allowance, that will also reduce from the current £2,000 to £1,000 in 2023 and then £500 in 2024, means anyone being paid dividends either through their own business or as part of an investment portfolio, will see those using the full allowance £590 worse off in 2024.
Inheritance tax band frozen
The inheritance tax nil-rate band has also been frozen at £325,000 for the next five years until at least April 2028. HMRC received £4.1 billion in IHT receipts between April and October this year, £500m more than the same period the previous year, and we are likely to see even more money heading to the Treasury coffers via this route in the coming years.
There are many ways to mitigate IHT, so if you are likely to be affected by this tax – and remember, it is no longer just a tax for the rich given the price of the average UK house is now £292,598, according to the data from Halifax – then please get in touch and we can advise you on how to legally reduce this bill.
Some good news for pensioners
However, there was some good news for pensioners as the Chancellor confirmed that the Government would continue to maintain its manifesto pledge to keep the ‘triple lock’ on the State Pension. This means that the State Pension will rise each year in line with September’s inflation figure – which this September was 10.1%, earnings or 2.5% – whichever is highest.
So, pensioners will see their State Pension rise by 10.1% from April, which should take it to £203.85 per week from the current level of £185.15.
There are many announcements each time there is an Autumn Statement or Budget and it can be difficult to know what the changes are, and how they affect you or your business. So, if you want any assistance to keep up with what is going on and how to protect your own or your business’s finances, please contact us and we will give you all the help, support, and information you need.
Landlords, what should you be doing now?
Changes to the Capital Gains Tax (CGT) allowances announced in the Autumn Statement mean that from next April, the current £12,300 allowance will fall to £6,000 and then to £3,000 in 2024. This is a major concern for landlords with rental property, as this will make a significant dent in the gains they can make on property before they pay tax.
It could mean that any landlord currently holding a considerable gain on a property may want to think about whether now is a good time for them to sell, especially as property values are expected to stagnate or fall, in the coming months.
Private residence relief
However, there are some ways you can reduce your CGT bill. If you have lived in the property at any point, you can get some relief from CGT under the ‘private residence relief’ rules. You can get relief for the number of years you have lived in the property, plus nine months at the end of the ownership whether you lived in the property then or not.
The example on the Gov.uk website highlights a property with a gain of £120,000 when you sell, which you have owned for 15 years. But for 7.5 years you lived in the whole property, and then rented out your property for the remaining 7.5 years. The Private Residence Relief applies for the 7.5 years you lived there plus the last nine months you owned the property.
This means you get a total of 8.25 years of Private Residence Relief, which amounts to 55% of the time you have owned it. So, you will not pay tax on 55% of the £120,000 gain, but you will on the remaining 45% – which means you will pay CGT on £54,000.
The reduction in CGT allowances could prompt landlords to sell
The more than halving of the CGT allowance from April next year means some landlords may attempt to sell some of their properties before the CGT allowance reduces. It will not be the right decision for everyone, but if a landlord is already considering this, now might be a good time to press the button.
Zaid Patel, director of London-based estate and lettings agents, Highcastle Estates: “With the CGT tax allowance to be halved to £6,000 from April 2023, we may see an increase in landlords selling up and second homeowners listing their properties with the hope of completing before April. Landlords, who own property as part of a limited company, will be further penalised as they’ll pay more tax on dividends.
“This, coupled with the rise in corporation tax, will likely lead to more landlords trying to sell their properties. However, with the rising cost of living, first-time buyers will continue to find it challenging to save for a house, which may mean demand will stifle.
“I expect house prices to drop slightly until late 2024, when there will be a rush of buyers hoping to complete before the stamp duty cuts end. It means estate agents will struggle over the next two years and cutting the dividend tax relief while increasing corporation tax could mean estate agents may start selling their businesses or winding up during this recession.”
Landlords have been hit hard
Landlords have been hit hard by various changes to what they can claim and the way in which they are taxed in recent years, especially if they do not hold the properties within a limited company. For example, if someone is getting rental income of £15,000 a year but having to pay mortgage interest amounting to, say, £8,000 a year, then previously they would be able to offset the entire interest against their rental income before tax. This would mean paying tax on just £7,000 of income.
Now, unless they own their properties within a limited company, they are not able to offset the mortgage interest against their income before tax. So, they would pay tax on the full £15,000 of income. If they were 40% taxpayers and all their allowances had already been used, this would give a tax bill of £6,000 when they are also paying £8,000 in mortgage interest. This would leave just £1,000 for the landlord. Paying 40% on the same basis on the £7,000 of income after accounting for the mortgage interest would give a bill of £2,800 – leaving £4,200 for the landlord.
This is one reason that the number of buy-to-let properties being held within a limited company has reached a record level of 300,000 according to estate agent Hamptons.
We can help you
If you have concerns about your buy-to-let property or you want to find out if you would be better off using a limited company structure, then contact us and we will work with you to help you make any necessary changes.
Additional tax rate threshold to be lowered – take advantage with your pension contributions
The 45% additional tax rate was briefly removed by Kwasi Kwarteng, then reinstated by Chancellor Jeremy Hunt, and in the latest twist, Mr Hunt announced that the point at which people would start paying this highest rate of tax would fall from £150,000 to £125,140 from April 2023.
This may seem a strange figure to move the threshold to, but it relates to the point at which the entire personal allowance for higher-rate taxpayers is removed once they hit the £100,000 income level. The personal allowance of £12,570 is reduced at a rate of £1 for every £2 you earn above £100,000. So, the entire allowance has been removed at £125,140. At present, you are taxed at 40% on this amount and above until you reach £150,000 when the rate rises to 45%. But from April, you will pay 45% from £125,140 onwards.
The unofficial 60% income tax rate
The way that the personal allowance is chipped away once you reach the £100,000 threshold means that for the money you are taxed on between this level and the £125,140, you are actually paying 60% in tax. This is not easy to follow, but it works like this:
You earn £101,000 this tax year. This means that you pay tax at 40% on this income. But because you lose the personal allowance at a rate of £1 for every £2 you earn over this figure you will lose £500 of your personal allowance on the £1,000 above the £100,000 threshold. So, you will also pay 40% tax on this additional £500, which gives a bill of £200. Since you are also taxed at 40% on that £101,000, the £1,000 over the £100,000 will give the taxman £400. Add that to the £200 you are paying on the relative loss of the personal allowance, and you have paid £600 in tax on that £1,000, which means you have paid 60% in tax.
Maximise the benefit of the tax change when it happens
While losing money in income tax because of the threshold moving to the lower level of £125,140 from April, it does mean you can benefit from higher tax relief on your pension contributions if you are pulled into the 45% tax bracket.
This is because no matter how much you pay into your pension pot, you get tax relief at your highest marginal rate. For those on the highest rate of tax, this is 45%. So, adding £100 to your pension pot will cost you £55 as the tax relief will provide the remaining £45.
Let us help you
If you think you will be negatively affected by this change or any of the frozen tax thresholds, or you want to take advantage of putting money into your pension and getting the benefit of the additional tax relief no matter which tax band you fall into, then please get in touch with us and we can go through the various options you have.
Tax year end – get your accounts ready before the rush
It’s that time of year again – the shops are playing Christmas music, there are Christmas films starting to appear on the TV, and for many of us, there is a tax deadline looming, whether that is personal or for our business.
This is the busiest time of year for accountants as so many people will leave their corporate or personal tax returns until the very last minute. So, if you know your business is coming up to its accounts filing date, or you have a self-assessment tax return that needs completing and filing before January 31, you need to start thinking about it sooner rather than later.
Do what you can to help
If you are coming up to your filing deadline, then you can really help us by sending the relevant information as soon as you can. That way, if we have any queries or you find there is something you have forgotten to send, there is plenty of time to deal with any issues.
Only pay the tax you owe
The best way your accountant can help you is by ensuring you only pay the tax you owe, no more and no less. We will help you maximise any tax breaks available and help to make sure you are claiming everything you can.
We can help you meet your obligations
Speak to your accountant and ask him or her to help you get the right information together so your accounts can be prepared in good time.
U-turns and changes – what happened to the mini-Budget announcements?
The majority of measures in former Chancellor Kwasi Kwarteng’s mini-Budget have been scrapped after new Chancellor Jeremy Hunt tried to settle markets and politicians across the House of Commons with an Emergency Statement on October 17.
Gone is the controversial plan to remove the 45% top rate of tax, and the basic rate of tax will remain at 20% from April next year. Corporation Tax will also increase to 25% from the current 19% from April next year, an announcement made by now former Prime Minister Liz Truss days before she resigned the top job, to be replaced by Rishi Sunak. In addition, the IR35 and dividend tax cut reforms will not go ahead.
What about the measures to help people with their energy bills?
The planned help with the Energy Price Guarantee – one of the key policies in Liz Truss’s short tenure – will remain in place until April 2023, but after this there will be a Treasury-led review into how best to help businesses and consumers with their bills going forwards.
Energy analysts Cornwall Insight have warned that following the removal of this support, bills could reach as high as £4,347 a year. How the Government plans to support bill payers after this time remains to be seen.
Were any of the benefits kept in place?
Thankfully, some of the mini-Budget announcements that were beneficial were kept in place by Mr Hunt. For example, the Stamp Duty Land Tax changes that came into effect on September 23 mean homebuyers will not pay any Stamp Duty on property purchases up to £250,000, and first-time buyers would not have to pay Stamp Duty on the first £425,000 of the property purchase.
Is the National Insurance rise still being scrapped on November 6?
The mini-Budget announcement to scrap the 1.25% rise in National Insurance from November 6 was another measure that escaped the chop by Mr Hunt, and the Health and Social Care Levy which was due to come into effect from April next year will not be implemented as Mr Hunt continued with the plan outlined by his predecessor.
Warning of pain ahead
However, both Mr Hunt and the new PM Rishi Sunak have been at pains to outline that there are likely to be difficult times ahead. Mr Hunt made this clear in his speech on October 17, when he also referenced Ms Truss’ “mistakes”.
The Chancellor’s Autumn Statement will now take place on November 17, delaying a planned medium-term fiscal statement on October 31 to offer a more comprehensive Autumn Budget. This will also include the Office for Budget Responsibilities’ forecast, a key ingredient that was missing in Mr Kwarteng’s mini-Budget which was part of the reason markets reacted so badly to the apparently unfunded announcements. We will keep you updated at the end of November with any further changes.
There is no doubt things are currently changing at pace, so if you want any assistance to keep up with what is going on to protect your own or your business’s finances, please contact us and we will give you all the help, support and information you need.
What does the market volatility mean for you?
The market volatility resulting from the ill-fated mini-Budget on September 23 has created real concern for investors. Most of the measures announced that day were reversed just weeks later, but the fallout has left markets in a state of turmoil.
The FTSE 100 was at 7,237.6 on September 21, two days before the mini-Budget. Soon after on September 29, it had dropped to 6,881.6 but it had recovered to more than 7,000 at the time of writing.
This level of volatility within such a short period of time is concerning for anyone, but there are things that can be done if you want to insulate yourself from the ups and downs of the markets.
One of the best ways to even out the peaks and troughs of volatile markets is to invest any money you want to put into the markets over time. Making regular monthly contributions as opposed to a one-off investment allows you to make the most of the dips when the market falls.
Putting money in at different times allows you to spread the risk of your investment because you are not making a single investment when the market may be at its peak. Instead, you are buying no matter what the value of the market is, meaning you get more when it is in a dip, and slightly less for your investment when it is at a peak. When your investments rise in value, the units will rise accordingly, and the relative difference in price will be smoothed out.
Diversify your portfolio
It is also important to diversify your investments to cope with any downturn. Diversification can be done in a variety of ways – by sector such as energy, healthcare and so on; by geographical location as in the UK, US, and Asia; or by theme such as environmental, social and governance (ESG) investing. Or a combination of all of these.
Making sure your portfolio is balanced and diversified is not easy to do alone unless you are an expert, so you would be wise to get professional help to achieve this. It must also be done within your own risk profile, and in a way that meets your short-term and long-term investment goals.
You need to monitor your portfolio’s performance and balance over time. When different areas of your portfolio rise and fall, the balance of that portfolio can become skewed. It should be revisited at least once a year, and more often if there is a change in your circumstances or a major change in an area you are investing in. Remember, this applies to your pension funds too, not just your investment portfolio. You need to consider everything together.
Above all, don’t panic when the markets fall
The worst thing you can do if you see markets fall is panic. Any knee-jerk reactions you make to market falls are likely to result in bad decisions being made. Besides, the very worst thing you can do is sell assets when they have fallen in value. It is far better to stay invested and wait for the recovery to come. The key thing to remember is that while seeing your portfolio value fall on a screen, unless you crystallise that loss by selling, it is merely a paper loss. Bide your time and the markets should recover.
This is where a good accountant can help you. Whether you are investing for your business or personally, the same rule would apply. It can be worrying when you see markets falling, or your investments worth less than they were. But if you have concerns, contact your accountant. He or she will be able to advise you on the best course of action, which in many cases is to do nothing at all.
We can help you
If you have concerns about your portfolio or your current investment mix, speak to us and we will work with you to make any necessary changes to help rebalance your portfolio.
How to protect your business in a recession
The UK’s GDP fell by 0.3% in August according to official figures, and if GDP falls for two quarters in a row, that is the definition of a recession. Experts at the EY ITEM Club predict the UK will be in recession for three quarters, which would take us up to the middle of 2023, so businesses need to start thinking about how they can protect themselves before the downturn comes.
Your accountant is the best source of information for you in relation to your business specifically, but here we go through a number of things you can consider doing to protect your business in preparation for the expected recession.
Get your cashflow sorted and deal with any debt
Cashflow is the lifeblood of any business and when there is not enough money coming in on a regular basis, there is no chance of the business surviving in even the most beneficial conditions. But if a recession on the horizon, then focusing on cashflow is essential.
By keeping on top of invoices, chasing payments that are slow to be paid or even using invoice factoring if you need to – where you sell your invoice to a company that will pay you, say, 80-90% of the value of that invoice and they will then chase the debtor for the full payment themselves – you will make sure the business has enough money flowing to pay all necessary overheads.
Where possible, you should also look to reduce the amount of debt you have in the business. Paying interest on loans during a downturn is not a good idea if you can avoid it, as that is a cost that could be removed in advance if conditions are right. Also, if your business has reduced its debts, then when the recession ends and you come out of the other side, your business would be in a better position to access additional borrowing if you need it.
Insulate your business by cutting costs where you can
Preparing for a recession is never going to be easy, but one thing is for sure – your business needs to start looking at where costs can be cut before profits start being hit. This could mean, for example, reducing production costs, limiting overtime payments, or reducing the number of hours staff work. One of the biggest expenses for many businesses are employees and it may be necessary to reduce your overall headcount for the business to survive. This is never an easy decision, especially during a cost-of-living crisis when people are relying on their incomes more than ever. But it should be considered as a last resort, if necessary, especially if you know you have areas within your business that could be leaner.
Laying people off is never comfortable, and it may not be necessary for your business specifically. But if you do need to do this, make the move sooner rather than later. You must ensure you are working within all employment rules and giving people the requisite amount of notice and redundancy payments. If you are not sure how to do this, then speak to a human resources specialist and get advice to make sure you do not fall foul of any rules.
Let us help you
If you need to consider ways to prepare your business for an upcoming recession, please get in touch with us and we can go through the various options with you.
The Plastic Packaging Tax – what you need to know
The Plastic Packaging Tax came into effect in April this year, and if your business deals with any kind of plastic packaging in relation to your products, you may need to be registered for this.
Anyone importing or manufacturing more than 10 tonnes of plastic packaging each year to the UK will be subject to this tax. Those businesses below this threshold are exempt, but if you breach this threshold, there are a number of things you need to know. For example, if the plastic you manufacture or import has at least 30% of recycled plastic by weight, you will also be exempt from this tax. The tax is designed to encourage manufacturers both here and abroad to use more recycled plastic in their processes.
When do I need to notify HMRC?
If your business has imported or produced more than 10 tonnes of plastic since April 1 this year, you need to register within 30 days of breaching this limit. If you have already missed this deadline, then get in touch with your accountant or HMRC as soon as possible. Around 20,000 businesses are estimated to be affected by this, with an additional £400,000 as an annual cost burden on these businesses, mostly for the additional administrative requirements of this tax.
The fee charged is £200 per metric tonne used or manufactured, but what is considered ‘plastic’ is a moot point and there is more information in the HMRC guidance. There are other things to consider too, such as the plastics that qualify are those which are considered single use by the end consumer, or those used in the supply chain. For example, if plastic punnets of strawberries are imported, then the punnets themselves may be subject to this tax.
This is a complex area, so get some help
However, it is a very complex tax, and you will need specialist guidance to navigate it. You can find out more information on Gov.uk, or by speaking to your accountant who can help you.
If you need to register, you can do this online with some exceptions – or again, speak to your accountant and ask him or her to deal with this for you.
We can help you meet your obligations
If you think you need to register for the Plastic Packaging Tax, please get in touch with us and we can help you navigate this incredibly complex area.
Mini-Budget wreaks havoc on markets and the pound – but will you benefit?
New chancellor Kwasi Kwarteng delivered his first mini-Budget, officially labelled ‘The Growth Plan 2022’, on September 23, and while it largely consisted of tax giveaways, it was not well received by markets.
The FTSE 100 fell sharply on the day from 7,221 on September 22 to 6,986 on September 23, breaching the psychologically important 7,000 barrier before recovering some ground in the following days. The pound reached a record low against the US dollar briefly on September 26 at US$1.0327, as the biggest programme of tax cuts for 50 years was digested by economists and investors.
The market shocks have prompted the Bank of England to state it would not hesitate to raise rates if needed to help bolster the UK markets, and there are already rumours that the BoE base rate – which is currently 2.25% – could rise as high as 6% next year. Some mortgage lenders have temporarily pulled products from their offering as a result.
What are the tax cuts?
Despite the poor reaction to the mini-Budget, the Chancellor’s tax cuts will mean we all have a little more money in our pockets. The highest rate of tax – the 45% band for those earning more than £150,000 per year – is set to be scrapped completely from April 2023. In addition, the current 20% starting rate of income tax will fall to 19% from April 2023 rather than the previous planned introduction date of April 2024.
There have also been changes to National Insurance, with the 1.25% Health and Social Care Levy which was introduced in July being scrapped from November 6 this year, and the plan for this to come into force as a separate tax from April 2023 is also scrapped. The statement on the reversal of the Health and Social Care Levy stated: “This tax cut reduces over 920,000 businesses’ tax liabilities by £9,600 on average in 2023-24…It means 28 million people across the UK will keep an extra £330 a year on average in 2023-24.”
Stamp Duty Land Tax Changes
Stamp Duty Land Tax – the tax you pay when you buy a property in England and Wales – also changed with immediate effect on September 23, with the threshold at which you start to pay SDLT doubling from £125,000 to £250,000. This means no SDLT is payable on any property worth less than £250,000. The Government stated that this measure should save homebuyers an average of £2,500 in SDLT.
For first-time buyers, the threshold at which SDLT is charged rose from £300,000 to £425,000 on the same day. This now applies to properties worth up to £625,000 rather than the previous £500,000 limit. The Government stated this should save first-time buyers an average of £8,750 in SDLT.
Planned rise in Corporation Tax cancelled
The current rate of Corporation Tax was also due to rise in April 2023 from its current level of 19% to 25% for companies making more than £250,000 in profit. But this move has been cancelled by the Chancellor in his statement.
Companies that were making profits of between £50,000 and £250,000 were also expecting to see an incremental increase in the amount of Corporation Tax they would pay from April next year, but this has also been cancelled. So, all companies will pay 19% Corporation Tax on profits no matter how much profit they make in a single year.
Why have markets reacted so badly to the mini-Budget?
There has been widespread alarm about the changes made and planned for the tax system, as the tax cuts are seen as a way primarily to help the wealthier members of society, while giving less assistance to those who may need it more. For example, top earners will see a 5% reduction in their highest marginal tax rate, while the lower paid will see just a 1% reduction.
The theory behind this is something called ‘Trickle-down economics’ where cutting the tax burden of the highest earners should encourage them to spend more and those further down the economic chain should see the benefit of this as more money goes into their own pockets. But this is a theory that is yet to work in practice.
The other reason for the poor market reaction is because these tax cuts are going to be paid for by increasing Government borrowing. Borrowing more money to fund these cuts – especially when we are in an economic environment where interest rates are rising – is not considered by many to be a good plan.
However, we will have to wait and see what the result of all these changes are to discover whether it will benefit the UK.
To find out how you can benefit from the measures announced in The Growth Plan 2022, please get in touch with us and we can give you any assistance and support you need.
Act now to maximise your pension contributions
The changes to income tax rates are going to benefit all taxpayers from April next year as they get to keep more of the money they have earned. But one knock-on effect is that the amount of tax relief you can get on your pension will be reduced for both 20% and 45% taxpayers, as it is based on your highest marginal rate of tax.
This means that you have just shy of six months to maximise any pension contributions you want to make to ensure you benefit from a slightly larger contribution in tax relief from the Government. For example, anyone earning more than £150,000 this year will be able to get tax relief on pension contributions at 45%. From April 2023, this will fall to 40%.
Will this only apply to higher earners?
While higher earners have the most to lose by not maximising pension contributions before the income tax rates change next year, there is also a fall in the basic rate of income tax from 20% to 19%. So, if you are currently a 20% taxpayer, there is still a benefit to acting before April 2023 to maximise your pension contributions. At present, putting £100 into your pension will cost you £80 as a 20% taxpayer. When this falls to 19%, it will cost you £81 to achieve the same contribution.
Is there anything I need to watch out for?
If you are putting money into your pension, there are some limits you need to be aware of. The most you can put into your pension each year and receive tax relief on is £40,000 – but remember, you cannot claim more tax in a single year than you have paid.
For higher earners, there are a few other things to consider. For example, once you reach an earning level of £240,000, that £40,000 a year allowance is reduced incrementally until you reach £312,000 or more. At this point, the amount you can put into your pension reduces to just £4,000.
Beware of the Lifetime Allowance
The other consideration for everyone – but it is more likely to apply to the highest earners – is the Lifetime Allowance. This is currently set at £1,073,100 and anyone with a combined pension pot that breaches this limit will face additional tax charges on their pension.
So, if you think you may hit or breach this limit, then you need to take advice sooner rather than later to ensure you use the money you have in a different way to save for your retirement. This could, perhaps, include maximising your individual savings account (ISA) allowance of £20,000 per year or making other investments that can be used to generate retirement income.
We can help you
If you want to maximise your pension contributions before the income tax bands change, then please get in touch with us and we will help you to get the most from your money without facing additional tax charges.
Business insolvencies up in August – is your business vulnerable?
Registered company insolvencies in England and Wales rose by 43% in August this year compared to the same period in 2021, and they were 42% higher than in August 2019, the comparable period before the pandemic.
In August this year, there were 1,662 Creditors’ Voluntary Liquidations, 33% more than in August 2021, and 73% higher than in August 2019, according to official figures from the ONS. There were also more than four times as many compulsory liquidations in August 2022 as there were the previous year, with the number of administrations twice as high as a year ago.
Why are these businesses failing?
Trading conditions have become more difficult for many businesses, but the statistics give little indication as to what exactly has caused such a significant rise. What we do know is that as inflation rises, the cost of goods and services is going up, meaning not only is it harder for consumers to buy the goods they were buying previously because wage growth is not keeping pace with inflation, but that companies have higher costs themselves, through increases in energy bills and paying more for services, plus additional taxes that apply for dealing with many EU countries now. The significantly weaker pound will create more pressure for those buying goods or raw materials overseas.
The picture in Scotland and Northern Ireland
While the data is slightly different for Scotland and Northern Ireland, the overall picture is largely the same. For example, in Scotland, company insolvencies were 18% higher in August 2022 than the same month the previous year, and 33% higher than in August 2019.
For Northern Ireland, while there was a 56% rise in the number of company insolvencies in August 2022 compared with the same month the previous year, the number compared to August 2019 was 36% lower.
Let us help you
If you are concerned about the financial pressures on your business, then it is best to get help and guidance sooner rather than later as there is a chance you may be able to fend off an insolvency – or even just more severe money worries – by tackling the problem early. We can help you get the advice you need to ensure your business is on track.
Changes made to Corporation Tax filing in September – what you need to know
HMRC made some changes to the way Corporation Tax needs to be filed online in September, and companies need to be aware of what they are now expected to do and where there could be difficulties with filing online for certain items.
One change which has been announced in The Growth Plan 2022 is that the £1m Annual Investment Allowance which was due to expire in April 2023 will now be made permanent. The previous temporary extension to April 2023 has already been reflected in the online filing service.
Also, the rate of tax charged for Loans to participators under section 455 was changed from 32.5% to 33.75% from April 2022, and this has been amended in the online filing service.
Companies claiming non-trading losses in respect of intangible fixed assets
HMRC has said it is aware of an issue with the online filing service for this instance, and you will be affected if you are “claiming brought forward non-trading losses on intangible fixed assets (NTLIFAs) as well as losses arising in the current period in box 265”, and “if the figure in box 265 exceeds the entry in box 830”. An example of an NTLIFA would be the value of goodwill in a business or a leasehold for the company, as this is not a ‘tangible’, as in physical, asset.
HMRC adds: “The guidance for the completion of these boxes is correct but will result in error 9172 — Box 265 must be less than or equal to Box 830.”
How do you file in this instance now?
HMRC said this service will be updated in April 2023 to remove this error, but if you are filing online before this date, then you need to enter the same amount in box 830 as in box 265 and “include an explanation of the correct figure in box 830 in the computation”.
You must also make sure that the computation included for the purpose of box 265 records the actual non-trading loss arising in the current accounting period.
There are other considerations that may affect you in relation to filing your Corporation Tax return online, and these can be found on Gov.uk.
We can help you meet your obligations
Corporation Tax can be complicated, so please get in touch with us if you think you may have difficulties with your online filing, or you simply want to be sure you are making the most of all your business tax allowances.
PAYE round-up – what’s new and what you need to know
Dealing with PAYE is one of the main roles of any accounts department, and HMRC has been busy in this area over the past month, meaning there is plenty for businesses to know for the months ahead. One of the most pressing issues is that PAYE Settlement Agreements are due to be completed by October 22 – or October 19 if you want to file and pay by post – and there is a new digital form to help employers meet their obligations.
Employers need to complete this form if they have employees who have “minor, irregular or impracticable” benefits according to HMRC. These could include incentive awards for long-service, telephone bills, non-business expenses for travelling overnight or staff entertainment.
What does this new form do?
The new PAYE Settlement Agreement form (PSA1) has been designed to make it easier for employers to file digitally, which is the preferred method for HMRC. The form provides standardised reporting, improved accuracy, faster processing times which should all result in fewer queries, again according to HMRC.
The new form should create a more streamlined process for employers who need to file returns for employees in this position. For example, in the past a separate paper form would need to be filled in for each employee in a different location. But the new digital form allows you to file a single form for all employees no matter where they are.
Tell HMRC what you need to pay
Using the form means it is also easier for you to tell HMRC what you need to pay. Remember, if you do not do this, then HMRC will do the calculation and you could end up paying more. If you have not got access to the new PSA1 form, then you should contact HMRC as soon as possible and it will tell you what the process is so you can use the new form, which should make filing much simpler.
Don’t be late
It is important to be sure you calculate any money due under the PSA1 and make the payment before the October 22 (or October 19 for paper returns) deadline. If you are late filing, you could face a penalty and pay interest on any amount owed. In the current climate, where energy prices and higher inflation is affecting not just households but also businesses, you should make sure you are not facing any additional charges as a result of poor admin. These are fees that can be completely avoided with the relevant planning.
Pay your PAYE bill through a new variable direct debit plan
Employers can also now take advantage of a new variable direct debit plan which will be available from September 19 onwards. Once it has been set up, you can pay bills including your Full Payment Submission, your Employer Payment Summary, the Construction Industry Scheme, the Apprenticeship Levy, Class 1A National Insurance, and the Earlier Year Update.
Remember to leave yourself enough time for the payments to be taken the first time. You need to leave five working days for the first direct debit to be taken, and then three days for each subsequent direct debit payment. So, get in touch with HMRC as soon as you can if you want to benefit from this plan.
If you need any assistance with your PAYE, then contact us and we will give you all the help, support and information you need.
Self-Assessment – it’s getting to that time again
Self-assessment is an annual event, and it is always towards the back end of the year that you need to start thinking about it. Many people will already be registered for self-assessment, but there are others who will need to register for the first time this year, either because they have set up a new business, or become self-employed for the first time.
Anyone in this position needs to get in touch with HMRC before October 5 to let the taxman know you need to do your first self-assessment tax return. For those dealing with their self-assessment on a paper return, the completed paperwork needs to be with HMRC before October 31. However, you have until January 31, 2023, to make the payment – which is also the deadline for online filing and payment.
Who needs to register?
If you are employed, you may still need to file a self-assessment return if you have income from outside of your PAYE income, for example from a property, foreign income, or you have income from dividends or savings.
Remember though, you may also need to file a self-assessment return if you need to claim money from the taxman. For example, if you are a 40% or 45% taxpayer and your employer does not claim the additional tax relief above 20% that you should receive on pension contributions up to £40,000 a year, then this can be claimed through your self-assessment form.
Claim money for expenses from your own pocket for work
If you need to pay out of your own pocket for work expenses – such as uniforms, travel and professional insurance or subscriptions, you can also claim tax relief on these via your self-assessment form.
One particularly important expense to claim if you work from home is the cost of energy used to heat the room you work in. With the average energy bill rising to £3,549 from October 1, according to the latest price cap announcement from Ofgem, this is one item that could help you deal with the rising cost-of-living expenses.
How much can you claim for your energy costs?
There is a base amount you can claim for the energy costs which is £6 per week, which in the current climate may be a lot less than it is really costing you. So, if you prefer, you can instead claim the actual amount you are having to pay for your energy while you are working from home, but you would need to keep your bills and receipts to back up your claim.
The one thing to remember though is that you cannot claim this if you choose to work from home, or if your employment contract allows you to work from home some or all of the time under HMRC rules. You can claim this if your employer does not have an office, or if your job requires you to live far away from your employer’s office.
We can help you
If you are unsure about what you can and cannot claim for expenses outside of your PAYE, speak to us and we will help you through the process, so you can claim everything you are due.
End of the summer holidays – are you claiming all the benefits available for your children?
The end of the summer holidays is upon us and not only does this mean the children going back to school, but also a return to more normal work and family life as we head into the autumn. With prices going up at seemingly ever faster levels, are you getting all the benefits you can claim in relation to your children?
For example, if you and your partner are earning up to £100,000 between you, then you may still qualify for Child Benefit and also Tax-free Childcare if you need it.
What is Tax-Free Childcare?
The Government’s Tax-Free Childcare provides up to £500 every three months for childcare, which amounts to as much as £2,000 a year. If your child is disabled, this rises to up to £1,000 every three months, giving up to £4,000 a year.
The money can be used to fund nursery places, nannies or childminders, and after school or play schemes. If you also qualify for the 30 hours of free childcare, then this is available alongside the Tax-Free Childcare scheme.
To get the benefit, you would need to set up a childcare account, and for every £8 you put into this account, the Government will add £2 up to the limits outlined above. You can get the benefit if you are working, on sick or annual leave or on maternity or paternity leave, adoption leave or shared parental leave.
You would also need to be earning at least the National Minimum Wage for at least the next three months, which is equivalent to £1,967 for those over 23.
How old must your child be?
This benefit is available to any child up until they reach age 11, and they will stop being eligible on September 1 after their 11th birthday. For disabled children, this rises to 17 but your child must get Disability Living Allowance, the Personal Independence Payment, Armed Forces Independent Payment, or the Child Disability Payment in Scotland or the Adult Disability Payment in Scotland, according to Gov.uk. They would also qualify if they are certified as blind or severely sight-impaired.
Child Benefit can be claimed for children up to the age of 16 – or up to 20 if they remain in approved education or training, which would include A Levels, T Levels, Scottish Highers, NVQs and certain traineeships. But if either you or your partner earns more than £50,000 a year, you may be taxed on the benefit. So, check whether you are better off claiming it or not if you are reaching these thresholds.
Let us help you
If you want to know more about these benefits or any other benefits you may be able to access, then please get in touch and we will explain exactly what you can claim and any other benefits you may also not realise you are entitled to.
VAT and COVID – what you need to know if you still have delayed payments outstanding
All deferred VAT payments should have been dealt with by now, but HMRC has flagged in its latest bulletin for August that if your business is one of those that still has not managed to complete the payments that have been delayed, then you could be facing a penalty.
During COVID, HMRC allowed businesses to defer VAT payments to help with cashflow problems that companies faced as a result of the lockdowns. These payments could have been deferred to either March 31, 2021, when a lump sum would have been due, deferred via a payment scheme which you needed to sign up to by June 21, 2021 to allow you to pay in interest-free instalments, or by contacting HMRC to arrange how to make the payment by June 30, 2021. All of these payments should have been completed by March this year, but if they have not been paid in full, then you should act as soon as you can.
Any outstanding payments could face a penalty
If you have not yet dealt with your deferred payments, then you could now face a 5% penalty from HMRC and potentially also face interest charges on any amounts outstanding. But if your company is still struggling with these payments, then you should contact HMRC sooner rather than later.
If you have not paid your deferred VAT in full, whether you met the previous deadline of setting up arrangements to pay before June 30, 2021, or not, then the 5% penalty could be applied based on the amount of VAT that is outstanding at the time.
Appealing a penalty
If you feel a penalty has been unfairly applied, then you can appeal against it. You would need to have a reasonable excuse, which would include: a close relative dying close to when the penalty payment is due, an unexpected hospital stay or that you are suffering from a serious or life-threatening condition, or that your software failed when you were about to make the payment. Other relevant reasonable excuses can be found on Gov.uk.
If none of these apply, then you would need to make the payment within 30 days.
We can help you meet your obligations
If you think you have outstanding deferred VAT and do not know how to deal with this properly, then please get in touch and we can help to suggest solutions for you.
How your business can fight inflation
Inflation is a word on many of our lips at the moment as the cost-of-living crisis continues unabated. While the headline rate of inflation – which hit 9.4% in June this year – relates to the average inflation rate suffered by individuals living in the UK, the actual rate of inflation different people feel in their pocket could be higher. Businesses are affected by rocketing prices too, so now is the time to think about what you can do to reduce any costs your business incurs to improve your bottom line.
If your business was one of those badly hit by the pandemic, then you could be facing a double whammy now inflation has reached levels not seen in more than 40 years. Restaurants, hotels and other leisure businesses are often seen as luxuries when people are tightening their belts, and the knock-on effect could be severe.
However, every business should look at how it can reduce its outgoings at times like this, and there are many ways to do this.
Cut your energy costs
If you own your office or your building, then you will have had to choose which energy company you get your light and heat from. So, it might be worth shopping around for an alternative to see if you can get a cheaper deal – after all, things are likely to get worse rather than better in the winter.
For those companies working from leased offices, changing your supplier may not be an option. So, instead you need to think about how to be more cost-efficient in your use of energy. For example, you could install motion-sensor lighting into your washrooms, so the lights are only burning when someone is in there. You could also encourage staff to turn off their computers and any other energy-guzzling appliances when they are not in the office. It all adds up.
Not only will this mean they are doing their bit to help the business cut costs, they will also be helping the environment, something that most people would agree is necessary.
Work from home
Many of your employees may be working from home more often now than they were before, and if it suits your business then it might be time to consider increasing the number of staff that are offered hybrid or fully remote working.
Not only does this help to reduce your office overheads, for many people it improves their work-life balance. It has been shown to increase productivity too – the opposite of what some bosses may think if people have the choice to work flexibly most or all of the time.
The other benefit for your employees is that they will spend less on fuel or trains if they are commuting into work, giving them more money in their own pockets to help with the cost-of-living crisis without the need for a pay rise.
Make sure your employees know what they can claim
Anyone who incurs work-related costs that are not reimbursed directly by the company is entitled to claim these from HMRC. So, if you go down this route, make sure your employees are getting any tax deductions they are entitled to. It all helps to deal with the current high prices in the UK.
If you are unsure how this works, then your accountant will be able to help you, and may also help your employees with their tax returns too.
Let us help you
Helping your business and your employees to deal with the cost-of-living crisis in one hit can never be a bad idea. If you want to know more about how to make this work, and what other measures you may want to consider to boost your bottom line while giving your employees more available cash, then please get in touch and we can explain more about what measures you can take.
Payroll a pain heading into summer? Here’s what to do
We have all been there. The rising number of employees off over the summer months – especially now the kids have finished school until September – means some departments will be lacking in numbers and some work could get left behind.
One area you cannot afford to let this happen in is the back office, and especially payroll. Employees will forgive a lot of things, but not having their wage hit their accounts at the right time is not one of them. Not only would it mean many people missing mortgage or rent payments for that month, it would also create a mistrust between employees and management. Once trust is lost, it is not easy to get back.
Ensuring you have enough staff to cover all areas is difficult during these months, and with sick leave and particularly Covid continuing to be an issue with staff needing to take time off, you really need a back-up plan.
While you may never need to use it, you should ensure you have some emergency cover in place just in case you are facing a crisis at short notice. You can do this by training staff to do a different job within the office so they can step in if needed, or you can speak to your accountant and find out if they could give you the assistance you need for the short term if things went wrong.
Never underestimate the importance of admin staff
There is no getting away from the fact that your back-office and admin staff are key to running your business efficiently. Without them, all sorts of problems would arise that could create some costly errors for the company as a whole.
So, make sure they have all the back-up they need as you come into a period where many staff are off on their holidays and the workload becomes a bigger burden for those left behind.
We can help you meet your obligations
If you think you may have difficulties covering all of your admin and back-office roles over the summer, then please get in touch and we can help to suggest solutions for you.
Business borrowing – how to access money if you are not eligible for grants
If your business does not qualify for a grant but you still need to get some capital to boost your business, then you may want to consider a business loan. There are many ways to access loan funding and your business bank is likely to be your first port of call.
However, there are alternatives, like getting investors to buy into your company in return for equity, plus crowdfunding propositions such as those offered by Crowdfunder, Kickstarter and Funding Circle. Whether or not these are the right choice for your business depends very much on what type of funding you need, what your business does and what you may have to offer someone who donates to your campaign. But let’s take these in order.
Traditional business loans
The traditional way for a business to access loan funding is through a business bank. Often your own bank will be best placed to help you with a loan, but it may result in you paying more than necessary in interest. So, as always, shopping around is a good idea.
There are numerous sites that can provide business loan comparisons, which allow you to see just what might be available to you. Some can give you a loan within as little as a few days, and you can choose the length of time you want to pay the loan back. You can simply search on the internet for ‘business loan comparison’ to get an idea of how much these loans would cost you. Remember though, your own bank could still be the cheapest, so check there too.
The downside of the loan is that you will pay interest on the amount you borrow, and you also have to pay the capital back over time. It can help you in the short-term to get over a cashflow issue if that is the problem, however, you do not want to put your business in a hole, so make sure you can pay the loan back if you get one.
Investors can boost a business’s ability to grow not just by providing a much-needed cash injection, but with the right partner you may benefit from business expertise too. How much of your business you would need to give away to make an investor interested will depend on what you are offering and how big a risk they are taking. One thing is for sure – the more you are asking for, the less of your company you will own once a deal is done.
Getting investment into a business can be game-changing, and it could provide the accelerated growth your company needs. You must make sure the terms of any investment deal are right, so speak to your accountant and make sure he or she is closely involved in any discussions before you sign any paperwork. They will also help you to offer the right amount of equity in the business at the right price.
Crowdfunding is another option
If you prefer not to have to pay back the money you have been given, then you also have the option of crowdfunding. How and what you offer to those people prepared to buy into your business in return for their cash will depend on what your business does and how it works.
For example, if you are a designer or a small marketing agency, you may want to offer an exclusive design or a day’s marketing support in return. With crowdfunding you can be very creative in the way you raise funds. But you need to work within the rules of the platform you choose, so make sure you are clear about what you can and cannot do before you sign up.
We can help you
If you are unsure about the best way to get new funding for your business, then speak to us and we will help you through the process, so you get the funding that is right for you.
Business grants – do you know what your business is entitled to?
Many businesses benefited from grants during the pandemic, but how many realise there are other grants they may be able to access at any time to help their business grow and thrive?
In fact, there are a large number of grants available across the UK to help businesses with everything from reducing carbon emissions right the way through to developing space-based services.
Finding a grant
Finding a grant for your business could be easier than you think, especially as many of them are listed on the gov.uk website. You can go to this site and choose ‘grants’ as the option, and it will provide you with a list of funds that could be available for your business.
Some will be area specific and only available to businesses in certain places, such as Derbyshire, the South West or Leeds, for instance. But there are also grants open for businesses that will increase their workforce and create new jobs in the local area.
What does it mean if I get a grant?
The difference between a grant and a loan or an investor taking an equity stake is that the grant will not need to be paid back. A loan would be paid back with interest, while an equity stake would mean an investor owning part of your business in return for their investment and expecting a return on their money along with the original capital back at a future date.
So, if you are able to benefit from a grant, it is well worth considering it as the money will be yours to use to improve your business and also to expand your reach and potentially workforce.
What’s the catch?
However, depending on the reason for the grant being made, there may be conditions attached to how you are able to use that money. For example, if the grant is specifically to help you buy some plant or machinery, you would not be able to use it to fund wages. You may think no-one will check, and you may be right. But it is not worth taking the chance.
You should always check the fine print of any grant your business is applying for to make sure you can fulfil any conditions or rules that apply, otherwise you could find yourself failing to secure the grant or, which could be worse, possibly having to return the money after you have spent it.
Check locally and elsewhere too
While there are a number of national grant schemes, it is also worth checking locally with your council, any business support organisations – chambers of commerce of business hubs – and associations that are relevant to your business. It may be that you run a company dealing with the arts or is looking to increase the benefits to the local economy. All these aspects could open up a range of funding that you had not previously considered.
If you have a business that would benefit from grant funding, then contact us and we will give you all the help, support and information you need.
Last chance to make sure your business is ready for MTD
Companies and sole traders who have not yet finalised their plans to comply with Making Tax Digital are in the last chance saloon this month, and the very latest date you have to comply with MTD for paying VAT is August 7.
That is the latest date on which you will need to make your first – if you are not already doing this – MTD VAT return. So, if you have not already done so, you have very little time left to make sure you comply with this legislation.
Whether you are required to pay VAT – because your business turnover is above the £85,000 threshold at which you are required to register – or because you have voluntarily registered, you now must keep your records and file your returns electronically.
How do I file?
From April 1, you will need to have filed any VAT due through MTD-compatible software, which includes the likes of QuickBooks and Xero, among others. If you are not able to file your return this way, then HMRC can currently issue a £400 fine. But from January next year, HMRC is due to bring in a points system, which means you accrue points each time you miss a deadline. Once you hit a certain number of points, you will face a £200.
So, the best thing you can do is prepare yourself properly. If you have not sorted this out already, you really are running out of time.
We can help you meet your obligations
If you are not yet registered to deal with MTD through relevant accounting software, then we can help you. But there is no time to lose. Please get in touch with us as soon as you can, and we will do everything in our power to help you meet your filing deadlines.
Can your business claim a super deduction?
If your business has spent money on plant and machinery and it is subject to corporation tax, then it may qualify for a super deduction which is a temporary allowance you do not want to miss.
Qualifying purchases will need to have been made between April 1, 2021, and April 1, 2023, and will be valid as long as you did not buy the plant or machinery due to a contract you entered into before March 3, 2021.
It is also possible to claim a special rate first year capital allowance – which is another temporary allowance – if you have bought qualifying or plant machinery as above.
Qualifying plant and machinery
There are a few rules, as you might expect, that your business needs to comply with to ensure your plant or machinery qualifies for these allowances. One of the key rules is that the machinery must be new, not used or second-hand.
It also cannot be given to you as a gift, it cannot be a car as these will not qualify for this allowance, and it cannot be bought to be leased to someone else. The exception to this final rule is if it is background plant or machinery within a building. It also cannot be purchased during the period in which the business ceases activity.
What can I claim a super deduction for?
A super deduction can be claimed on a variety of work tools, including:
- Machines such as computers, printers, lathes and planers.
- Office equipment such as desks and chairs
- Vehicles such as vans, lorries and tractors – but not cars.
- Warehouse equipment such as forklift or pallet trucks and stackers.
- Tools such as ladders or drills.
- Construction equipment, such as excavators, compactors and bulldozers.
- Some fixtures, including kitchen and bathroom fittings and fire alarm systems.
There are some other rules to be aware of, which is why it is best to speak to your accountant to help you make the most of this super deduction, rather than trying to go it alone.
To see how much a business can claim, let’s look at an example which is on Gov.uk. A company called Alpha Ltd bought a lathe for £10,000 on December 1, 2021. It has a calendar year end accounting period.
In the accounting period ending December 31, 2021, Alpha Ltd can claim a super deduction of 130% for this expenditure, giving them a claim of £13,000.
What about the special rate first year allowance?
If a company buys a qualifying item in its first year, then it can claim the special rate first year allowance. Again, there is an example of how much this is worth on Gov.uk. A company called Bravo Ltd buys a solar panel for £10,000 on December 1, 2021, which is for installation at its business premises and will be used in its business.
In the calendar year ending December 31, 2021, Bravo Ltd can claim the 50% special first year allowance, which gives a rebate of £5,000 for this expenditure. The remaining balance can be added to the special rate pool in the following accounting period and writing down allowances can also be claimed, according to the Gov.uk information.
Again, there are specific rules about what items qualify for the special rate first year allowance, so it is best to work with an accountant to ensure you only claim what you are allowed to.
Let us help you
Both allowances can be complex to navigate, especially as there are a number of specific rules surrounding what type of plant and machinery you can claim for. So, let us do the hard work for you and get in touch. We will make sure you are getting everything you are entitled to, so you can legitimately reduce your tax bill.
Are you claiming everything you are entitled to from the taxman?
Tax is something that is a certainty in life, as former US President Benjamin Franklin said, but there are lots of ways you can reduce the amount of tax you have to pay by claiming for expenses you may not realise you could.
Those of us who are self-employed or own businesses are more likely to claim the majority of costs and expenses against tax that we can. But what many PAYE employees do not realise is that they can also claim certain expenses if they are not covered by their employer, and they are specifically relevant to their work.
What can be claimed?
For example, let’s say you are a nurse, an engineer, a psychologist or simply an employee who happens to use their car for work purposes sometimes. In each of these cases, there are likely to be things that you are paying for that you could claim if your employer is not repaying you for them.
It could be fees you pay to be a part of a professional institution, or professional indemnity insurance, or uniforms that you need to buy yourself, shoes, books you need to study for your work, toys that you may need to use to encourage children to talk to you in the case of a child psychologist, for instance. The list would include anything and everything that you need to buy yourself that solely relates to your work.
While many of these may be relatively small amounts individually, they will soon add up, and if you consider how much they add up to over a long period of time, there is every reason to reclaim that money.
How do you claim them?
Understandably, many people are nervous about dealing with the taxman because they think automatically that it is going to end up costing them money. But that is not always the case. Reclaiming these amounts that are legitimate allowances could put a significant amount of money back into your pocket.
To claim these, you would need to do a self-assessment form. This is something many people who pay tax through PAYE would not be familiar with. You can speak to your accountant for more information if you need it, or you can ask HMRC directly about how you claim for these costs on your self-assessment.
Don’t be nervous, and go back as many years as you can
You do not need to be nervous when dealing with the tax office as you are not doing anything wrong. This is money you are owed, and you would be doing yourself a disservice by not getting this money back into your own pocket.
If you have not been claiming this money back before, then you can go back up to four previous tax years. This means you can reclaim overpaid tax from 2018/19 if you make the claim before April 5, 2023. If you had an average of £1,000 that you could have reclaimed for each of these years, then you would get a £4,000 rebate from the taxman by making the claim.
In the current economic climate, even relatively small amounts that you can reclaim will make a difference. But remember, you must have proof of the purchases you made. Usually these would need to be receipts, but if you do not have these, then you can prove any payments made using bank statements if you need to. If you bought anything online, you may have records there in your email or, say, an Amazon account.
We can help you
If you are unsure about whether you can claim some of the expenses for your work or want to know you have claimed everything that it is possible to claim, then please get in touch with us and we will help you through the process.
Change in National Insurance contribution levels in July
A change in National Insurance contribution (NICs) levels comes into force at the beginning of July, which should save around 30m people £330 each, according to the Government.
From July 6, the amount you can earn before you start paying NICs will increase, which means the amount of overall tax – since NICs is a tax in all but name – will reduce.
What are the new thresholds?
From July 6, the threshold for Class 1 NICs, which are paid by those who are employed, and Class 4 NICs, which are paid by the self-employed, rises from £9,880 to £12,570. This means you can earn an additional £2,690 before you need to start paying NICs.
The new NICs threshold is now in line with the starting point for income tax, but the NICs rate you will pay has not changed and still includes the 1.25% addition for the Health and Social Care Levy made earlier this year. So, everything you earn between £12,570 and £50,270 will be charged NICs at 13.25%. Anything above this higher threshold will be charged at 3.25%.
Part of a £15 billion package of assistance
The additional savings we will see in our pockets thanks to this change will help considerably with the cost-of-living crisis. In fact, along with the council tax rebate that has been announced, energy bills assistance worth at least £400 and support for the most vulnerable households of at least £1,200, this should go some way to easing the problems associated with the current high inflation.
Inflation reached 9.1% in May according to figures from the ONS, up from 9% in April and 7% in March. The current rate is the highest level of inflation since 1982.
BoE base rate rises to 1.25%
The Bank of England increased the base rate to 1.25% in June, taking rates to the highest level in 13 years. While this is good news for savers who are likely to see more interest being paid on their accounts, it is potentially bad news for some people with mortgages. If you are on a fixed rate mortgage that is still within the fixed-rate term, then you will not see any change in your mortgage payments. But you may find it is more expensive to borrow when you come to change your mortgage in future.
If you are on a tracker rate, then you will automatically see the interest rate you are paying rise, which could be a considerable cost depending on how much you have borrowed.
How much will you save?
However, if you want to find out how much more money you will have in your pocket thanks to the change in the NICs thresholds, the Government has created a handy calculator that you can use to determine what you will save on the Gov.uk website. But if you are self-employed, this calculator will not work for you, so you are best to contact your accountant to find out what the change means for you.
If you are an employer, employee or self-employed, and want to know more about how the NICs changes affect you and what you can expect to pay, then contact us and we will give you the information you need.
End of bulk appeals for tax fines in May
If you are unlucky enough to be fined for a late filing, then the way in which any appeal can be made changed as of May 7.
Prior to this, HMRC had temporarily reintroduced the ability to bulk appeal late filing penalties for income tax in 2020 and 2021. But from now onwards, all such appeals need to be made individually.
To be fair, if you keep in close contact with your accountant and give sufficient time for all of the paperwork to be done, then you should not be in a position where you are facing a late filing penalty. But if you have either filed paperwork late yourself or had a late filing penalty for some other reason, then each appeal now must be made individually.
Even though you use an accountant to deal with your tax liabilities, you are still ultimately legally responsible for the correct and timely filing of your returns. There are several different penalties that could apply too.
Types of penalties
For example, there is an ‘inaccuracy penalty’ which can be applied across specific taxes, including income tax, PAYE, capital gains tax, inheritance tax and corporation tax. This penalty could be anything from 0% to 30% of the extra tax due if the error occurred due to a ‘lack of reasonable care’.
If the error is considered deliberate, this rises to between 20% and 70% of the extra tax due, and if it is both deliberate and concealed, it could rise to between 30% and 100% of the extra tax due.
You could also face a penalty for a failure to notify HMRC of a change in your liability to tax. This could be, for example, if your company makes a profit and becomes liable to corporation tax. Or it could be because your business has reached the turnover for the VAT threshold (£85,000) and you have not registered for VAT.
Other penalties could include ‘Offshore penalties’ and ‘VAT and Excise wrongdoing penalties’ – so it is important if any of these could potentially apply to you, that you speak to your accountant immediately. You can find more information on the types of penalties that could apply on the GOV.UK website.
We can help you meet your obligations
If you think there is a chance that you could fall foul of any of these rules and face a penalty, or that there is any other issue you need advice on to make sure you comply with all your HMRC requirements, please contact us as soon as possible. We will help you navigate any problems that arise.
Currency exchange – why it can pay to not rely on your bank
International trading is something many businesses are involved in, whether it’s because you are selling your good or services abroad or buying raw materials in from overseas to help with manufacturing.
Either way, exposing yourself and your business to currency risk is a reality for many businesses, and how you reduce that risk as much as possible is something to think seriously about. For most businesses, the default option is to simply transfer money from your business bank account to the account of the company you are working with abroad. It’s easy, yes, but you could be paying more than you need to and cutting your profit margins as a result.
How much do you transfer abroad each year?
The best way for you to make your international money transfers depends very much on how much, and how often, you transfer overseas. If you make a one-off payment each year, then you will most likely need to take a different approach to a company making regular payments abroad every month.
So, the first thing to do is look at how and when your company is transferring money overseas. By checking through your bank statements, assuming you are using your business bank to make the transfers currently as many businesses do, you should also be able to get a sense of what the exchange rates you have been getting are, and how much you are paying in fees per transaction.
How much does it cost to send money internationally?
The problem you have is that when it comes to sending money internationally, pinning down the costs involved is not easy. This is because different companies will charge different amounts and will give you different exchange rates depending not just on how much you are transferring at a time, but also, they will each take a ‘margin’ on the exchange rate. This is a way of increasing the amount of money they can make on the international transfer.
For example, let’s say you want to transfer £100,000 to a company in Germany. Your transfer will go from sterling to euros and your bank may charge you, say, £25 to make that payment if you use telephone banking to make the transfer. It could be lower, say, £15 if you make the transaction online.
The company receiving the money may also be charged by their bank, which could add another, say, £6 to the cost of the transaction. So, without taking any currency exchange values into account, you and your receiving party could already be paying up to £31 just to move money overseas.
Exchange rates and other products
Then, you need to take into account the exchange rates you are going to pay. These can vary considerably from company to company. Banks will typically offer worse rates than international money transfer specialists, who do nothing other than currency transfers day in, day out.
Let’s say you are moving money from sterling to euros. If you want to send £100,000 then the Barclays rate at the time of writing was €1.1234. This would give you €112,340 in euros. Remember, you would need to pay the additional fees on top of this.
Compare that with a money transfer specialist such as OFX, and you would receive €1.1778 for the same transaction at the time of writing. This would give you €117,780 – an extra €5,440. Plus, you would not need to pay the extra fees charged by most banks.
The foreign exchange specialists also have a variety of products that will help you save more money, especially if you make regular payments overseas. There is something called a ‘forward contract’ that allows you to fix the exchange rate you will get for a period of time, taking the guesswork out of exchange rates and can help businesses set their budgets more effectively.
There are other products that can help you mitigate risks and boost the chances of getting a better exchange rate for the transfers your business needs to make. Remember, these products are also available to individuals if you need to make regular transfers to deal with bills associated with an overseas property, for example.
Let us help you
If you want to learn more about how you can reduce the risk you take when making currency transfers, then please contact us for more details.
Where is the best place to hold your tax money?
Putting aside the tax money due each time you have an invoice paid is sensible planning, but is that money working as hard for you as it could be?
Many current accounts are paying no interest whatsoever, and when it comes to savings accounts, you would still be struggling to get anything meaty when it comes to interest payments. Businesses, in particular, will often leave this money sitting in an account that is paying nothing or next to nothing on the money building up.
However, when these amounts run into tens of thousands of pounds – if not hundreds of thousands of pounds depending on your personal or business status – not having this money work for you is a big opportunity to miss.
So, if you are currently using a separate current account paying no interest, or worse leaving the money in your existing business account without separating it out, then it would be sensible to look at what you can do to boost your returns.
Business easy access accounts
Let’s say you have around £250,000 sitting in your tax account waiting to be paid to the taxman. If you were to put it into an easy access account for businesses, you could currently get 1% interest on this, according to financial statisticians Moneyfacts at the time of writing. Over the year, that would give you £2,500 extra to play with for no effort on your part.
Business notice accounts
However, if you are prepared to give some notice before you make a withdrawal – which would mean not being able to access it whenever you wanted – you would be able to get more in interest. For example, by agreeing to give 95 days’ notice, you could get 1.3% at the time of writing. So, you would increase the amount you could earn from that same £250,000 to £3,250.
Remember, this is money you do nothing to get other than spend a bit of time on paperwork to open the account. For the time that takes, it is a return worth having.
There are even companies that provide services for businesses to help them boost the returns on their business income by finding the best accounts for their funds. In short, a specialist will manage these accounts for you, to maximise the returns you can make.
One firm that offers this type of service highlighted that if a company failed to move £903,000 in cash accounts to the best-paying accounts over five years, this could result in a loss of income of as much as £41,538 over that period. This would be enough to hire an additional part-time member of staff for most businesses.
These companies should never hold your money in their own accounts, they should simply be working under your direction to move funds to the best-paying bank accounts and you pay a fee for this service. This ensures you are still covered by the Financial Services Compensation Scheme (FSCS).
We can help you
As your accountant, we are likely to have services that will help you to increase the returns you can make on the money you hold in your business accounts. So, please contact us for details on how we can help you make your money work harder for your business.
Deal with your tax return early and help with your cashflow
There is a tendency for many of us to leave our tax returns until the last minute. It’s human nature to want to delay dealing with something we find uncomfortable.
However, if you get your tax return for the 2021/22 tax year completed sooner rather than later, you will have some benefits that could help you through the cost-of-living crisis.
A primary benefit to dealing with your tax return early is knowing it is out of the way. For some this may be less of an issue, but as accountants get busier as the tax payment deadlines approach, it can be difficult to give a return as much attention as we could at other times.
By getting your tax return calculations done early, not only are you helping your accountant to spread his or her workload in a more manageable way, more importantly for you, you will know exactly what your bill is going to be early in the year. This may make it possible to free up some of the money you had set aside to pay the bill if it is lower than you had expected.
For businesses, this could mean having extra cash to invest in expanding the business, paying off debt, or hiring an extra full or part-time employee to move the business forwards. For individuals, this money could help offset the current cost-of-living crisis we are in by giving you extra cash to cover rising energy or food bills.
Paying tax early
Remember, just because you have had the tax return completed, it does not mean you have to file it with HMRC straightaway. If you want your accountant to hold off on this part and file it later in the year – especially if you think there may be any changes necessary to the tax return down the line – then that is not a problem.
If you prefer to pay early and get it out of the way, then that is also fine. The big benefit to you is that you have the option. It may be that you do not have enough money put aside for your tax bill when you find out what it is. So, the extra time you have built in before the tax needs to be paid means you have time to get those funds together. It could be the difference between setting aside an extra amount each month to pay the bill while storing money for the next tax year or having to saddle your company with a loan that will cost in interest payments too.
It will also ensure your accountant can maximise any tax reliefs you or your business can benefit from. This could include pension payments or offsetting costs against tax that may otherwise be difficult to include if the information is not given to him or her in a timely manner, in the last-minute rush to get the data to the accountant.
It may also mean, depending on how your accountant works, that you could benefit from having more time to pay your accountant’s bill too. Spreading this cost will also help with cashflow.
Take your time
Overall, it will mean that tax is a much more leisurely affair than it often is and that is never a bad feeling. Stress is not good for any of us and building in time to deal with something that is – for many – inherently stressful anyway is a good plan.
If you want us to start working on your tax return now or have a question about ways in which we can make your tax less taxing, please get in touch.
Payments on account due July 31
Some taxpayers must pay a tax more than once a year, and if this is you then you are facing a second tax bill before July 31.
Those exempt from making a payment on account in July include those who had a self-assessment tax bill of less than £1,000 for the previous tax year, or if you have paid more than 80% of your tax bill through your tax code or your bank has deducted interest from your savings.
It is easy to forget the July 31 deadline
While most of us think of the January 31 payment deadline as the main one, it is easy to forget that there is another payment due on July 31 – and now is the time to consider how much you need to have set aside to cover it.
How the payment on account works
Your bill for the 2020 to 2021 tax year is £3,000. You made two payments on account last year of £900 each (£1,800 in total).
The total tax to pay by midnight on January 31, 2022 is £2,700. This includes:
- your ‘balancing payment’ of £1,200 for the 2020 to 2021 tax year (£3,000 minus £1,800)
- the first payment on account of £1,500 (half your 2020 to 2021 tax bill) towards your 2021 to 2022 tax bill
You then make a second payment on account of £1,500 on July 31, 2022.
If your tax bill for the 2021 to 2022 tax year is more than £3,000 (the total of your two payments on account), you’ll need to make a ‘balancing payment’ by January 31, 2023.
We can help you meet your obligations
If you have to make a payment on account, then please get in touch with us soon so we can let you know how much it is going to be to help you ensure you have enough money set aside to make the payment.
MTD D-Day has arrived – here’s how to make sure you comply
Anyone filing VAT returns from April 1, 2022 onwards now has to file their return digitally as HMRC’s Making Tax Digital reaches its next phase.
All businesses registered for VAT – even if they have turnover below the threshold – must file their returns this way from now on. The premise for changing to the MTD regime is to reduce the number of common mistakes made, according to HMRC, and will save taxpayers time when it comes to managing their tax affairs.
However, it is also a key plank of digitising the UK’s tax regime, and MTD is likely to have increased revenue to HMRC thanks to reduced errors in both 2019 and 2020, said HMRC.
Sign up now if you haven’t yet
Nearly 1.6m taxpayers had already joined MTD for VAT as of December 2021, and more than 11m returns have already been submitted this way. Around a third of those businesses with a turnover below the £85,000 VAT threshold signed up before April 1, 2022 and “thousands more are signing up each week”, said HMRC.
Lucy Frazer, Financial Secretary to the Treasury, said: “Businesses using MTD are saving time on their tax affairs, streamlining their processes, and boosting their productivity as a result.
“[This is] our first move towards a modern, digital tax service – MTD makes it easier for businesses to get their tax right first time. There is a range of support and information available for those that need it – including accessible online content such as YouTube videos, GOV.UK help pages and HMRC’s Extra Support service.
“Agents can sign up on behalf of a business, although businesses remain responsible for meeting their VAT obligations. Those who do not join may be charged a penalty for failure to do so.”
Businesses must sign up before they send their next VAT return
Any businesses that have not yet signed up need to before they file their first VAT return after April 1, 2022. There are a number of software options that can be used, including free options for the easiest of calculations, or more advanced for more complex affairs, said HMRC.
There are some exemptions
Some VAT-registered businesses can receive exemptions, primarily where it is not reasonable or practical for them to use digital tools for their tax. These include reasons based on age or disability, or a religious objection to using computers. But any other reasonable basis for exemption will be considered by HMRC. You can find more information on whether an exemption may apply on Gov.UK.
While you are waiting for a final decision, continue to file your returns as you usually do.
MTD for income tax 2024
MTD is being extended to 4.2m income taxpayers who are landlords, sole traders and partnerships from 2024. Anyone with business and/or property income over £10,000 will be brought into the regime then. So, it is worth starting to plan ahead with your accountant to make sure this transition is as smooth as possible.
Please get in touch with us to find out how we can help you if you are yet to sign up for MTD. We can help you comply with the new rules.
Get a business health check at the start of the tax year
Using up personal allowances is not the only reason you should see your accountant at the start of the tax year, it is also the best time to get a health and wealth check for your business too.
The end of the tax year is the busiest time for your business and your accountant, meaning devoting time and effort to checking whether your business is on track is sadly lacking.
Take the time while you have the time
However, the complete opposite is the case at the start of the tax year, so now is the time to make the most of the chance to review your business strategy, cashflow and plans for the coming year to ensure your company has the best chance of success.
What can your accountant help you with?
Your accountant is perfectly placed to help you put an effective plan in place to give your business the boost it needs at the start of the tax year. He or she can help you with everything from saving tax and paying the right amount of tax, right the way through to helping you comply with relevant regulations and improving your cashflow.
A good accountant can also help you access relevant funding – whether that is a grant that your business would qualify for or an investor that would help your business to grow.
Setting out an effective business plan at the beginning of your financial year is like creating a road map for the coming months, allowing you to follow that map to achieve your goals.
We can help your business run smoothly
When things get tough, your accountant is there to help you with everything from advice to reality checks so your business can continue to run smoothly.
If you want help to set your business on the right path for this tax year, then please get in touch and find out how we can help you.
Use up your tax allowances early in the tax year
If you are one of those people who is always racing to use up your tax allowances, such as Individual Savings Accounts (ISAs) at the last minute before the end of April 5, then you are not alone. But you could be making a big mistake.
When it comes to mopping up tax allowances, it is best to use your allowances at the beginning of each tax year than the end. If you have not managed to use all or any of your allowance coming up to April 5, well, it is better late than never. But if you can take advantage of using your ISA allowance, for example, at the start of the tax year, then you will benefit from an additional year of investment growth.
Benefit from an extra year of growth
It may not seem like it matters that much, but that extra period of growth – assuming markets rise over the year – will add up over time. Even if the markets dip, the adage ‘it’s about time in the markets, not timing the markets’ still holds because trying to time the market is usually not a good idea.
In addition, you get a full year of growth that is free of capital gains tax and free of income tax. By holding your assets outside of an ISA for the year, you could face a tax charge on any dividend payments from equities.
Early use gives other benefits
Starting to use your allowance at the start of the tax year also gives you other benefits. You can choose whether you put the entire £20,000 allowance into your ISA in one go, or whether you ‘drip feed’ money into the market over the full 12 months.
The latter can be an effective method to help smooth out ups and downs in the stock market, known in the trade as ‘pound-cost averaging’. Let’s take an example of you putting money into a unit trust. If you are buying units every month with the same amount of money, you will be buying more or fewer depending on the value of the units you are buying that month.
Market performance is affected by a range of factors
These values will go up and down depending on a number of factors that impact the stock markets – everything from political will to social and economic changes.
The same principle applies to your pension allowance – most people can put up to £40,000 a year into a pension and get tax relief – if you can put money aside to go into your pension each month, you are benefiting from the same investment smoothing process outlined above.
The other drawback of waiting until the end of the tax year to use your allowances, is that you are forced to put a lump sum into markets at what could be a terrible time. So, giving yourself a head start means you can benefit from the highs and the lows over the year.
Let us help you
If you want to find out more about how you can benefit from your ISA and pension allowances by taking action early, get in touch with us now and see how we can help you.
Basis Period Reform – what it is and how it could affect you
Unincorporated businesses – including sole traders, trusts and those businesses working as partnerships, and anyone else that pays tax on trading income – face a major change that will affect the way and the time they are taxed on their profits.
The so-called Basis Period Reform will ultimately take effect from the 2024/25 tax year, but sole traders and other organisations need to start thinking about how this change could impact them sooner rather than later.
The 2023/24 tax year is going to be a transitional period, and the new rules will change the time that underlying profits or losses become subject to tax and bring forward when tax due on profits needs to be paid.
The aim of the rule change, which was set out initially in the Finance Bill 2022, is to remove complexity relating to basis periods and overlap profit, and make sure tax payments are made closer to when profits are generated.
Implementation has been delayed by a year
Originally, the changes were due to be made a year earlier, but after a consultation period the Government delayed the proposals to allow taxpayers to prepare for the transition to the new basis period.
New end-of-year account period
The change will move the taxation periods for all sole traders, partnerships and trusts from dealing with tax on an accounting-date basis ending in a tax year, to taxing profits on these businesses that arise in a tax year.
For the 2023/24 tax year, there will be additional tax liabilities on the additional profit to be taken into account. Any taxpayer or organisation in this position should plan ahead for these additional bills that will be coming sooner than might have been expected.
Difficult for international partnerships
There are some difficulties that remain, particularly for large international partnerships that cannot change their accounting date to match the tax year, according to the ICAEW, which is engaging with HMRC to explore the possibility of additional changes being introduced to mitigate these problems.
If your business has an accounting year date ending outside of March 31 to April 5, then you need to pay attention. You will have two elements to be considered for taxable profits:
- The standard part which covers the full 12 months of trading in the transitional year based on your existing basis period.
- Plus, the transitional part of the profits which go directly from the end of the basis period end up until April 5, 2024.
A business has a 12-month accounting period ending 30 April 2023. In the 2023/24 transitional year it will recognise:
The profits arising in the 12-month period ended 30 April 2023 (the standard part).
The profits arising in the period from 1 May 2023 to 5 April 2024 (the transitional part).
If any business has overlap profits, these must be offset against the profits of the 2023/24 tax year, according to the ICAEW.
There are many other aspects to consider with this transition, including how to deal with losses in the 2023/24 tax year, and whether it will be possible to spread these transition profits across five tax years to help with cashflow, although this could impact on any credit claimed for overseas taxes.
We can help you
This is a very complex area and if you are affected by this, you should contact us so we can help you navigate this change in good time, and with the least amount of difficulty.
End of year tax planning – what you need to consider
The new tax year on April 6 is accelerating quickly towards us, and now is the time to make sure that any last-minute allowances you may not have made the most of in the 2021/22 tax year are mopped up.
There are plenty of allowances that have a time limit on each tax year, and if you can use these last few days to maximise the benefits, then it would be a good deed done.
Individual Savings Account (ISA) Allowance
Each year, we can put up to £20,000 into an ISA, and if you have not put the full amount into your ISA for this year, then consider adding any additional funds to it before April 5.
Putting your savings and investments into an ISA wrapper allows the funds to grow free of tax, and when you take those funds out at the other end, you don’t pay any tax on them then either. You can spread this across a number of different types of ISAs – for example a cash ISA, Stocks and Shares ISA, Innovative Finance ISA, which is peer-to-peer lending, or a Lifetime ISA (although you can only invest £4,000 in this type as a maximum, which would leave you £16,000 of your allowance to invest elsewhere).
If you fail to use your full ISA allowance within the tax year, then you will lose it once we hit April 6, so make sure you maximise this tax benefit.
Avoiding a 60% effective tax rate for higher earners
Once you reach £100,000 of earnings, you begin to lose your personal allowance at a rate of £1 for every £2 of earnings above this threshold. This means that by the time you reach £125,140 you no longer have a personal allowance. Between £100,000 and £125,140, your effective tax rate is 60%.
However, you can reduce the impact of this by making payments into your pension, or by donating money and benefiting from Gift Aid on the payments. Pension contributions and Gift Aid payments are made from gross income, which means you reduce the amount of taxable income you have. You cannot put more than £40,000 into your pension each year and receive tax relief, and you cannot reclaim more in tax in a single year than you would have paid.
This annual allowance as it is known will also reduce by £1 for every £2 earned above £240,000 and will stop reducing at £312,000 – leaving everyone with a minimum annual allowance of £4,000.
If you have any unused allowance from any of the three previous tax years, then you can carry this forward for one year to help you reduce your tax liabilities and maximise your pension contributions.
There are a few caveats to this, including:
- You must have been in a registered pension scheme for each of these previous three years.
- You must have already used all your allowance for the current tax year.
- The carried forward annual allowance from the first year must be used first.
- The amount you can carry forward may be subject to the tapered allowance if your earnings were high enough for this to apply in any of the previous three years.
Taking more than your tax-free lump sum out of a money-purchase pension scheme will also mean your annual allowance is reduced to £4,000.
However, if you have any annual allowance available from the three previous tax years and have used your full allowance for the current tax year, then this is another way you can reduce your taxable income and put extra into your pension pot. But make sure you remain within the Lifetime Allowance, which is currently set at £1,073,100.
If you take dividends from your company, then you can take up to £2,000 each year at 0% tax, but if you miss this within a tax year, it is not possible to roll this over to the next year. Any dividend income after this between £12,570 and £50,270 is subject to 7.5% tax up to April 5 and 8.25% from April 6 – due to the addition of the equivalent of the 1.25% Health and Social Care Levy – so if you can bring any dividend payments into the current tax year, you may be able to avoid the additional tax.
The Corporation Tax rate is set to increase from 1 April 2023, and while this is a year away, it makes sense to plan ahead to make sure you make the most of the lower rate of 19% for the coming year.
Companies with profits between £50,000 and £250,000 will continue to pay corporation tax at 19% even after 1 April 2023, but companies with profits above this will face a tapered rate up to 25%.
For this reason, it would be wise to plan ahead for the next trading year to consider how you may be able to effectively mitigate this tax. But it is not something you should do without expert advice.
If you are interested in benefiting from either personal or business tax advice, then please contact us and we will be happy to help you make the most of your tax breaks.
Spring Statement round-up
The Chancellor’s Spring Statement on March 23 was limited on giveaways, but there were some measures designed to help people struggling with the highest rates of inflation in 30 years.
The Office for Budget Responsibility (OBR) has forecast that inflation will average 7.4% this year, and there are many people who are already struggling with everything from filling their cars with fuel to keeping the heating on.
Fuel Duty cut but NI increase
One cut came in the form of a 5p a litre reduction in the price of fuel thanks to a fall in fuel duty to help offset the spiralling cost of oil.
Yet despite many experts imploring the Chancellor to postpone the 1.25% hike in National Insurance for 2022/23 – the Health and Social Care Levy – Rishi Sunak refused to do this. The one change he made was raising the NI threshold by £3,000 rather than the planned £300, to bring it in line with the £12,570 personal allowance. He described this as a “£6 billion personal tax cut for 30 million people”.
Employment Allowance increase for small businesses
The Employment Allowance will increase to £5,000 for small business, which is a tax cut of £1,000 for around 500,000 firms which starts in April.
Businesses can also expect to benefit from tax cuts on business investment during the Autumn Budget, and there will be an increase in business research and development tax credits to boost productivity.
Income tax cut in 2024
The basic rate of income tax will fall from 20% to 19% from April 2024, the first cut in this tax in 16 years according to the Chancellor. But he refrained from bringing this cut in for the coming tax year as there is too much uncertainty in the economy.
We can help you
Even if you or your business did not see anything in the Spring Statement to help you, there are likely to be ways you can benefit from existing tax efficiencies to maximise your money. Get in touch with us to find out how.
Reclaim Married Couple’s Allowance before 5 April
Married Couple’s Allowance can be transferred between spouses and civil partners, and while 2m couples have claimed this since it was introduced back in 2015, there are many more people who are entitled to claim it.
Go back four years
The allowance, which is worth up to £1,220 for each year, can be reclaimed back for every year to the 2017/18 tax year right the way through to the 2021/22 tax year. For those entitled to the maximum amount, this could create a windfall of £4,880.
Claim it now
However, these payments need to be claimed before 5 April 2022. Married couples and those in civil partnerships can transfer 10% of their personal allowance to their spouse or partner if one is a non-taxpayer and the other is a basic-rate taxpayer. This could apply if one partner loses hours or sees a significant reduction in their salary due to reduced hours – entirely possible during the Covid-19 pandemic – retirement or a change of job. It also applies if someone takes a career or study break.
The lowest earning spouse or partner would make the claim for this transfer of personal allowance, and even if your spouse or civil partner has died since 5 April 2017, then the remaining spouse or partner can still claim this allowance. This is done via the income tax helpline. If the claim is made via the online service, they will automatically roll on to the following years.
But if you make the claim via a self-assessment, this does not automatically roll on. If a couple no longer qualifies, then they need to cancel their claim.
We can help you reclaim what is due
If you think you are entitled to the Married Couple’s Allowance or any other benefit, such as the Blind Person’s Allowance, Tax Relief for Employment Expenses – which includes the £6 per week allowance for employees required to work from home in 2020/21 and 2021/22 – and could benefit from going back up to four years with your claim, then please contact us for more information.
Strong Customer Authentication (SCA) rules – what they mean for businesses and consumers
You may have already noticed when you are buying things online that you are now being asked to confirm your purchase in more than one way to improve security, and this is the result of the new Strong Customer Authentication (SCA) regulations which came into effect on 14 March 2022.
What are the SCA regulations?
The SCA regulations create an additional layer of security for card payments which involve a second method of identification. This could be a text message with a code that needs to be added to a purchase, a phone call to a landline, or via a card reader or smartphone app. The aim is to reduce the amount of fraud and make customer transactions safer.
The effect on businesses
There is, of course, an impact on customers directly. But all companies who sell directly to consumers via card purchases have had to make some changes to their technology too. Retailers should have already upgraded their payment gateways and payment services providers have been working towards helping achieve this.
From 14 March 2022, any transaction that is not SCA compliant will be declined, which would be costly to retailers. If you are still having problems with this for your business, then you urgently need some help.
Find out how we can help you
If you want to know more about SCA or have any problems implementing it, then please get in touch and we will do what we can to help you.
Bank of England (BoE) base rate rises to 0.75% – what it means for consumers and businesses
The Bank of England (BoE) base rate rose to 0.75% in March in response to Consumer Prices Index (CPI) inflation rising to 5.5% – almost triple the BoE’s target of 2%. Inflation is set to continue rising throughout the year (see Spring Statement round-up) with the Russian invasion of Ukraine creating increased pressure on already rising prices.
What does it mean for you?
Any rise in the base rate has an impact on borrowing rates for businesses and individuals, and on savings rates. Each is likely to rise – great news for savers, not such great news for borrowers.
How will borrowers be affected?
Any loan you have that does not have a fixed rate – such as some mortgages, personal loans or credit card debt, for example – could face a rise in interest rates if the company providing this chooses to pass this rate on. And many will.
However, if you have a fixed-rate mortgage, unsecured personal loan or other loan, for example, then you will not see these rates change until you reach the end of the offer term or until the loan is paid off.
How are savers affected?
If you have savings in a fixed-rate account, these will not rise either. But if your savings are in a non-fixed interest rate account, then you could see the interest you are paid on this rise.
If you see a better rate than you are being paid elsewhere, then it is worth considering moving your savings to the better-paying account. But bear in mind if you are in a fixed-rate account, you could face a penalty for doing this which could negate the benefit of moving. So, check with an expert before taking any action.
You also need to consider how much of your money is in each institution. The Financial Services Compensation Scheme (FSCS) covers your money on deposit with a single institution up to £85,000. But you need to be aware that various brands come under one institution – such as Halifax and TSB coming under the Lloyds Banking Group.
You would be covered up to £85,000 across all these accounts, not in each. It only becomes relevant if one of the banks goes bust, but we know from experience that however unlikely, this can happen. So, it is something to bear in mind.
Find out how we can help you
If you are unsure about whether your money is working as hard for you as it could, then please feel free to get in touch and we will help you in any way we can.
Stamp Duty Land Tax – why this will increase as house prices rise and what you can do to reduce it
Stamp Duty Land Tax (SDLT) receipts were somewhat skewed in the last year as the SDLT holiday for properties worth up to £500,000 was phased out on June 30, 2021, and the holiday for properties worth between £125,000 and £250,000 ended on September 30.
These two deadlines resulted in a flurry of activity as people tried to complete purchases under the wire and avoid having to pay SDLT on their purchases. The result, according to Government data, was that transactions in October to December last year were 10% lower than the previous quarter, and 13% lower than Q4 2020.
Total receipts up in Q4 2021
However, despite this, total receipts in Q4 2021 were 22% higher than Q3 2021, and 55% higher than Q4 2020. This change in receipts will have largely been impacted by the lower residential nil-rate band of £125,000 for Q4 last year compared to £250,000 for Q3 2021 and £500,000 for Q4 2020.
House prices continue to rise, and while the thresholds stay the same, the receipts are likely to increase if property sales continue at the same pace.
2% SDLT surcharge for non-residents
One additional consideration is the application of additional taxes on properties bought by people who are non-resident in the UK. These purchases have faced a 2% SDLT surcharge since April last year. To the end of Q4 last year, this had resulted in 8,500 transactions paying £86m.
Possible ways to reduce SDLT
There are a few things you can do to mitigate your SDLT, including buying a property in a lower price bracket or negotiating a different price with the seller that brings you below a threshold. But beware, HMRC would be likely to take a dim view of any price cuts that mean you are buying a property for what would not be considered the full market value.
If you bought a second home and paid the additional 3% SDLT as a result, then if you sell your main residence within three years of completing on the second property, you may be able to reclaim a refund of the 3% surcharge amount. This could be a substantial sum and is worth considering if you plan to sell your main home soon after buying a second home.
You can also negotiate a price for removable fixtures and fittings that the seller is prepared to leave behind, as you only pay SDLT on the property purchase itself. This could reduce the price to drop you into a lower tax band, but HMRC insists this is done on a “just and reasonable basis” so you would need to make sure you get legal advice on how to do this properly.
First-time buyers also currently do not pay SDLT on properties worth up to £300,000 so providing you buy a property below this level, you will not pay SDLT.
You can also build your own property if that is something that appeals to you. You would pay the SDLT purely on the cost of the land purchased, which is likely to be considerably lower than buying a property already on the land. Extreme, yes, but an option for the right person.
Find out how we can help you
If you have a query about SDLT and how you can deal with tax, then please give us a call and we can guide you through what you can and cannot do to mitigate this tax.
IHT receipts up by £700m – but why you should see this as a ‘voluntary’ tax
Inheritance tax (IHT) is one of the most hated taxes there is, mainly because for many people their estate faces a 40% tax rate which is higher than they would have paid during their lifetime.
HMRC’s latest figures reveal there has been a £700m increase in IHT receipts in the financial year to January 2022, with £5 billion going into Treasury coffers. Much of this additional revenue will have come from property price inflation, which has increased the value of many estates, especially as the £325,000 personal IHT allowance has stayed at the same level since 2009. Had it been left to rise with inflation, it would have been worth £428,000 in 2022/23 according to Quilter.
Transfer of allowances
Any remaining allowance can be transferred on the first death between spouses or civil partners, meaning a married couple where the first spouse or civil partner uses none of his or her NRB leaves a £650,000 allowance for the second spouse or civil partner.
The Residence Nil Rate Band (RNRB) of £175,000 is also available – and can also be transferred in the same way as above – but this has added complexity to IHT. In fact, for those who have no children, the RNRB cannot be used at all, which increases the complexity around advising on this.
However, with the average house price now at £288,000 – just £37,000 shy of the £325,000 threshold – many more people look likely to get drawn into this tax net without some prior planning.
You can mitigate this tax
Given the ways that IHT can be mitigated during our lifetimes, this can be considered a ‘voluntary tax’ and one that richer people have been planning to mitigate for years. Yet it is still considered solely a tax on the rich by many, even though those with relatively modest estates that include a property can be caught in this trap.
So, using every available way you can reduce your estate’s exposure to IHT before you pass makes sense, even if you feel you are someone of relatively modest means.
Ways to reduce your IHT liability
There are a number of ways you can lower your IHT bill, including making gifts during your lifetime to reduce your estate to below these thresholds so there is no IHT for your beneficiaries to pay.
You can make gifts to spouses or civil partners without any IHT, but you can also gift up to £3,000 a year to other people using your annual exemption. For a couple, this means they can gift up to £6,000 a year with no IHT impact.
You can also gift unlimited amounts above your normal expenditure, providing it does not alter your standard of living. If you want to make larger gifts, then providing you survive them by seven years, it will be considered a potentially exempt transfer and free of IHT.
If you die within this seven-year period, a tapered amount of IHT would be applied.
We can help you mitigate IHT
There are many more ways you can reduce your IHT liabilities, but IHT planning is a complex area, and you can easily fall foul of the rules without expert help. So, if you would like to find out more about how you can reduce your liabilities for your beneficiaries, then please do get in touch.
Bounce-back loans – where are we now?
The bounce back loans, CBILS and CLBILS for larger companies were some of the most generous schemes available to businesses suffering from the impact of lockdowns due to the Covid-19 pandemic, paying out a total of £80 billion to help keep businesses afloat.
The Bounce Back Loan Scheme was the largest of these, paying out £47.36 billion in total to around 1.6m recipients, with amounts up to £50,000 available to companies that would have faced real financial difficulty without them.
Fraudulent loan claims
Due to the speed that these loan schemes were implemented, and the fact that the Government backed them 100% – meaning taxpayers would pick up the tab for any loans that were not repaid – there was predicted to be a considerable amount of fraud. PwC initial suggested there would be around £4.9 billion of fraud associated with the Bounce Back Loan Scheme, which it subsequently reduced to £3.5 billion.
Lord Agnew, the former minister for counter-fraud described the oversight of the loan payments by the British Business Bank as “nothing short of woeful” when he spoke about his resignation from that role in the House of Lords. He highlighted what he described as “schoolboy errors” such as more than 1,000 companies receiving these loans despite not even trading when the pandemic hit.
What to watch out for if you need additional business loans
However, for the millions of companies these loans helped, there has been considerable benefit. They were applied for through business banks and you could get up to 25% of the self-certified annual turnover, or £50,000 – whichever was less. The biggest appeal for many though was the 2.5% interest rate – lower than many other business loans available – and the option to repay the loan over six years, although you can request that this is extended to 10 years, with the Government covering interest payments for the first 12 months.
One important thing for companies to remember is that the interest on these loans can be offset against tax, which is one benefit. But there are a few banana skins to avoid if you need additional lending within the period that you have the loan, according to the Association of Taxation Technicians (ATT).
It said: “Be particularly careful if your business needs any other source of funding during the life of the BBL taking any form of security, mortgage, charge pledge, lien or encumbrance over its assets whatsoever. You must check this is allowed under the loan terms, and often it is not.”
Be careful if your business becomes insolvent
It was possible to use the BBLS to pay dividends if the business has retained profits but was struggling with cash flow, but if your company was to become insolvent then you may be asked to repay these dividends as it is not possible to pay a dividend from an insolvent company. Any personal use of these loans could also result in the requirement to repay the money used, which potentially puts your personal assets at risk.
We can help you
If you are concerned that your BBLS may not have been used for the correct purpose, or that business risks could leave your company insolvent and you personally exposed due to the way the loan was used, then please contact us and we will explain the best course of action.
NI to increase by 1.25% from April to fund the Health and Care Levy – what you can do about it
The Government is set to increase National Insurance Contributions (NICs) by 1.25% from April to fund the Health and Social Care Levy, and while this may be a laudable aim, it is going to hit all of us in the pocket.
Costly increase when finances are being squeezed
The NICs hike means that someone earning £30,000 a year will pay an additional £255 into Government coffers – equivalent to 10% more than they are currently paying – while someone earning £50,000 will pay an extra £505. The lowest earners are set to be hit hardest because of the point at which NICs is applied on lower wages.
Despite numerous calls to delay this rise, especially as the cost of living is increasing at rates not seen in nearly 30 years – the Consumer Prices Index rose to 5.5% in January – the Government has insisted it is ploughing ahead with the change.
What can you do?
Unless we see a change of heart in the Spring Statement, this further reach into the pocket of employers and employees is going to sting. But there are some things you can do. For example, as the NICs are paid on your salary, if your employer has – or can offer – the option to do salary sacrifice for another benefit, you may be able to reduce the impact this has.
Salary sacrifice schemes involve your employer cutting your salary in return for paying the equivalent amount into benefits which have both tax and NICs benefits. These can include pensions, pension advice, car leasing schemes, and even cycle to work schemes.
While you get less money in your hand at the end of the month, overall you will be better off because you are getting benefits that make up that value difference, and you will pay less tax and NICs.
Dealing with a benefit in kind
For example, if you leased an electric car through your employer, the payments can be made direct from your gross salary, which means your salary is reduced, cutting the cost of the 1.25% rise. The other benefit is that there will be less income tax to pay too, while you benefit from the use of the car.
There is, of course, the benefit in kind cost to consider. But for electric cars this is only 2% from April 2022, compared to as much as 25% for even a relatively low-emission non-electric car, according to calculations from Loveelectric.cars. So, it might make financial sense to explore this with your employer or employees.
While electric cars can be expensive, the salary sacrifice scheme can make them more appealing. For example, a higher-rate taxpayer earning £60,000 a year chooses a Tesla Model 3 with a lease term of 48 months and annual agreed mileage of 5,000 miles.
Typically, the lease price would be around £524 per month, but combining the price of a lease with salary sacrifice could reduce this to £267 per month, making it much more affordable.
Company owners or directors who may not be primarily paid via a salary can use a business contract hire option which allows them to deduct the full cost of a rental from profits and then recover half of the VAT paid if it is used for personal use, or 100% if it is solely used for business purposes.
If you are interested in taking advantage of salary sacrifice or discussing other ways you can mitigate the impact of the 1.25% rise in NICs, please get in touch with us.
Businesses must prepare as wider creditor action protections end in March
Companies with debts outside of their rental arrears face the removal of protection against creditor actions from March 31, 2022.
Other debts outside rental arrears affected
Currently, rent arrears built up because of forced closures as a result of COVID-19 are excluded from these measures, as they are covered by other legislation
Any debts outside of rent arrears, must reach a £10,000 threshold before a winding-up petition can be filed. Before the filing, the creditor must have given the debtor a notice – called a Schedule 10 Notice – which states that if a proposal for payment of the debt has not been made within 21 days of the notice, then the creditor intends to file a winding-up petition.
Firms must prepare to deal with possible litigation from April 2022
However, these restrictions end on March 31, so any business with debts of more than £10,000 that are not related to rent arrears needs to be sure it is prepared for these protections to be removed, unless more legislation is passed before that date.
Challenges could be made for as little as £750 owed
Law firm Freshfields Bruckhaus Deringer highlighted that the Government has not changed the threshold to serve a statutory demand for winding-up from £750. So, while the current legislation is in place there are two thresholds in place for the compulsory winding-up process. But once Schedule 10 notices are repealed, the lower level of £750 remains.
Find out how we can help you
If you have debts outside of rental arrears that have built up due to difficult trading conditions during the pandemic, or because of forced closures, then please contact us to find out how we can help you manage this most effectively for your business.
Landlords and tenants face legally binding arbitration over rent arrear disputes
Companies forced to close due to Coronavirus restrictions are currently protected from eviction by landlords until March 25, but a Government Bill currently before Parliament is expected to create binding arbitration following this date.
Code of Practice
The Commercial Rent (Coronavirus) Bill, which was originally announced alongside a Code of Practice by Kwasi Kwarteng on November 9, 2021 protects commercial tenants in arrears from being evicted. The aim is to encourage landlords and tenants to negotiate how to deal with these arrears and to share the cost of commercial rent debts caused as a result of closures during the pandemic.
The Code of Practice outlines the process for tenants and landlords to settle outstanding debts. But any ongoing disputes after March 25 could be settled by binding arbitration if the Bill successfully passes through Parliament.
Debts built up by the likes of pubs, gyms and restaurants as a result of their forced closure during the pandemic will be within the scope of the legislation. Any debts built up outside of these times will be excluded, as will debts resulting from the voluntary closure of a business where it would not have been forced to close under the emergency measures.
Protection from legal action will end
Since November 10, 2021, the existing legislation has protected commercial tenants from County Court Judgements, High Court Judgements and bankruptcy petitions issued against them because of rent arrears accruing during the pandemic.
However, if no agreement can be reached, then either the tenant or landlord can apply for arbitration unilaterally. The arbitration can be applied for within six months of the legislation coming into force with the tenant expected to repay the final agreed amount within 24 months.
Business Secretary Kwasi Kwarteng said at the launch: “We encourage landlords and tenants to keep working together to reach their own agreements ahead of the new laws coming into place, and we expect tenants capable of paying rent to do so.”
Support for the moves, but ‘devil is in the detail’
Kate Nicholls OBE, CEO of UK Hospitality, said: “It is in the long-term interests of landlords and tenants to come together and find solutions that ensure business survival and that do not undermine the economic recovery.
“We share government’s view that arbitration should be a last resort and this process must take into account the exceptional and existential level of pain that hospitality businesses have faced over the last 18 months. It must not impact this industry’s ability to rapidly recover and create jobs throughout the country.”
However, while Helen Dickinson OBE, Chief Executive of the British Retail Consortium, supports the principle of compulsory arbitration, she said the “devil will be in the detail on issues around what tenant viability really means in practice and the power of arbitrators”.
She added: “We will engage closely and constructively with government to help ensure their proposals protect otherwise viable businesses, secure the recovery, and protect jobs.”
We can support you if you have rental arrears
If you have rental arrears due to forced closures during the pandemic, then please get in touch so we can help support you through this difficult time.
Taxpayers get extension to self-assessment filing dates
Millions of taxpayers who are yet to submit their completed Self-Assessment tax return which is due before January 31 are being given a grace period to file until February 28.
More than 12.2 million customers are expected to complete a tax return for the 2020/21 tax year according to HMRC, and would usually face a penalty and interest if the return and payment in full is not made by January 31.
Deadline extended but not without cost
However, HMRC has announced it will waive penalties for a month, meaning those who cannot file before January 31 will not receive a penalty if they file before February 28, and will not receive a late payment penalty if they pay their tax in full or set up a payment arrangement before April 1. But they will still face interest payments of 2.75% on outstanding balances from February 1, so where possible it is best not to delay payment.
Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We know some customers may struggle to meet the Self-Assessment deadline on 31 January which is why we have waived penalties for one month, giving them extra time to meet their obligations. And if anyone is worried about paying their tax bill, they can set up a monthly payment plan online – search ‘pay my Self-Assessment’ on GOV.UK.”
Remember to include all SEISS payments in your return
Like businesses, any self-assessment taxpayer who has benefited from COVID-19 support payments will need to ensure they are also included in their tax return. Any payments made under the Self-Employment Income Support Scheme (SEISS) or any other COVID-19 support payments must be included in a self-assessment. Taxpayers who have benefited from these payments and need to file a self-assessment can check what changes might need to be made on their tax return to ensure all these payments are correctly included as income.
Which payments must be included?
The payments that need to be included in the 2020/21 tax return if they were paid before April 5, 2021, according to HMRC are:
- Self-Employment Income Support Scheme;
- Coronavirus Job Retention Scheme;
- other COVID-19 grants and support payments such as self-isolation payments, local authority grants and those for the Eat Out to Help Out scheme.
However, anyone receiving the £500 one-off payment for working households receiving tax credits does not need to report this payment.
It is particularly important for those receiving SEISS grants to make sure they are included as they were paid directly to the individual rather than to a business, so these are not included in the accounts of a sole trader or partnership. Instead, they need to be added back in as an adjustment to profits in the self-assessment tax return.
HMRC has also said it will not charge late filing penalties for paper-based SA700s, SA970s that are received in February, or for SA800s and SA900s if these are filed online before the end of February.
There are a number of online facilities that HMRC has set up for anyone who needs support in relation to filing their tax returns. You can access live webinars or recordings on GOV.UK, and HMRC has also produced resources to help customers meet their obligations including YouTube videos and Self-Assessment guidance.
We can help you
If you would prefer to let someone else take the strain of dealing with your accounts, then please get in touch with us. We will help you make sure all of the relevant information is included and work to maximise your allowances, so you only pay the tax due, no more.
Businesses helped by COVID-19 support could face unexpected tax bills
Businesses and self-assessment taxpayers are being reminded they need to include all grants paid as part of the COVID-19 support payments in their tax returns, as some may think these were non-taxable.
Have you set money aside to deal with tax on support grants?
HMRC has highlighted that all money paid for test and trace or self-isolation payments in England, Scotland or Wales are taxable, as are Coronavirus Statutory Sick Pay Rebates. The Coronavirus Business Support Grants – also known as local authority grants or business rate grants – must also be included on tax returns as these are considered income for tax purposes.
Companies that received the Coronavirus Job Retention Scheme (CJRS) grant or a payment under the Eat Out to Help Out payment scheme will need to include both as income in their CT600 tax return and reported in the relevant boxes on their Company Tax Return.
Myrtle Lloyd, HMRC’s Director General for Customer Service, said: “We want to make sure companies are getting their tax returns right first time, including any COVID-19 support payment declarations. Support and guidance is available on GOV.UK, just search ‘file my company tax return’.”
Many companies will have been communicating with their accountants throughout the year and realise these grants are taxable. But there are concerns that those who deal with their accountant less often may not realise they should have been putting some of this money aside for tax purposes. This would leave them exposed to a bill that has not been planned for.
An outline of the costs employers could face for CJRS
While the CJRS scheme helped to reduce the number of redundancies companies may otherwise have been forced to make during COVID-19 lockdowns, there were a number of hidden costs involved with these grants. These include employer’s National Insurance contributions and employer’s pension contributions.
For example, if an employee had a normal monthly salary of £2,000 and was on full furlough, then based on 80% of their salary this would have fallen to £1,600 gross. At the rates applied in the 2020/21 tax year, the costs to the employer for this CJRS grant would be:
- £119.78 of Employer’s Class 1A National Insurance;
- £32.40 of Employer’s Pension Contributions (based on the 3% minimum under auto-enrolment);
- There is also the potential cost of accrued holiday, which is £153.80 – calculated based on 4/52 weeks (this is the maximum amount of holiday that can be carried forward into the following year) x monthly salary.
Where holiday has been carried forward to the following year, businesses that are struggling to recover from the pandemic also have to contend with up to four weeks of holiday that can be passed into the following tax year. If an employee leaves the business, this could result in the employer having to find sums potentially into the thousands of pounds to account for this in the employee’s final payslip.
HMRC said to be sympathetic to companies struggling to pay tax bills
Reports suggest that HMRC is being sympathetic in relation to any tax bills that are difficult for companies to meet, with even debt collectors looking to offer solutions to deal with the debt rather than collecting it on the spot.
The deadline for customers or agents filing company tax returns (CT600) is 12 months after the end of the accounting period it covers. The deadline to pay Corporation Tax will depend on any taxable profits and when the end of the accounting period occurs. Information on which support payments need to be reported to HMRC and any that do not is available on GOV.UK.
If you think you will struggle to meet any of your tax liabilities this year, then please contact us as soon as possible to get advice on the best course of action.
HMRC have published a call for evidence on the case for reforming the rules for registering for Income Tax Self Assessment (ITSA). The call for evidence is interested in hearing views on whether it would be beneficial to bring forward the deadline by which landlords and the self-employed must register for ITSA.
Currently, there is no statutory obligation to register for ITSA; instead, the requirement is to notify HMRC where a tax liability exists. This must be done within six months from the end of the tax year in which the liability arose, i.e., by 5 October after the end of the tax year. This requirement is met by registering for ITSA. Where the taxpayer is self-employed, registering for ITSA also registers the taxpayer for Class 2 National Insurance.
If a taxpayer who is already within ITSA has a new source of income, there is no requirement to tell HMRC separately about that new source. Instead, it is reported on the self-assessment tax return.
The notification window depends on when in the tax year the self-employment starts or the taxpayer becomes a landlord. For example, if you started your self-employment on 6 April 2021, you must notify HMRC (normally by registering for ITSA) by 5 October 2022 – a window of 18 months. However, if you start your self-employment on 31 March 2022, you still have to notify by 5 October 2022 – a window of just over six months. This is because the notification deadline relates to the tax year in which the trade started rather than the date on which the trade started.
The call for evidence sets out options for a possible reform of the rules. The first option is to reform the existing requirement to notify rules so that the taxpayer is required to notify HMRC of the liability to tax within a set window after the source first arose. Potential notification windows of two, three or four months are suggested.
The second option is to remove the current statutory obligation to notify, and to replace it with a requirement to register for ITSA within a specified period after the start of the self-employment or property business. Alternatively, the obligation to register could be triggered once turnover reaches a certain level, for example, £1,000 to align with the trading and property income allowances.
HMRC may also explore ways in which third-party data could be used to identify those who have recently started in business so that they can be made aware of the need to register, if they have not already done so.
Get in touch
If you have recently started a business or become a landlord, please get in touch. We can help you register for tax.
To help employers affected by the spread of the Omicron variant of COVID-19, the Statutory Sick Pay (SSP) rebate scheme for small employers is being reintroduced. In addition, the period for which an employee can self-certify a sickness absence is increased temporarily from seven days to 28 days.
SSP rebate scheme
The SSP rebate scheme for small employers allowed employers who had fewer than 250 employees on their payroll on 28 February 2020 to reclaim up to two weeks’ SSP per employee in respect of Coronavirus absences. Normally, employers must meet the cost of any SSP paid to an employee in full. The original scheme applied in respect of Coronavirus absences prior to 30 September 2021, with a deadline for making rebate claims of 31 December 2021.
To help employers affected by staff absences as a result of the surge in COVID-19 cases following the emergence of the Omicron variant, the SSP rebate scheme for small employers is being resurrected. You will be able to use the scheme if you are based in the UK and you had a PAYE scheme with fewer than 250 employees as of 30 November 2021. As previously, you will be able to claim back the cost of up to two weeks’ SSP paid to an employee for Coronavirus-related absences. The claim period is being reset; consequently, a claim can be made in respect of SSP paid to an employee, regardless of whether a claim was made under the original scheme. Claims under the resurrected scheme can be made retrospectively from mid-January 2022.
The period for which an employee is able to self-certify an absence for SSP purposes has been increased temporarily from seven days to 28 days. This means that rather than needing a Fit Note from a GP for absences of more than seven days, employees will only need a Fit Note once they have been absent for 28 days. This will reduce the pressure on GPs.
Regulations have been introduced to give statutory effect to the relaxation, which applies for periods of sickness which begin on or after 17 December 2021 and end on or before 26 January 2022. Thereafter, the self-certification period will revert to seven days.
Speak to us
To find out more about how to make a claim under the SSP rebate scheme, or to learn more about the temporary self-certification rules, please speak to us.
Help if you are struggling to pay your tax bill
Financially, 2021 has been a difficult year for many, and you may be struggling to pay your January tax bill in full. Any tax and National Insurance that remains unpaid for 2020/21 must be paid by 31 January 2022, along with the first payment on account for 2021/22.
If you cannot pay your tax bill on time, you should contact HMRC as soon as possible – you do not need to wait until the payment is late, and it is advisable not to do so. You will be able to discuss the help that is available to you, and may be able to pay what you owe in instalments by setting up a Time to Pay arrangement.
Time to Pay arrangements
A Time to Pay arrangement is an agreement with HMRC to pay the tax that you owe in instalments. The procedure for setting up a Time to Pay arrangement depends on the type of tax that you owe and the amount that you owe.
If you are unable to pay your self-assessment tax bill, you may be able to set up a Time to Pay arrangement up online via your Government Gateway account. You can do this if:
- you have filed your latest tax return;
- you owe less than £30,000;
- you are within 60 days of the payment deadline; and
- you plan to pay off your tax debt within the next 12 months, or less.
This is the most straightforward way to arrange to pay what you owe in instalments. To avoid triggering unnecessary late payment penalties, if you know that you will struggle to meet your 31 January 2022 tax bill, it is advisable to ensure that your return is filed in good time so that a Time to Pay arrangement can be in place by this date.
Unable to make an online arrangement?
If you are unable to set up a Time to Pay arrangement online, for example, if the tax that you owe is more than £30,000, you may be able to agree an instalment payment plan by calling HMRC’s self-assessment helpline on 0300 200 3822.
Other types of tax
If you owe tax other than that due under self-assessment, or if your company cannot pay tax that it owes, you can contact HMRC’s Payment Support Service on 0300 200 3835 to discuss setting up a Time to Pay arrangement.
To set up a Time to Pay arrangement you will need to have the following information to hand:
- your unique tax reference number;
- your VAT registration number if you are a VAT-registered business;
- your bank account details; and
- details of any previous payments that you have missed.
HMRC will ask you a number of questions, including:
- how much you can afford to repay each month;
- whether you are able to pay what you owe in full;
- whether there are any other tax bills that you need to pay;
- how much money you earn;
- how much you usually spend each month; and
- what savings and investments you have.
HMRC expect that if you are able to pay the tax that you owe, you will do so. Also, if you have any savings or assets, they expect that you will use those to meet your tax obligations.
Where you are unable to pay what you owe in full, HMRC will usually set your monthly payments at about 50% of the money you have left over each month after you have paid your bills.
Once a Time to Pay agreement is in place, it is important that you pay at least the agreed amount each month. If you are able, you can pay more than the agreed amount if you want to clear the debt more quickly.
Unable to agree a Time to Pay arrangement?
If you are unable to agree a Time to Pay arrangement with HMRC, for example, if HMRC do not think you will stick to the agreement because you have defaulted in the past, you will be asked to pay what you owe in full. If you are unable to do this, HMRC may take enforcement action to collect the debt.
We can help
If you are struggling to pay tax that you owe or are worried about being able to pay your January self-assessment bill, talk to us. We can help you set up a plan to pay in instalments.
Payments on account
Payments on account are advance payments towards your tax and, where relevant, your Class 4 National Insurance bill. You may need to make them if you are self-employed or if you are a landlord. You may also need to make them if you operate your business through a personal or family company and extract the bulk of your profits in the form of dividends.
Payments on account for 2021/22
You will need to make payments on account of your 2021/22 tax liability if your self-assessment tax bill for 2020/21 was at least £1,000, unless at least 80% of the tax that you pay is collected at source, for example, under PAYE. Two payments on account are made for each tax year.
Calculating your payments on account
Each payment on account is 50% of your income tax and Class 4 National Insurance liability for the previous tax year. You do not need to take into account Class 2 National Insurance when working out your payments on account. If, for example, your 2020/21 income tax and Class 4 National Insurance liability was £3,000, you will make two payments on account of your 2021/22 liability of £1,500 each.
Making payments on account
Payments on account are payable on 31 January in the tax year and 31 July after the end of the tax year, with any balance being due by 31 January after the end of the tax year. This means that if you are liable to make payments on account for 2021/22, you must make the first payment by 31 January 2022 (along with any remaining 2020/21 tax and Class 4 National Insurance, and your Class 2 National Insurance for 2020/21). The second payment on account must be made by 31 July 2022. If there is any remaining balance to pay, this is due, together with your Class 2 National Insurance for 2021/22, by 31 January 2023 (along with the first payment on account for 2022/23).
If your final liability for 2021/22 is less than you have paid on account, the excess can be set against your 2022/23 liability, or refunded.
Reducing payments on account
If you think your tax liability for 2021/22 will be less than in 2020/21, for example, because you have lost business following the COVID-19 pandemic, you can elect to reduce your payments on account. This can be done online through your self-assessment tax account, in your tax return or by post. However, if you reduce the payments below the eventual liability, interest will be charged on the amount underpaid.
Talk to us
If you are unsure whether you need to make payments on account of your 2021/22 tax liability or are unsure how to calculate them, we can help.
File your 2020/21 tax return by 31 January 2022
If you need to file a self-assessment tax return for the year to 5 April 2021, you have until midnight on 31 January 2022 to file your return if you have not already done so. You must also pay any tax that you owe for 2020/21 by the same date.
Do I need to file a return?
You will normally need to file a tax return if you have income in respect of which the associated tax is not collected at source. This will be the case if you are self-employed, or if you are a partner in a partnership. You will also need to file a self-assessment tax return if you have income from property, or if you have realised capital gains in the tax year, or if you have other sources of untaxed income, such as dividends, investment income or foreign income.
You can also choose to file a self-assessment tax return if you want to claim income tax reliefs.
If you or your partner received child benefit in 2020/21, check whether you fall within the scope of the high income child benefit charge. If you do, you will also need to file a return.
New source of income
If you started trading in 2020/21 or became a landlord, you should have registered for self-assessment by 5 October 2021. If you have not done so, you should register as soon as possible so that you can file your return without delay.
COVID-19 support payments
If you received COVID-19 support payments in 2020/21, for example, grants under the Self-Employment Income Support Scheme (SEISS) or hospitality and leisure grants, you will need to report these on your 2020/21 tax return. The support payments are taxable. Grants received under the SEISS should be entered in the dedicated box in your self-assessment tax return, while any other taxable COVID-19 payments should be entered in the ‘any other business income’ box. Remember, to enter the amount that you received between 6 April 2020 and 5 April 2021, regardless of the date to which you prepare your accounts.
If you are employed and received grant payments under the Coronavirus Job Retention Scheme (CJRS), you do not need to enter these payments separately on your return – they are included in the figures on your P60.
Later deadline where notice to file received after 31 October 2021
The tax return filing deadline is the later of 31 January after the end of the tax year and three months from the date on which the notice to file a return was issued by HMRC. Where this is after 31 October 2021, the filing deadline will be later than 31 January 2022. For example, if the notice to file a return was issued on 1 December 2021, the return must be filed by 1 March 2022.
The deadline for filing a paper tax return was 31 October 2021 (or three months from the date of the notice to file where this was received after 31 July 2021). If a paper return is filed after that date, even if it is filed before 31 January 2022, it will be deemed to be filed late and a late filing penalty will be charged. Consequently, if you are filing your return to meet the 31 January 2022 deadline you must file it online. Remember that you must be registered with the Government Gateway and will need your details to login – make sure that you have these available in good time.
If you file your tax return online after midnight on 31 January 2022 (unless an extended deadline applies because the notice to file was issued after 31 October 2021) you will receive an automatic penalty of £100, even if you have no tax to pay. If you think you have a reasonable excuse for filing late, you can appeal against the penalty. However, HMRC usually take a harsh line on what they consider a reasonable excuse. Further penalties are triggered if your return remains outstanding three months, six months and 12 months after the deadline.
If you need help in filing your 2020/21 tax return, please get in touch. However, we suggest that you do not leave it until just before the filing deadline.
Company cars and vans
A tax charge may arise if an employee is able to use a company car or van for private use. A further charge will arise if you provide the fuel for any private use. The taxable amounts that will apply for 2022/23 have now been announced.
Where an employee has a company car, if that car is available for their private use, they are taxed on the benefit of that private use.
The amount that is charged to tax is a percentage (the appropriate percentage) of the car’s list price and any optional accessories (as reduced for any capital contributions up to £5,000). The charge is reduced where the car is not available for the full year, and also for any private use contributions made by the employee.
The appropriate percentage depends on the car’s carbon dioxide (CO2) emissions. A supplement of 4% applies to diesel cars not meeting the RDE2 standard. The appropriate percentage is capped at 37%.
The appropriate percentages applying for 2022/23 are available on the Gov.uk website.
For 2022/23, electric cars are taxed on 2% of their list price, regardless of the date of first registration.
If the employee is provided with fuel for private journeys, a separate fuel benefit charge applies. The taxable amount is the appropriate percentage used to calculate the car benefit charge multiplied by the set figure for the tax year. For 2022/23, this is £25,300.
There is no charge if you pay for electricity for private use of an electric company car.
If you provide an employee with a company van, and they have unrestricted private use of that van, unless the van is an electric van, a tax charge will arise. For 2022/23, the taxable amount is £3,500. If you also provide fuel for private journeys, a separate fuel charge arises. For 2022/23, this is valued at £688.
There is no charge where an employee uses an electric company van for private use.
Get in touch
We can help you understand how to provide tax efficient company cars and vans to your employees.
Seasonal gifts to employees
Christmas is a time of giving, and you may wish to give your employees a small token of your appreciation for their work during the year. To prevent the gift being accompanied by an unwanted tax liability, you can take advantage of the trivial benefits exemption to keep the gift tax-free.
Scope of the exemption
Where you provide an employee with a low-cost benefit, the employee is not taxed on the provision of that benefit as long as the following conditions are met:
- the benefit is not cash or a cash voucher;
- the cost of the benefit is not more than £50;
- the benefit is not made available to the employee under a salary sacrifice arrangement or under a contractual obligation; and
- the benefit is not provided in recognition of particular services being performed, or in anticipation of them being performed.
Benefits that meet these conditions are known as trivial benefits.
Where the conditions are met, if the recipient is a director of a close company, the total value of tax-free trivial benefits that they can enjoy in the tax year is capped at £300. Otherwise, there is no limit on the number of trivial benefits which can be given to an employee tax-free each year.
Application of the exemption to Christmas gifts
The trivial benefits exemption can be used to ensure that gifts typically given to employees at Christmas, such as chocolates, wine, a turkey or a hamper, can be given tax-free. The key is to keep the cost below £50.
It will normally be straightforward to work out the cost of an item, but where it is difficult to determine the individual cost, the average cost can be used instead.
The trivial benefits exemption only applies if you give modest gifts costing £50 or less; lavish gifts will fall outside the exemption. The £50 limit is not a tax-free allowance, and if the cost of the gift is more than £50, the full amount will be taxable, not just the excess over £50. For example, if you give your employees a Christmas hamper costing £200, the taxable amount is £200, not £150 (the excess over £50).
If you do wish to give your employees an expensive Christmas gift, you may wish to pay the associated tax on their behalf by including it within a PAYE Settlement Agreement.
The gift card trap
To enable employees to choose their own gift, you may prefer to give a gift card or access to an app which lets them choose a treat. However, it is necessary to tread carefully here. If an employee uses an app or is given a gift card which may be topped up, the cost of the benefit is the total cost in the tax year, not the cost each time the app or gift card is used. This may mean that while each individual item purchased from the app or gift card costs less than £50, if the annual cost is more than £50, the benefit will not be a trivial benefit, and the exemption will not be available.
Speak to us
To check whether your Christmas gifts fall within the scope of the exemption, please get in touch.
Keeping the Christmas party tax-free
If you are holding a Christmas party for staff this year, you may want to take advantage of the tax exemption for annual parties and functions to prevent your employees from suffering a benefit-in-kind tax charge. Keeping the Christmas party tax-free will also mean that there is no Class 1A National Insurance for you to pay either. The exemption applies to both in-person and virtual events.
Nature of the exemption
The availability of the tax exemption is contingent on the associated conditions being met. These are as follows:
- the event is an annual event or similar annual function;
- the event is provided for an employer’s employees generally, or for those at a particular location; and
- the cost of the function, or where more than one such function is held in the tax year, the cost of the functions in aggregate, is not more than £150 per head.
If these conditions are not met, the provision of the party will trigger an associated benefit-in-kind tax charge.
The exemption only applies to annual functions. This requirement may catch out the unwary.
An annual function is a recurring event that is held each year. Consequently, if you hold a party for staff each year, the event will be an annual event and, as long as the other conditions are met, will fall within the scope of the exemption. However, the exemption does not apply to one-off events. Unfortunately, this means that if you hold a Christmas party this year as a one-event, the exemption will not apply; a tax charge will arise on the benefit provided to the employees by virtue of their attendance at the party (and that of any guests that they bring).
Open to all employees
The annual party exemption features an ‘all employee’ condition. This means that the exemption will only apply if all your employees are able to attend the party. If you operate from more than one site, the condition is met if you have a party for all the employees at a particular location. HMRC have confirmed that where your workforce is split into teams or departments, annual team or departmental events will qualify for the exemption as long as all your employees, or all those at a particular location, are able to attend a party.
The exemption does not apply to an event for a limited number of employees only, for example, a party for senior management.
Cost per head limited to £150
Annual events that fall within the ambit of the exemption are subject to a financial limit of £150 per head. The cost per head is found by dividing the total cost of the event, including any associated transport or accommodation which may be provided, by the number of people attending. This is the total number of people, not just the number of employees, and includes any guests who may have been invited. The cost includes VAT, even if this is subsequently recovered.
Limit not allowance
It is important to note that the £150 cost per head figure is a limit not an allowance. If the cost per head figure is more than £150, the total amount is taxable, not just the excess over £150.
If you hold more than one annual function each tax year and each event meets the all-employee condition, all of the events will fall within the scope of the exemption provided that the aggregate cost is not more than £150 per head.
If the aggregate cost of all the events is more than £150 per head, you can choose how best to use this limit. Remember, it can only be used to shelter ‘whole’ events. For example, if you have three events in the year, and the cost per head of the events is £90, £70 and £50, the exemption is best used to shelter the events costing £90 and £50 (total £140), leaving the £70 event in charge. The ‘unused’ £10 cannot be set against the event costing £70 per head to reduce the taxable amount to £60.
If guests are invited to some functions and not to others, the impact of the guest’s attendance should be taken into account. If the event is taxable and the employee brings a guest, the taxable amount will be the cost of both the employee’s and their guest’s attendance.
Consider a PSA
If it is not possible to provide your Christmas party within the terms of the exemption, you may wish to consider using a PAYE Settlement Agreement (PSA) to meet the resulting tax liability on your employees’ behalf.
We can help
We can help you work out whether the terms of the exemption are met in relation to your Christmas party.
New MTD timetable
Making Tax Digital (MTD) is a Government initiative that aims to provide the UK with one of the most digitally advanced tax administrations in the world. Under MTD, taxpayers are required to keep electronic records and report to HMRC digitally. MTD is being implemented in stages. However, the timeline has recently been revised, delaying the start date of MTD for Income Tax by one year.
MTD for VAT
If you are a VAT-registered business with turnover above the VAT registration threshold of £85,000 a year, you will already be within MTD for VAT. If your turnover is below this level, you may have joined voluntarily. However, if you have not done so, you will need comply with MTD for VAT from the start of your first VAT accounting period beginning on or after 1 April 2022. MTD for VAT becomes compulsory for all VAT registered traders from that date.
For example, if you are registered for VAT but your turnover is below the VAT registration threshold of £85,000 and your VAT quarters end on 31 May, 31 August, 31 October and 31 January, you will need to start complying with MTD for VAT from 1 June 2022 – this is the first day of the first VAT quarter which starts on or after 1 April 2022.
As you do not need to be registered for VAT if your turnover is below the VAT registration threshold, if you do not want to comply with MTD for VAT, you have the option of de-registering. However, this will mean that you are unable to reclaim back any VAT suffered on your purchases.
MTD for Income Tax
The next phase of the MTD programme is MTD for Income Tax. Initially, this will apply to self-employed businesses and landlords with annual business or property income in excess of £10,000. MTD for Income Tax was due to come into effect from April 2023. However, the start date has now been delayed by one year, and businesses and landlords that fall within its scope will need to comply with the rules from 6 April 2024 onwards.
Under MTD for Income Tax, businesses and landlords will need to keep business records digitally and send quarterly income tax updates, an end of period statement and a final declaration to HMRC using MTD-compatible software. This will replace the need to file a self-assessment tax return.
As part of the preparation for the introduction of MTD for Income Tax, the basis period rules for unincorporated businesses are being reformed. Businesses will be taxed on the profits for the tax year, rather than on the profits for the period ending in the tax year (the current year basis). The tax-year basis will apply from 2024/25, with 2023/24 being a transitional year.
MTD for Corporation Tax
No date has yet been set for the start date of MTD for Corporation Tax. However, the Government have stated that MTD for Corporation Tax will not become mandatory before 2026.
Talk to us
We can help you understand what MTD will mean for you and your business. Please get in touch to discuss what you will need to do to prepare.
Paying employees early at Christmas
Under Real Time Information (RTI), you must report payments made to employees and associated deductions to HMRC on a Full Payment Submission (FPS) at or before the time at which you make the payment to your employee. However, special rules apply which modify this rule if you pay your employees earlier than usual over the Christmas period. This may be the case if you shut down over Christmas and New Year.
Use your normal payday
Even if you pay your employees earlier than usual in December, you should use the normal payday as the payment date on the FPS, and submit the FPS by this date. In this instance, the FPS may well be submitted after the date that you paid your employees. However, as the submission deadline is the normal payday, as long as you send your FPS in by that date, it will not be treated as being late.
For example, if you normally pay your employees monthly on the 28Th of the month, but in December you are shut for two weeks and pay them on 17 December 2021 instead, when you send the FPS to HMRC, you should still enter ’28 December 2021’ as the payment date. You must ensure that you send the FPS to HMRC by 28 December 2021; although it will probably be more convenient to send it on 17 December 2021 when you do your payroll and pay your employees, you do not have to submit the FPS by this date.
Impact on Universal Credit
It is important that you follow the rules set out above if you pay your employees early at Christmas to ensure that any employees who receive Universal Credit will receive the correct payments. You should also use the normal payment date if you pay employees early because the usual payday falls on a bank holiday. Following these rules prevents two months’ payments being taken into account in one Universal Credit assessment period and none in another assessment period, and stops Universal Credit claimants losing out on the work allowance. This is an amount of earnings that the claimant is able to keep before earnings start to be deducted from their Universal Credit entitlement.
As Universal Credit is a means tested benefit, the amount paid is reduced when income rises.
Court of Appeal decision
In November 2020, the Court of Appeal issued a judgment in the case of Johnson and Others. Following the case, where people are paid monthly and as a result of a payment being made earlier than usual (for example, at Christmas), two payments are made in one assessment period and none in another, one set of earnings is taken into account in each assessment period so that the claimant does not lose the work allowance.
The reallocation of earnings only happens where people are paid monthly. Where people are paid weekly, fortnightly or four-weekly, there will always be assessment periods where additional payments of earnings are taken into account. For example, employees who are paid four-weekly will normally only receive one payment in a Universal Credit assessment period, but in one period each year, two payments of earnings will be taken into account as employees who are paid four-weekly receive 13 payments each year. Moving earnings to another period would simply change the assessment period in which two payments are taken into account.
If you will be paying your employees on a day other than your usual payday in December and are unsure how and when to report the payments to HMRC, please get in touch. We can help.
The Chancellor presented his Autumn Budget and Spending Review on 27 October 2021. Some of the highlights are discussed below.
Income tax rates and thresholds
The rates and thresholds applying for 2022/23 were confirmed.
As previously announced, the personal allowance remains at £12,570 for 2022/23. The allowance is reduced by £1 for every £2 by which adjusted net income exceeds £100,000. This means that where income exceeds £125,140, the personal allowance is lost in its entirety.
Rates and bands
The basic rate remains at 20%, the higher rate remains at 40% and the additional rate remains at 45%.
The basic rate band remains at £37,700. This means that where a person receives the standard personal allowance of £12,570, they will start to pay higher rate tax of 40% once their income exceeds £50,270.
The additional rate of 45% is payable on taxable income in excess of £150,000.
The rates applying to the non-dividend, non-savings income of Scottish taxpayers will be announced at the time of the Scottish Budget in December.
Dividend tax rates
As previously announced, the rates at which dividends are taxed are to rise by 1.25% from 6 April 2022. The increase will provide funding for health and adult social care.
Consequently, for 2022/23, the ordinary dividend rate is 8.75%, the upper dividend rate is 33.75% and the additional dividend rate is 39.35%.
National Insurance rates and thresholds
The rates and thresholds applying for 2022/23 have been confirmed.
Employees and employers
As previously announced, the upper earnings limit for primary Class 1 purposes will remain at £967 per week for 2022/23. This is aligned with the point at which higher rate tax becomes payable. The upper secondary thresholds that are linked to the upper earnings limit, namely, the upper secondary threshold for employees under the age of 21, the apprentice upper secondary threshold and the upper secondary threshold for armed forces veterans in the first year of their first civilian employment since leaving the armed forces, also remain at £967 per week.
A new secondary threshold for new Freeport employees is introduced from 6 April 2022. This is set at £481 per week.
The remaining thresholds are increased in line with the increase in the Consumer Price Index. The effect of this is that the lower earnings limit is set at £123 per week for 2022/23, the primary threshold is set at £190 per week and the secondary threshold is set at £175 per week.
As previously announced, the rates of primary and secondary Class 1, Class 1A and Class 1B contributions are increased by 1.25% for 2022/23 only pending the introduction of the Health and Social Care Levy. The main primary rate is 13.25% and the additional primary rate is 3.25%. Employers will pay secondary Class 1, Class 1A and Class 1B contributions at 15.05%. The rates are due to revert to their 2021/22 levels from 6 April 2023 when the Health and Social Care Levy comes into effect.
The Employment Allowance remains at £4,000 for 2022/23.
The self-employed pay Class 2 and Class 4 contributions.
Class 2 contributions are weekly contributions payable where profits exceed the small profits threshold. For 2022/23, the small profits threshold is £6,725 and the Class 2 contribution rate is £3.15 per week.
The self-employed also pay Class 4 contributions on their profits. The upper profits limit (which is aligned with the upper earnings limit for Class 1 and the rate at which higher rate tax becomes payable) is frozen at £50,270, while the lower profits limit is increased to £9,880.
Pending the introduction of the Health and Social Care Levy, the Class 4 rates are increased by 1.25% for 2022/23. As a result, the main Class 4 rate is set at 10.25% and the additional Class 4 rate is set at 3.25%. The rates are due to revert to their 2021/22 levels from 6 April 2023 when the Health and Social Care Levy comes into effect.
Cars and vans
The rates of company car tax already announced for 2022/23 will continue to apply for 2023/24 and 2024/25.
The fuel scale multiplier used for working out the fuel benefit charge is set at £25,300 for 2022/23 (up from £24,600 for 2021/22).
The amount on which tax is charged in respect of a taxable company van is increased to £3,600 for 2022/23. The amount is £3,500 for 2021/22.
A separate fuel charge applies where fuel is provided for private journeys in a company van. This is set at £688 for 2022/23 (up from £669 for 2021/22).
Residential capital gains tax
Where a residence has not been your only or main residence throughout the time that you have owned it, you may have to pay capital gains tax if the chargeable gain is more than your annual exempt amount. This may be the case if you sell an investment property or a second home.
From 27 October 2021, the window for reporting a residential capital gain and making a payment on account of the tax that is due is increased from 30 days to 60 days.
The Chancellor also announced a welcome freezing of certain duties that had been expected to rise.
Fuel duty rates are to remain frozen for 2022/2023.
Alcohol duty rates will remain at their current levels. However, change is on the cards.
The Government are consulting on reforms to alcohol duty which will reduce the number of rates from 15 to six, and which will see higher duty charged on stronger drinks. The consultation will run until 30 January 2022.
Air passenger duty
A new lower band of air passenger duty (APD) is being introduced from 1 April 2023 for flights within the UK. In addition, a new ultra long-haul band will apply to destinations with capitals more than 5,500 miles from London.
Get in touch
To find out what the Budget announcements mean for you, please get in touch.
File your tax return by 30 December 2021 to have underpayments coded out
The deadline for filing your 2020/21 self-assessment tax return is midnight on 31 January 2022. However, if you have underpaid tax and you are employed and would prefer HMRC to collect that underpayment through your tax code, you will need to file your return online by midnight on 30 December 2021. You can also have an underpayment coded out if you filed a paper return by 31 October 2021.
Paying tax through your tax code
If you owe tax for 2020/21, rather than paying the underpaid tax in full by 31 January 2022, you may be able to have the underpayment collected through PAYE. This is done by adjusting your 2022/23 tax code (known as ‘coding out’). The effect of this is that collection of the underpayment will be spread throughout the 2022/23 tax year and deducted from your pay or your pension.
The option to have a tax underpayment coded out is only available if all of the following conditions are met:
- you owe less than £3,000;
- you already pay tax under PAYE (for example, as an employee or on a company pension); and
- you submitted a paper tax return by 31 October 2021 or an online tax return by 30 December 2021.
If you owe more than £3,000, coding out is unavailable; you will need to pay what you owe by 31 January 2022.
Talk to us
If you are likely to have a tax underpayment for 2020/21 and want to pay the tax that you owe through an adjustment to your tax code, talk to us about what you need to do to meet the 30 December 2021 filing deadline.
Tax checks for licence renewal applications
From 4 April 2022, applicants applying to renew certain licences will need to pass a tax check before their licence application can be considered. Initially, the requirement will only apply in England and Wales. However, the Government have consulted on extending the requirements to Scotland and Northern Ireland from 2023.
Tax conditionality (the need to pass a tax check before a licence is renewed) will apply to licences to:
- drive taxi and private hire vehicles (such as mini cabs);
- operate a private hire vehicle business;
- carry on the business of a scrap metal dealer on a site; and
- carry on business as a mobile collector of scrap metal.
The check will only apply to licence renewal applications, not to first-time applications. However, the licensing authority will need to provide first-time applicants with information on what they need to do to comply with their tax obligations, and check that the applicant has received that information, before considering the licence application.
Nature of the tax check
The new tax check will apply in addition to the existing requirements imposed by the licensing authority. The purpose of the check is to confirm that the applicant is registered for tax. The check should only need to be completed about once every three years.
If you are applying to renew a licence on or after 4 April 2022, you will be able to complete the check, which will comprise a few short questions, via your Government Gateway account. The Government are to make guidance on completing the check available on the Gov.uk website. A helpline will also be available.
Once you have completed the check, you will be given a code. The code is important, and you must give it to your licensing authority as they are unable to progress your licence renewal application without it.
HMRC will inform the licensing authority whether you have passed the tax check. However, they will not provide them with any details of your tax affairs.
In preparation for the introduction of tax conditionality, it is advisable to ensure that your tax affairs are in order, and get them up to date if they are not. HMRC have published a communications pack explaining what this will mean for licence applicants. It is worth a read.
We can help
If you will be required to pass the tax check in order to renew a licence that you need to operate your business, we can help you ensure that your tax affairs are in order.
New VAT rate for hospitality and leisure
To help the hospitality and leisure industries recover from the impact of the COVID-19 pandemic and associated lockdowns, a reduced rate of VAT of 5% applied from 15 July 2020 until 30 September 2021. This rate has now come to an end, and a new reduced rate of 12.5% applies from 1 October 2021 until 31 March 2022. The rate of VAT applicable to this sector will return to the standard rate of 20% from 1 April 2022.
Supplies benefitting from the reduced rate
You are able to take advantage of the reduced rate of 12.5% if you make supplies of any of the following:
- food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs;
- hot takeaway food and hot takeaway non-alcoholic beverages;
- sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities; and
- admissions to cultural attractions that do not already benefit from the cultural VAT exemption, such as theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and other similar cultural events and facilities.
However, if the admission to an attraction is within the existing cultural VAT exemption, the exemption applies rather than the reduced rate of VAT.
If you operate in the hospitality and leisure sector, please get in touch with us to check that you are applying the correct rate of VAT to any supplies that you make.