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.

Contact us

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.

The changes

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.

Contact us

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. 

Contact us

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 (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.

Contact us

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.

Contact us

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.

Drip-feed investments

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.

Contact us

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.

Contact us

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 11^th 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.

Emergency cover

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.

Getting investment

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.

Contact us

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.

Your responsibilities

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.

Source: Gov.uk

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.

Contact us

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.

Your responsibilities

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.

Business concierge

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.

Benefits

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.

Tax reliefs

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.

Contact us

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

Example:

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.

Source: Gov.UK

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.

A list of software compatible with MTD for VAT is on Gov.UK and there are webinars being run by HMRC for taxpayers who need more help and support on signing up for MTD to make sure they comply.

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.

Contact us

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.

Accessing funding

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.

Transition

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.

The details

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.

Example

Source: ICAEW

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.

Carry forward

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.

Dividend Income

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.

Corporation 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.

Contact us

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.

Who claims?

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.

Declined transactions

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.

Safety net

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.

Contact us

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.

Contact us

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.

ITSA registration

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.

Current rules

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.

Possible reforms

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.

SSP changes

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.

Self-certification

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.

Contact HMRC

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.

Self-assessment

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.

Information required

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.

File online

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.

Late returns

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.

Contact us

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.

Company cars

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.

Electric cars

For 2022/23, electric cars are taxed on 2% of their list price, regardless of the date of first registration.

Fuel charge

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.

Company vans

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.

Lavish gifts

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.

Annual function

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.

Multiple functions

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 28^Th 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.

Contact us

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.

Budget highlights

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.

Personal allowance

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

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.

Duties

The Chancellor also announced a welcome freezing of certain duties that had been expected to rise.

Fuel duty

Fuel duty rates are to remain frozen for 2022/2023.

Alcohol duty

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.

Conditions

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.

Licences affected

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.

Plan ahead

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.

Contact us

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.

AIA transitional limit extended

The Annual Investment Allowance (AIA) is a capital allowance that enables you to claim an immediate deduction against your profits for qualifying capital expenditure up to the available limit. The AIA limit was temporarily increased from £200,000 to £1 million from 1 January 2019 to 31 December 2021. It was due to return to its permanent level of £200,000 from 1 January 2022. However, the Chancellor announced in his Autumn Budget that the temporary limit will be extended until 31 March 2023.

Take advantage of the higher limit

The announcement allows more time to take advantage of the higher temporary limit. If you are intending to spend more than £200,000 on plant and machinery that qualifies for the AIA, you now have until 31 March 2023 to benefit from the higher allowance and immediate relief for your expenditure.

Calculating the AIA limit for your accounting period

The AIA limit for your accounting period depends on when that period falls and on the length of that period. The limit is proportionately reduced for accounting periods of less than 12 months.

Accounting period ends on or before 31 March 2023

If your accounting period is 12 months in length and falls wholly within the period running from 1 January 2019 to 31 March 2023, the AIA limit for the period is the temporary amount of £1 million.

Consequently, if your accounting period ends on or before 31 March 2023, you will be able to benefit from the £1 million limit.

Accounting period spans 31 March 2023

Calculating your AIA limit is more complicated if your accounting periods spans 31 March 2023 as transitional rules apply.

If you are planning capital expenditure in an accounting period that spans 31 March 2023, you will need to be aware of the transitional rules. Depending on the level of investment planned, it may be advisable to incur it prior to 31 March 2023, rather than after this date.

Super-deduction for companies

Companies are able to benefit from a ‘super-deduction’ equal to 130% of qualifying expenditure incurred in the period from 1 April 2021 to 31 March 2023. It applies where the expenditure would be eligible for main rate writing-down allowances of 18%. This is a better option than the AIA as it secures a higher rate of relief. However, unincorporated businesses are unable to benefit from the super-deduction.

Companies can also benefit from a 50% first-year allowance for expenditure incurred in the same window where the expenditure would qualify for reduced rate writing-down allowances of 6%. However, where the AIA is available, this is preferable to claiming the first-year allowance as will give relief at the rate of 100% of the expenditure, rather than at the rate of 50%.

To benefit from both the super-deduction and the 50% first-year allowance, companies must incur the qualifying expenditure on or before 31 March 2023.

Speak to us

If you are planning significant capital expenditure, speak to us to find out how to maximise your available capital allowances. The timing of the expenditure will affect the allowances that are available to you.

Paying tax and National Insurance due under your PSA

If you agreed a PAYE Settlement Agreement (PSA) with HMRC for 2020/21, you will need to pay the tax and Class 1B National Insurance that is due in October 2021. The deadline for paying the tax and National Insurance is 22 October if you make your payment electronically, or 19 October if you pay by cheque. Remember, your payment must reach HMRC by the deadline. Payment can be made online via the Gov.uk website. Alternatively, you can make your payment by online or telephone banking, at your bank or building society, using a debit or corporate credit card, or by cheque.

Calculating the tax and Class 1B National Insurance due

A PSA allows you to meet the tax liability on certain benefits and expenses on behalf of your employees. As payment of tax on an employee’s behalf is itself a benefit in kind, you also need to pay tax on that tax. Consequently, when working out the tax due under the PSA, you need to gross up the tax payable at your employees’ marginal rates of tax.

Class 1B National Insurance is due on items included within a PSA that would otherwise be liable for Class 1 or Class 1A National Insurance. It is also payable on the tax due under the PSA. Class 1B National Insurance is payable at the rate of 13.8%.

Contact us

Contact us to find out how to work out what you need to pay under your PSA for 2020/21, and how to make the payment.

Extension of Making Tax Digital for VAT

Making Tax Digital (MTD) for VAT is currently only compulsory for VAT-registered businesses whose turnover for VAT is above the VAT registration limit of £85,000. However, this is set to change from April 2022.

Extension to all VAT-registered businesses

Currently, if you are registered for VAT, but your turnover for VAT purposes is less than the VAT registration threshold of £85,000, you can join MTD for VAT voluntarily.

From 1 April 2022 onwards, MTD for VAT will become compulsory for all VAT-registered businesses, regardless of their turnover. If you are registered for VAT, your turnover is below the VAT registration threshold of £85,000 and you have not joined MTD for VAT voluntarily, MTD for VAT will apply to you from the start of your first VAT accounting period which begins on or after 1 April 2022.

Getting ready

If you will fall within the scope of MTD for VAT on or after April 2022, you will need to plan ahead. Under MTD for VAT, you must maintain digital VAT records and file your VAT returns using MTD-compatible software. HMRC publish details of compatible software packages which can be used.

You will also need to sign up for MTD for VAT.

We can help

We can help you get ready for MTD for VAT. Why not get in touch?

End of the CJRS

The Coronavirus Job Retention Scheme (CJRS) came to an end on 30 September 2021. The scheme has provided financial help to employers and employees during the COVID-19 pandemic, allowing employers to claim grants with which to pay furloughed and flexibly furloughed employees. If you still have employees who are on furlough, or who are flexibly furloughed, the last month for which you can make a claim is September 2021. You also need to decide what to do with furloughed employees now that the scheme has come to an end.

Final claims

The last month for which a claim can be made under the scheme is September 2021. The deadline for claiming grants in respect of employees who were furloughed or flexibly furloughed during September is 14 October 2021. As previously, claims can be made online through the claim portal.

For September 2021, as previously, the employee will receive a grant of 80% of their usual pay for their furloughed hours, subject to the cap of £2,500 per month. You can claim 60% of the employee’s usual wages for their furloughed hours. This is subject to a cap of £1,875 for the month. You must make up the difference between the amount to which the employee is entitled and the amount that you have claimed under the scheme. The maximum contribution that you will be required to make for September 2021 is £625 per employee. You will also need to pay any associated employer’s National Insurance and employer pension contributions. Amounts paid to employees are liable to PAYE tax and National Insurance in the usual way.

Late claims

If you miss the claim deadline, you may be able to make a late claim under the scheme if you have a reasonable excuse for missing the deadline, you have taken reasonable care to make the claim on time, and you claimed without delay as soon as you were able. HMRC may accept that you had a reasonable excuse for failing to make the claim on time if, for example:

• your partner or a close relative died shortly before the claim deadline;
• you had an unexpected stay in hospital which prevented you from dealing with the claim;
• you had a serious or life-threatening illness which prevented you from making your claim;
• a period of self-isolation prevented you from making your claim;
• your computer or software failed just before, or while, you were making your claim;
• service issues with HMRC prevented you from making a claim;
• a fire, flood or theft prevented you from making your claim;
• unforeseen postal delays prevented you from making a claim;
• you were unable to make the claim due to delays related to a disability that you have; or
• an HMRC error prevented you making your claim on time.

If you have missed the claim deadline and have a reasonable excuse for doing so, you should make the claim as soon as you are able, using the service as normal.

Amending the claim

If you have not claimed enough and you need to amend your claim for September, you have until 28 October 2021 in which to do this.

What to do when the scheme closes

At the end of the scheme, if you still have employees who are furloughed or flexibly furloughed, you will need to decide whether:

• to bring them back to work on their agreed terms and conditions;
• terminate their employment; or
• agree any changes to their terms and conditions.

If you terminate an employee’s employment, remember that normal redundancy rules apply.

Talk to us

If you are still using the CJRS, we can help you decide your next steps.

Plan ahead for increases in the dividend tax rates

As part of the Government’s funding strategy for health and social care, the dividend tax rates are to be increased from April 2022, alongside the temporary increases in National Insurance, and, from April 2023, the introduction of the Health and Social Care Levy. The increases in the dividend tax rates will affect you if you operate your business through a personal or family company and extract profits in the form of dividends. It will also affect you if you receive dividends from investments in shares.

Dividend tax rates from April 2022

The dividend tax rates are to increase by 1.25% from 6 April 2022. Once the dividend allowance (currently set at £2,000) and the personal allowance have been utilised, dividends are currently taxed at 7.5% where they fall within the basic rate band, at 32.5% to the extent that they fall within the higher rate band, and at 38.1% where they fall within the additional rate band.

Where the strategy is to extract profits in the form of a small salary plus dividends, typically little or no National Insurance is payable. To ensure that those extracting profits as dividends contribute towards the cost of social care, from 6 April 2022, the dividend tax rates are increased by 1.25%, in line with the temporary increases in National Insurance contributions and the rate of the Health and Social Care Levy. From 6 April 2022, once the dividend allowance and the personal allowance have been used up, dividends will be taxed at 8.75% where they fall within the basic rate band, at 33.75% where they fall within the higher rate band, and at 39.35% where they fall within the additional rate band.

Plan ahead for the increases

As the increases in the dividend rates of tax do not take effect until 6 April 2022, you have time to plan ahead. If you have sufficient retained profits, you may want to consider extracting further profits as dividends in 2021/22, rather than waiting until after 6 April 2022. This will enable you to take advantage of the current, lower, rates of dividend tax. This is likely to be advantageous if you have not used up all of your basic rate band for 2021/22. If you have an alphabet share structure, dividends can be tailored to take advantage of any unused dividend allowances and basic rate bands of other family shareholders.

In deciding whether to extract additional dividends in 2021/22, you will, however, need to take account of your marginal rate of tax. If taking additional dividends now means that they will be taxed at the upper dividend rate of 32.5%, but taking those dividends in 2022/23 would mean that they will fall within the basic rate band, it will be better to take them in 2022/23 despite the rate increase as they will be taxed at 8.75% rather than 32.5%.

Speak to us

We can help you formulate a tax-efficient profit extraction policy for your business. Please get in touch.

National Insurance rises and the Health and Social Care Levy

On 8 September 2021, the Prime Minister outlined the Government’s plans for health and social care, including a new funding strategy designed to meet social care costs. A new tax, the Health and Social Care Levy, is to be introduced from 2023. However, as a temporary measure prior to its introduction, National Insurance contributions will rise for 2022/23 only. This will affect you if you are employed, self-employed or an employer.

Temporary National Insurance increases

For 2022/23 only, the rates of primary and secondary Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions will all rise by 1.25%. The revenue raised as a result will go directly to support the National Health Service and equivalent bodies across the UK. From 6 April 2023, the rates will revert to their 2021/22 levels consequent on the introduction of the new Health and Social Care Levy.

Primary Class 1 National Insurance contributions

Employees currently pay primary Class 1 National Insurance at the rate of 12% on their earnings to the extent that they fall between the primary threshold (currently £184 per week) and the upper earnings limit (currently £967 per week). For 2022/23 only, the main primary rate will increase to 13.25%.

Employees also pay primary Class 1 National Insurance contributions at the additional rate on any earnings in excess of the upper earnings limit. For 2021/22, the additional rate is set at 2%. This will increase to 3.25% for 2022/23 only.

Contributions payable by an employee cease when the employee reaches state pension age.

Secondary Class 1 National Insurance contributions

Employers pay secondary Class 1 National Insurance contributions on the earnings of their employees to the extent that they exceed the secondary threshold or the relevant upper secondary threshold, as appropriate. Contributions are payable at the secondary rate. For 2021/22, this is set at 13.8%. For 2022/23 only, the secondary rate will increase to 15.05%.

For 2021/22, the secondary threshold is set at £170 per week.

Where the employee is under the age of 21, an apprentice under the age of 25, or an armed forces veteran in the first year of their first civilian job since leaving the armed forces, employer contributions are only payable to the extent that the earnings of the employee or the apprentice exceed the relevant upper secondary threshold. For each of these groups, the relevant upper secondary threshold is set at £967 per week for 2021/22. From 2022/23, employers in Freeport tax sites will only pay secondary Class 1 employer contributions on the earnings of new Freeport employees to the extent that these exceed a new upper threshold for Freeport employees. This is to be set at £25,000 a year.

Unlike employees, employers continue to pay secondary contributions on the earnings of any employees who have reached state pension age.

Class 1A National Insurance contributions

Class 1A National Insurance contributions are employer-only contributions, payable on most taxable benefits in kind, and also on taxable termination payments in excess of £30,000 and taxable sporting termination payments in excess of £100,000.

The Class 1A rate is the same as the secondary rate of Class 1 National Insurance contributions, payable by employers on employees’ earnings. Consequently, this is set at 13.8% for 2021/22. It will increase to 15.05% for 2022/23 only.

Class 1B National Insurance contributions

Class 1B National Insurance contributions are payable by employers on items included within a PAYE Settlement Agreement (PSA) in place of the Class 1 or Class 1A liability that would otherwise be due. They are also payable on the tax due under the PSA.

The Class 1B rate is also aligned with the secondary Class 1 rate, at 13.8% for 2021/22, rising to 15.05% for 2022/23 only.

Class 2 and 4 National Insurance contributions

There are two Classes of National Insurance contributions payable by the self-employed – Class 2 and Class 4. Class 2 are flat rate contributions. Class 4 are payable on profits where these exceed the lower profits limit, set at £9,568 for 2021/22. Class 4 contributions are payable at the main Class 4 rate on profits between the lower profits limit and the upper profits limit, set at £50,270 for 2021/22, and at the additional Class 4 rate on profits in excess of the upper profits limit. For 2021/22, the main Class 4 rate is 9%. For 2022/23 only, it will increase by 1.25% to 10.25%. The additional Class 4 rate is currently 2%. It will increase by 1.25% for 2022/23 only, to 3.25%.

Class 2 National Insurance contributions are not affected by the temporary increase applying for 2022/23.

Class 3 National Insurance contributions

Class 3 National Insurance contributions are voluntary contributions which a contributor may choose to pay to make up for a shortfall in their National Insurance record. Class 3 National Insurance contributions are unaffected by the temporary increase in National Insurance contributions applying for 2022/23.

Health and Social Care Levy

A new tax, the Health and Social Care Levy, is to be introduced from April 2023. Funds raised from the levy will be ring-fenced to support UK health and social care bodies.

The levy is set at 1.25%. It will be payable on the earnings on which an employee, an employer or a self-employer person is liable to pay a qualifying National Insurance contribution. Qualifying National Insurance contributions are Class 1, Class 1A, Class 1B and Class 4. However, unlike National Insurance contributions, the Health and Social Care Levy will be payable on earnings and profits of individuals who are above state pension age.

The new Health and Social Care Levy will operate in the same way as National Insurance contributions for administrative purposes.

Get in touch

We can explain what the National Insurance increases and the new Health and Social Care Levy will mean for you.

Kickstart Scheme

You may be able to benefit from funding under the Kickstart Scheme if you are looking to create new jobs for young people. Information on the scheme can be found in the Kickstart Scheme Employer Prospectus.

Nature of the scheme

The scheme aims to create jobs for young people who are unemployed. The job must be a new job and must be for at least 25 hours a week for six months. The job cannot replace existing or planned vacancies, or cause existing employees, apprentices or contractors to lose their jobs or to have their hours reduced. In addition, you must help the young person to become more employable, for example, by helping them to develop their skills in the workplace or providing support with job applications and interview preparation.

Funding

Employers using the scheme can apply for funding, which will cover:

• 25 hours at the National Living Wage or National Minimum Wage appropriate for the person’s age;
• any associated employer’s National Insurance;
• minimum automatic enrolment pension contributions; plus
• a grant of £1,500 to cover set-up costs and employability support.

Apply online

Applications can be made online or via a Kickstart Gateway.

Find out more

If you would like to know more about the scheme and whether it is for you, we can help.

Get ready for the plastic packaging tax

The plastic packaging tax is a new tax which is being introduced from 1 April 2022. The tax aims to provide a financial incentive to use recycled plastic in plastic packaging, which in turn will boost recycling and divert plastic away from landfill.

You may have to pay the tax if you manufacture or import plastic packaging that does not contain at least 30% recycled plastic by weight. However, the tax will not apply to businesses that manufacture or import less than 10 tonnes of plastic packaging a year.

HMRC have published guidance for businesses that may fall within the scope of the tax to help them prepare for its introduction.

Scope of the tax

The plastic packaging tax applies to finished plastic packaging components that are manufactured or imported into the UK which contains less than 30% recycled plastic by weight. If you import goods in plastic packaging, for example, drink in plastic bottles, you may have to pay the tax. However, the tax only applies to the weight of the plastic packaging, not to the goods that it contains.

Exemptions

Certain types of plastic packaging are exempt from the tax, irrespective of the amount of recycled plastic packaging that they contain. The exemptions apply to:

• plastic packaging that is manufactured or imported for use in the immediate packaging of medicinal products;
• transport packaging used on imported goods;
• packaging used as aircraft, ship or rail stores; and
• components that are permanently set aside for a use other than a packaging use.

Goods for export

Liability for the tax can be deferred for up to 12 months if you import plastic packaging for export. The liability for the tax is cancelled if the packaging is exported within 12 months of importation.

Tax credit

A tax credit will be available if packaging within the scope of the tax is converted into other packaging. This is to prevent a double liability on the same packaging.

Amount of the tax

The tax will be payable at a rate of £200 per tonne of plastic packaging which does not contain at least 30% recycled plastic.

Registering for the tax

Manufacturers and importers of plastic packaging will need to register for the tax. You will need to register if:

• at any time after 1 April 2022, you expect to manufacture or import at least 10 tonnes of plastic packaging in the following 30 days. Where this the case, you have 30 days in which to register; or
• the business has manufactured or imported at least 10 tonnes of plastic packaging in a 12-month period ending on the last day of a calendar month. You are liable for the tax from the first day of the next month, and must register by the first day of the following month.

In each case, only plastic packaging manufactured or imported on or after 1 April 2022 is taken into account.

It is important to note that when working out whether you need to register, the weight of all plastic packaging that you manufacture or import is taken into account, not just that containing less than 30% recycled plastic.

Records

If you manufacture or import plastic packaging, you will need to keep records, even if you manufacture or import less than 10 tonnes annually as you will need to demonstrate to HMRC that you do not need to register for the tax. You will need to keep records of the weight of plastic packaging manufactured or imported, how much (by weight) is recycled plastic, and the amount by weight covered by an exemption.

HMRC have said that reduced record-keeping requirements will apply to businesses that manufacture or import less than 10 tonnes of plastic packaging each year, details of which are to be published in due course.

Get in touch

Talk to us if you manufacture or import plastic packaging to find out how the new tax will affect your business.

Check you are paying the NMW

The Government have recently named and shamed well-known employers who have fallen foul of the National Minimum Wage legislation. They have also published a list of ‘outrageous excuses’ cited by employers who have failed to pay the minimum wage.

Legal requirement to pay at least the minimum wage

As an employer, you have a legal requirement to pay a worker at least the statutory minimum wage for their age. Check that you are paying your workers the correct amount, and that you understand how to calculate the minimum amount that you need to pay the worker depending on the type of work that they do.

National Living Wage and National Minimum Wage

The National Living Wage (NLW) is the legal minimum that you must pay a worker who is aged 23 and over. The NLW is £8.91 an hour.

Workers under the age of 23 and above compulsory school age must be paid at least the National Minimum Wage (NMW) for their age. This is £8.36 per hour for workers aged 21 and 22, £6.56 per hour for workers aged 18 to 20, and £4.62 per hour for workers who have reached school leaving age and who are under the age of 18.

Apprentices

A separate NMW rate applies to apprentices. This is currently £4.30 per hour. The apprentice rate of the NMW should be paid to apprentices under the age of 19, and to apprentices over the age of 19 who are in the first year of their apprenticeship. You must pay apprentices aged 19 and over who have completed the first year of their apprenticeship at least the NMW for their age.

Despite the legal requirement to pay apprentices at least the relevant NMW, the Low Pay Commission found that only around 1 in 5 apprentices received the NMW. Mistakes made by employers include continuing to pay the apprentice rate to apprentices once they had reached the age of 19 and completed the first year of their apprenticeship, and failing to pay apprentices for their training time.

Accommodation offset

If you provide your workers with accommodation, you can reduce the minimum wage to provide for a contribution to the cost of the accommodation. The permitted reduction – the accommodation offset – is set at £58.52 per week (£8.36 per day).

Contact us

Speak to us if you are unsure whether you are complying with the NMW legislation.

Reclaiming SSP for periods of self-isolation

The recent ‘pingdemic’ has resulted in large numbers of employees self-isolating. Where an employee meets the qualifying conditions, you must pay them SSP while they are self-isolating. As qualifying periods of self-isolation count as a Coronavirus-absence, if you are a small employer, you may be able to reclaim the SSP paid to self-isolating employees from HMRC under the Coronavirus Statutory Sick Pay Rebate Scheme.

Relaxation of the SSP rules for Coronavirus-absences

The SSP rules have been relaxed in respect of Coronavirus absences. The relaxations mean that if an employee is absent from work for a Coronavirus absence and qualifies for SSP, you must pay SSP from the first working day of the absence – the three waiting days which normally have to be served before SSP is payable are waived in relation to Coronavirus absences. However, there must be a period of incapacity for work (PIW) for SSP to be payable. This means that the employee must have COVID-19 or be self-isolating for at least 4 days, including non-working days, to create a PIW.

Period of self-isolation

The following periods of self-isolation count as Coronavirus absences:

• periods of self-isolation where the employee is self-isolating because they live with someone who has Coronavirus symptoms or who has tested positive for COVID-19;
• periods of self-isolation where the employee has been notified by the NHS or public health bodies that they have come into contact with someone with Coronavirus. This includes employees who are pinged and those contacted by NHS track and trace; and
• employees who have been notified by the NHS to self-isolate before surgery.

However, a period of self-isolation following the return to the UK from a country on either the amber list or the red list does not count as a Coronavirus absence, and employees who are self-isolating for this reason are not eligible for SSP unless they qualify on other grounds.

Reclaiming SSP

If you are a small employer, you may be able to reclaim SSP paid to employees who are self-isolating for the reasons outlined above. You will be a ‘small employer’ for these purposes if you had a PAYE payroll scheme on 28 February 2020 and, at that date, you had no more than 250 employees on your payroll. If you have more than one PAYE scheme, the 250-employee limit applies across all of your PAYE schemes.

Under the scheme, you can claim a maximum of two weeks’ SSP per employee for Coronavirus absences. This means that if an employee has more than one period of self-isolation, you will need to meet the cost of some of the SSP that you pay to them while absent.

For 2021/22, the weekly rate of SSP is £96.35.

Claims for SSP rebates can be made online.

Talk to us

If you have been affected by the ‘pingdemic’, talk to us to find out whether you are eligible for an SSP rebate.

Basis period reform

HMRC have been consulting on the reform of the basis period rules in preparation for the introduction of Making Tax Digital for Income Tax Self-Assessment (MTD ITSA), which comes into effect from April 2023. A consultation paper was published in July 2021, which sets out new simplified basis period rules. Comments were sought by 31 August 2021 on how best to implement the reforms.

Existing rules – the current year basis

Once an unincorporated business is established, it is taxed on the current year basis. Special rules apply in the opening and closing years of the business. Under the current year basis, the profits that are taxed for a particular tax year are those for the accounting period that ends in that tax year. Consequently, if the business prepares its accounts to 30 June each year, for the 2021/22 tax year, it will be taxed on its profits for the year to 30 June 2021, as this is the year that ends between 6 April 2021 and 5 April 2022.

Under the existing rules, some of the profits of the business may be taxed twice in the opening years. These profits are known as ‘overlap’ profits. Relief for the double taxation of these profits, known as ‘overlap relief’, is given when the business ceases, or earlier if there is a change of accounting date.

New rules – tax year basis

The reforms will mean that unincorporated businesses will be taxed on the profits arising in the tax year – i.e., the profits for the period from 6 April to the following 5 April. Where the business prepares accounts to 31 March, these will be deemed to correspond to the tax year (as will the preparation of accounts to any date between 31 March and 5 April).

If you prepare accounts to a date other than 31 March/5 April, you will need to apportion your profits so that they correspond to the tax year. For example, if you prepare your accounts to 30 June, for 2023/24, you will be taxed on 3/12^th of the profit for the year to 30 June 2023 (covering the period from 6 April 2023 to 30 June 2023) plus 9/12^th of the profit for the year to 30 June 2024 (covering the period from 1 July 2023 to 5 April 2024).

The tax year basis will apply from 2023/24, with 2022/23 being a transitional year.

Estimation of profits

If you have an accounting date late in the tax year and prepare accounts other than to 31 March/5 April, you may not have the second set of accounts available when you come to complete your tax return. For example, if you prepare your accounts to 28 February, for 2023/24 you will be taxed on 11/12^th of your profit for the year to 28 February 2024 and 1/12^th of your profit for the year to 28 February 2025. The accounts to 28 February 2025 will not be available by 31 January 2025, and you would be expected to file a provisional return, which would be amended later when the information is available.

This will create extra work, and HMRC are looking at alternative estimation approaches, such as making an estimate based on the profits for the quarterly updates submitted under MTD ITSA, extrapolating the profits for the ‘known’ part of the tax year, and allowing the final figures to be provided as part of the following year’s return.

To overcome this, you may prefer to change your accounting date and prepare accounts to 31 March/5 April. This will avoid the need for an apportionment calculation and reduce your workload.

Transitional rules

Transitional rules are needed to move from the current year basis to the tax year basis. The transition year is 2022/23.

For the transition year, the taxable profits for a business that does not have a 31 March/5 April year end will comprise the sum of:

• the standard component (which is the profit assessable in 2022/23 under the current year basis); and
• the transition component (which is the profit for the period from the end of the current year basis period to the end of the 2022/23 tax year).

Any historic overlap relief can be claimed in the transition year by deducting overlap profits from the result of the above calculation.

For example, if you prepare accounts to 30 June each year, for 2022/2023, you will be taxed on the profits for the year to 30 June 2022 (the basis period for 2022/23 under the current year basis) plus profits for the period from 1 July 2022 to 5 April 2023 (the transition component), less any overlap profits. The overlap relief will cover the period from the date on which the business started to the following 5 April.

Spreading excess profits

In the transition year, your profits may be higher than normal. This will be the case if your transition component is more than your overlap relief. If you started your business some time ago, the impact of inflation may mean that your overlap profits are considerably less than the profits of the transition component, even if they both cover the same number of months. If your profits are higher than normal, your tax bill will also be higher, and you may pay tax at a higher marginal rate as a result.

To mitigate the effect of the transition year on cash flow, HMRC plan to allow businesses to elect to spread any excess profits in the transition year over five years.

Equivalence rules

As part of the simplification reforms, HMRC propose that the statutory rule which deems 31 March to be equivalent to 5 April in the first three years of a trade is extended so that it applies to all the years of the trade. This will mean that where accounts are prepared to 31 March, the business would not need to make small adjustments for the profits of the business to correspond to the tax year, which runs to 5 April. The consultation sought views on whether this equivalence rule should be extended to property businesses.

We can help

Please talk to us about what the reforms will mean for your business, and what you need to do to prepare for the introduction of MTD ITSA.

Back to the office

Now that the ‘work from home if you can’ guidance has been lifted, employees are returning to the office. If, following their return, you allow employees to keep their homeworking equipment for personal use, there may be tax consequences to consider.

Employer-provided equipment

If you provided homeworking equipment to your employees to enable them to work from home, no tax charge arose on the provision of the equipment, as long as you retained ownership of it. However, there may be tax to pay if you allow the employee to keep the equipment for their personal use when they no longer need it to work from home. The nature of the tax charge depends on whether ownership of the equipment is transferred to the employee.

Ownership transferred

A tax charge will arise if you transfer ownership of the equipment to the employee, unless the employee pays at least the market value for the equipment. The amount charged to tax is the market value at the date of the transfer, less any amount paid by the employee.

No transfer of ownership

If, instead, you retain ownership of the equipment but allow the employee to use it for their personal use, the tax charge is based on the ‘annual value’ of the equipment. This is 20% of the market value of the equipment at the date on which it is first made available for the employee’s personal use.

You may have chosen to adopt a flexible working policy under which employees continue to work from home some of the time. Where this is the case, as long as the homeworking equipment remains available predominantly to allow the employee to work from home, no tax charge will arise on insignificant private use.

Employer-reimbursed equipment

At the start of the pandemic, many employees were required to work from home at very short notice. In many cases, it was easier for the employee to buy the equipment that they needed to work from home, and claim the cost back from the employer.

If you took this route and reimbursed employees for the cost of homeworking equipment, as long as the ownership of the equipment was not transferred to you, there is no tax to pay if the employee retains the equipment for personal use when they return to the workplace.

Contact us

If you are unsure whether a tax charge arises in respect of retained homeworking equipment when your employees return to the office, please get in touch to discuss this with us.

NMW reminder for summer staff

If you take on temporary staff over the summer, you will need to pay them at least the National Living or Minimum Wage appropriate to their age.

Workers aged 23 and over

Workers aged 23 and over are entitled to be paid at least the National Living Wage (NLW). This is set at £8.91 per hour.

Workers under the age of 23

Workers under the age of 23 are not entitled to the NLW; instead, you must pay them at least the National Minimum Wage (NMW) for their age. This is set at £8.36 per hour for workers aged 21 and 22, at £6.56 per hour for workers aged 18 to 20, and at £4.62 per hour for workers aged under 18 but over school leaving age.

Get in touch

Talk to us if you are unsure whether you are complying with the National Minimum Wage rules.

Collection of tax debts after COVID-19

During the COVID-19 pandemic, HMRC paused much of their debt collection work, both to divert resources to administering the various COVID-19 support schemes and to help taxpayers whose finances were adversely affected by the pandemic. However, as the country emerges from the Coronavirus crisis, HMRC have restarted their tax debt collection work and will be contacting taxpayers who have fallen behind with their payments.

Talk to HMRC

If you have unpaid tax debts and HMRC contact you to discuss those debts, the best course of action is to speak to them to agree a repayment plan. Ignoring the problem will not make it go away, and HMRC may start enforcement proceedings against taxpayers who ignore their attempts to contact them.

Pay if you can

If you have outstanding tax debts and are able to pay them, HMRC’s expectation is that you will. In assessing your ability to pay, HMRC will expect you to make use of the various COVID-19 finance schemes, such as the Recovery Loan Scheme, to raise the necessary funds. If you need time to arrange the finance, HMRC may offer a short-term deferral of your tax debt. If this is agreed, HMRC will not take any action until that period had elapsed, and you will not need to make any payments during the deferral period.

Time-to-pay arrangements

If you are unable to clear your outstanding tax debts in full, you may be able to agree a time-to-pay arrangement with HMRC.

There is no standard agreement; time-to-pay arrangements are based on an individual’s circumstances. HMRC will establish your ability to pay by looking at your income and expenditure. They will also want to know why you are struggling to pay, and what action you have taken to try and pay some or all of the bill.

Enforcement action

If you do not pay your outstanding tax debts or come to an agreement with HMRC to pay what you owe in instalments, from September 2021, HMRC may use their enforcement powers to collect tax that is owed to them. Avenues available to them include taking control of goods, summary warrants and court action, including insolvency proceedings.

While HMRC will, where possible, aim to support viable businesses, if a business has little chance of recovery, HMRC will take action to recover any tax that they are owed.

Talk to us

If you have tax debts that you are struggling to pay, speak to us. We can help you agree a repayment plan with HMRC.

EU e-commerce package for VAT

The EU e-commerce package came into effect on 1 July 2021. It introduced reforms in respect of the movement of goods from Northern Ireland to the EU and imports of low value goods into the EU or Northern Ireland.

Who is affected?

The changes will affect you if you:

• sell or supply goods from Northern Ireland to non-VAT registered customers in the EU;
• make supplies of goods from the EU to non-VAT registered customers in Northern Ireland;
• send low value goods to Northern Ireland or the EU from Great Britain or elsewhere outside the EU and Northern Ireland; or
• are a non-EU business with goods located in Northern Ireland at the point of sale.

New distance selling threshold

A new pan-European distance selling threshold of €10,000 (£8,818) applies from 1 July 2021.

The new distance selling threshold will apply to you if you are a business selling goods to consumers based in Northern Ireland. You will fall within the scope of the rules if the annual value of your sales of goods across the EU exceeds this level. There is no need to take account of sales of services as these do not count towards the threshold.

One Stop Shop

A new One Stop Shop (OSS) has been introduced to prevent businesses falling within the scope of the rules from having to register in each EU member state in which they have customers. If you are a Northern Irish business selling goods in excess of the new €10,000 threshold to EU consumers, you can register for the OSS, rather than registering for VAT in each member state in which you have customers. Registering with the OSS is optional, but it will enable you to declare and pay VAT for EU goods quarterly via one online portal. You can register either in the UK or in a member state with which you do business. If you register in the UK, you will need to be registered for UK VAT, even if your turnover is below the VAT registration threshold.

Low value consignment relief

Low Value Consignment Relief (which provided an exemption from import VAT for consignments of goods valued at less than €22 which were sold online to customers in the EU) was abolished with effect from 1 July 2021. This means that if you sell goods online to EU customers, you will now need to pay import VAT in the country in which the customer is based.

Import One Stop Shop (IOSS)

The Import One Stop Shop (IOSS) was introduced from 1 July 2021. The IOSS, which can only be used for consignments valued at €150 (£135) or less, allows registered businesses to collect the import VAT on business-to-customer (B2C) orders at the point of sale. If you do not register to use the IOSS, VAT will be collected on importation into the EU, as for high value consignments.

If your business is established outside the EU, to use the IOSS, you will need to appoint an intermediary to act on your behalf. This will be the case if your business is established in the UK.

Online marketplaces

The package also introduces new rules for supplies made to online marketplaces importing goods into the EU and Northern Ireland. These are similar to the rules that have applied for imports into Northern Ireland from outside the UK and the EU since 1 January 2021.

We can help

We can help you understand what the reforms mean for you, and what you need to do. We can also explain how the rules apply to you if you use an online marketplace to import goods.

Reporting SEISS payments on your tax return

If you have received one or more grants under the Self-Employment Income Support Scheme (SEISS), it is important that you report the payments correctly on your tax return.

2020/21 self-assessment tax return

SEISS grants that were received in the 2020/21 tax year (i.e., between 6 April 2020 and 5 April 2021) should be reported on your 2020/21 self-assessment tax return, regardless of the date to which you prepare your accounts. The return must be filed online by midnight on 31 January 2022 (or by 31 October 2021 if you file a paper return). The first three grants under the scheme were paid in the 2020/21 tax year.

If you have already filed your 2020/21 tax return, HMRC may adjust your return if the information that they hold on the SEISS payments that have been made to you does not match what is shown on your return.

How to report SEISS payments

Grant payments received under the SEISS should not be included in turnover. Instead, they should be reported separately on the 2020/21 tax return in the box for Self-Employment Income Support Scheme grants. The location of the box depends on which self-assessment tax return is completed. It can be found:

• on page 2 of the ‘other tax adjustments’ section on the self-employment pages (SA103F) of the full return;
• in the ‘other tax adjustments’ section of the self-employment (short) page (SA103S);
• on page 2 of the ‘trading or professional profits’ section of the partnership return; and
• in section 3.10A of the SA200 short tax return.

HMRC corrections

HMRC will check the SEISS grants payments reported in the return against their records of the grants that have been paid to you.

If you have already submitted your 2020/21 tax return, and the amount of the SEISS payments that you reported on your return did not tally with HMRC’s records, HMRC will adjust your return to match their records and they will send you a revised tax calculation.

It is advisable that you check the figures on HMRC’s revised calculation against your records of the grants received. You can check the amounts that you have received either by logging into the SEISS claims service or against your bank statements for the account into which the payments were made.

If you do not agree with HMRC’s revised figures, you should contact their Coronavirus (COVID-19) helpline for businesses and self-employed people.

Failure to report SEISS payments

If you received one or more grants under the SEISS in 2020/21 and do not include them on your self-assessment tax return for that year, HMRC will adjust your return to reflect the payments and send you a revised tax calculation. As a result, you may find that you owe more tax than you expected, have an unexpected tax bill, or that the tax repayment you were expecting is reduced.

SEISS payments reported in the wrong box

If you included SEISS payments in your 2020/21 tax return, but did not enter the amount that you received in the designated box, for example, because you included it in turnover or entered it in one of the ‘other income’ boxes, you will need to amend your self-assessment tax return so that the grants are entered in the correct box and removed from the wrong box. If you do not do this, the grant income will be assessed twice, as HMRC will adjust the return to enter details of grants received in the correct box (but will not remove the income from elsewhere in the return). 

Failure to complete a self-employment or partnership page

To qualify for the SEISS grants for 2020/21, you had to be trading in that tax year. If you have not completed a self-assessment or partnership page, HMRC will assume that you were not trading, and therefore ineligible for the grants. Consequently, they will seek to recover any grants that were paid to you.

If you were trading, but omitted to complete the relevant pages, you should amend your tax return to reflect this.

Appeal if you disagree with HMRC’s adjustments

If you do not agree with the changes that HMRC have made to your tax return in respect of your SEISS grant payments, you can appeal. However, you must do this within 30 days of the date on the SA302 letter advising you of the changes that they have made to your return.

HMRC have not yet taken account of changes that were made to 2020/21 tax returns before 19 June 2021. If you corrected your return before that date, you do not need to contact HMRC as they will process the amendments separately.

Speak to us

Contact us if HMRC have adjusted the SEISS payments reported in your 2020/21 tax return. We can help you check whether the figures are correct, and take action if they are not.

Accessing the Government Gateway

From 15 June 2021, all businesses and organisations will need multi-factor authentication in order to sign into the Government Gateway.

Multi-factor authentication

Businesses and organisations that use HMRC’s online services and which do not currently receive an access code by text or voice call, or direct to an authenticator app, will need to add a device, such as their mobile phone number, to their Government Gateway account in order to be able to sign in. Once a device has been added, you will receive an access code every time you sign in. The changes are being made to further protect Government Gateway accounts from fraud.

You do not need to do anything until the next time that you sign in. At this point you will be asked to add your new device.

Already have multi-factor authentication?

If you already have multi-factor authentication on your business’s or organisation’s Government Gateway account, nothing will change. You can continue to sign in as usual, receiving your access code in the normal way.

Additional users

If your business or organisation needs to allow employees to access your Government Gateway account, this can be done using multi-factor authentication. To do this, use the administrator and assistant functionality in your Business Tax Account to create additional users. Each user will have their own multi-factor authentication, and will need an access code to sign in.

Individuals and agents

The changes do not apply to individuals accessing their own account, or to agents.

Talk to us

Contact us to find out how to set up and use your Government Gateway account.

Paying CJRS grants back

As the Coronavirus Job Retention Scheme (CJRS) enters its final months, now is the time to review grants that you have claimed under the scheme, and pay back any amounts claimed in error. You may also choose to repay voluntarily funding that you have received under the scheme if your business does not need it. Some notable large companies in the retail and hospitality sectors have opted to do this.

Recap: CJRS

The CJRS allows employers to claim grants to pay employees who are furloughed or flexibly furloughed. Under the scheme, the employee must be paid 80% of their usual pay for their unworked hours, subject to a cap of £2,500 a month or equivalent. The employer can claim some or all of this back from the Government under the CJRS. If the amount that you have claimed is less than the amount you need to pay the employee (as will be the case for July, August and September 2021), you must make up the shortfall.

Repayment options

If you have claimed too much or you want to make a voluntary repayment, you can either:

• correct the overpayment in your next claim; or
• get a payment reference from HMRC and repay the money within 30 days.

HMRC have published guidance which explains how to make a repayment.

Making a correction in your next claim

If you still have employees who are furloughed or flexibly furloughed and you will be making another claim under the CJRS, you can correct the overclaim when you do your next claim. If you have another claim to make, you should adjust that claim rather than making a repayment direct to HMRC.

To correct an overclaim, you should initially work out your next claim as usual. If you are sending a file containing your claim details, you should prepare this as normal without taking account of the amount overclaimed.

You will then need to work out the amount you have overclaimed, and deduct this from the amount that you are claiming this time. The result is the amount that you will need to enter in the ‘claim amount’ box on the claim form. You will also need to enter the amount that you have overclaimed in the ‘overclaim’ box. For example, if you are making a claim for July 2021 for £20,000 and you have realised that you overclaimed £2,000 for June 2021, you will need to enter ‘£18,000’ in the claim box. This is the net amount that you are claiming for July 2021 after adjusting for the overclaim. You will also need to enter ‘£2,000’ in the overclaim box.

Paying HMRC back

You should only make a payment direct to HMRC if you do not have further claims to make and are not able to repay the amount that you owe by adjusting a subsequent claim. Before making a payment, you will need to get a payment reference from the online service. It is important that you use the correct reference.

Payments can be made to the following HMRC account using faster payments, CHAPS or Bacs:

• sort code: 08 32 10;
• account number: 12001039;
• account name: HMRC Cumbernauld.

Payments can also be made by debit card or using a corporate credit card (but not a personal credit card).

Deadlines

If you have overclaimed, you must tell HMRC by the later of:

• 90 days after the date on which you received the money to which you were not entitled; and
• 90 days from the date on which you ceased to be eligible to keep the grant because your circumstances changed.

To avoid being charged a penalty, you will need to notify HMRC and repay the overclaimed grant within this time frame.

We can help

Get in touch to find out how we can help you sort out any mistakes you have made when claiming grants under the CJRS.

New lower temporary SDLT threshold

The residential stamp duty land tax (SDLT) threshold applying in England and Northern Ireland was temporarily increased to £500,000 from 8 July 2020 to 30 June 2021 (extended from the original end date of 31 March 2021). From 1 July 2021 to 30 September 2021, a new temporary residential threshold of £250,000 applies. The threshold reverts to its usual level of £125,000 from 1 October 2021. Details of the rates can be found on the Gov.uk website.

Nature of the temporary threshold

To help boost house sales during the COVID-19 pandemic, the SDLT residential threshold was temporarily increased. Similar measures were introduced in Scotland in relation to land transaction tax (LTT) and in Wales in relation to land and buildings transaction tax (LBTT).

SDLT: 8 July 2020 to 30 June 2021

A higher temporary residential SDLT threshold of £500,000 applied in England and Northern Ireland where completion took place between 8 July 2020 and 30 June 2021. The usual rates applied to any consideration in excess of £500,000.

SDLT: 1 July 2021 to 30 September 2021

From 1 July 2021, the SDLT residential threshold drops to a new temporary level of £250,000. If you are in the process of buying a house and missed the 30 June 2021 completion deadline, you will be able to save SDLT of up to £2,500 if you complete by 30 September 2021.

The residential rates applying during this period are as set out in the table below.

First-time buyers

From 1 July 2021, the threshold for first-time buyers reverts to £300,000 where the consideration is £500,000. First-time buyers pay no SDLT on the first £300,000 and pay SDLT at the rate of 5% on any consideration in excess of £300,000 up to £500,000. If the consideration is more than £500,000, the above rates and residential threshold apply.

SDLT: From 1 October 2021

The residential SDLT threshold reverts to its usual level of £125,000 from 1 October 2021. Purchasers will pay SDLT at a rate of 2% on the portion from £125,000 to £250,000. Above £250,000, the rates are as in the table above.

Second and subsequent properties

Investors and second-home owners also benefit from the temporary residential thresholds as the 3% supplement is added to the residential rates as reduced.

Scotland

The LTT threshold in Scotland was increased to £250,000 from 15 July 2020 until 31 March 2021. However, this period was not extended, and the threshold reverted to £145,000 from 1 April 2021. As in England and Northern Ireland, those buying second and subsequent properties benefited from the higher threshold; the 4% supplement was applied to the reduced residential rates.

Wales

The LBTT threshold in Wales was increased to £250,000 from 27 July 2020 to 30 June 2021, reverting to £180,000 from 1 July 2021. Unlike the rest of the UK, purchasers of second and subsequent properties in Wales did not benefit from the higher threshold.

Speak to us

If you are thinking of moving home or buying a holiday or investment property, speak to us to find out whether you can save SDLT.

NIC relief for employers of armed forces veterans

A new relief has been introduced for employers of armed forces veterans which allows them to benefit from a zero rate of secondary National Insurance contributions on the earnings of the veteran up to a new upper secondary threshold. However, while the relief applies from 6 April 2021, for 2021/22 employers must pay secondary contributions as normal and claim the relief retrospectively from 6 April 2022.

Nature of the relief

To encourage employers to employ armed forces veterans, no secondary Class 1 National Insurance contributions are payable on the veteran’s earnings during the first 12 months of their first civilian employment since leaving the armed forces, unless their earnings exceed a new upper secondary threshold. The new upper secondary threshold for veterans will be set at the same level as the existing upper secondary thresholds for employees under the age of 21 and apprentices under the age of 25. For 2021/22, this is £967 per week, £4,189 per month and £50,270 per year. The threshold is also aligned with the upper earnings limit applying for primary (employee’s) Class 1 National Insurance purposes.

If earnings exceed the new upper secondary threshold, employer’s contributions are payable as normal on the excess at the usual rate of 13.8%.

The relief applies from 6 April 2021. Where the veteran’s first civilian employment after leaving the armed forces started after 6 April 2020 but before 6 April 2021, the relief will apply from 6 April 2021 until the first anniversary of the start date.

Subsequent and concurrent employers will also be able to benefit from the relief during the relief period.

Who counts as a veteran?

For the purposes of the relief, an armed forces veteran is someone who has served at least one day in the regular armed forces. This includes someone who has undertaken at least one day of basic training.

Giving effect to the relief

The relief is available from 6 April 2021 and applies for 2021/22, 2022/23 and 2023/24 (although the Treasury have the power to extend the relief to later tax years). However, the way in which the relief is given depends on the tax year. HMRC have published guidance for employers who hire armed forces veterans explaining how the relief works.

2021/22 only

For 2021/22 only, employers who take on an armed forces veteran in the first year of their first civilian employment since leaving the armed forces will need to pay secondary Class 1 National Insurance on the veteran’s earnings as usual to the extent that they exceed the secondary threshold (set at £170 per week, £737 per month and £8,840 per year for 2021/22). Employers will be able to claim the relief retrospectively from 6 April 2022.

2022/23 onwards

For 2022/23 and 2023/24, employers will be able to apply the relief in real time through the payroll, as is the case for the reliefs available to employers of employees under the age of 21 and employers of apprentices under the age of 25.

Talk to us

Talk to us to find out whether you are able to benefit from the relief, and how much it is worth to you.

SEISS grant 5

Claims for the fifth grant under the Self-Employment Income Support Scheme (SEISS) will open from late July. If, based on your tax returns, HMRC think that you are eligible for the grant, they will contact you in mid-July and give you a date from which you can submit your claim. The fifth grant will cover the period from May 2021 to September 2021. However, unlike previous grants, the amount of this grant will depend on the extent to which you suffered a reduction in your turnover in the year from April 2020 to April 2021 as a result of the impact of the COVID-19 pandemic.

Eligibility

If you are a self-employed individual or an individual member of a partnership and you meet the eligibility criteria, you will be able to claim the fifth and final SEISS grant. To qualify, you must have traded in 2019/20, and also in 2020/21. You must either be trading currently, or have been trading but are unable to do so temporarily as a result of COVID-19 restrictions. In addition, you must have filed your 2019/20 tax return by midnight on 2 March 2021.

As previously, you will only qualify for the grant if your trading profits are not more than £50,000 and they account for at least 50% of your total income. In deciding whether this test is met, HMRC will look first at your return for 2019/20. If you are not eligible based on your 2019/20 income, HMRC will then look at your returns from 2016/17 to 2019/20 inclusive and work out whether you are eligible based on your average income for those years.

When making your claim, you must declare that:

• you intend to trade; and
• you reasonably believe that there will be a significant reduction in your trading profits due to reduced business activity, capacity, demand or the inability to trade as a result of COVID-19 during the period from May 2021 to September 2021.

Amount of the grant

If you meet the eligibility conditions, the amount of your grant will depend on the extent to which your turnover fell as a result of the COVID-19 pandemic during the year to April 2021.

Turnover fallen by at least 30%

If your turnover fell during this period by at least 30% as a result of the impact of the pandemic, your fifth grant will be worth 80% of three months’ average trading profits, subject to a maximum grant of £7,500.

Turnover fallen by less than 30%

If your turnover fell in the year to April 2021 as a result of the impact of COVID-19, but by less than 30%, you will be able to claim a grant worth 30% of three months’ trading profits, subject to a maximum grant of £2,850.

Need to keep records

You should keep evidence in support of your claim, showing how your business has been affected by the COVID-19 pandemic, and the extent to which your turnover and profits have fallen as a result.

Get in touch

Although HMRC’s rules do not allow us to claim the grant on your behalf, we can check whether you are eligible, and, if you are, help you work out the extent to which your turnover has fallen as a result of the pandemic, and the amount that you are able to claim.

Claim relief for shares of negligible value

If you have some shares that have become worthless, you can make a negligible value claim. This will allow you to set the associated loss against any chargeable gains that you make in the same, or a later, tax year, potentially reducing the amount of capital gains tax that you pay.

Making a claim

A claim can be made either in your self-assessment tax return or by writing to HMRC.

If you are making a claim in respect of unquoted shares, you will need to provide the following information in support of your claim:

• a statement of affairs for the company and any subsidiaries;
• a letter from the liquidator or receiver showing whether any return will be made to the shareholders;
• details of how this decision was reached (for example, a balance sheet where liabilities are significantly greater than assets); and
• evidence that no recovery or rescue is likely (for example, a statement that the company has ceased trading).

If your claim is in respect of shares in a company that is not in liquidation or receivership, comprehensive evidence to support the claim that the shares are of negligible value should be provided.

For quoted shares, HMRC produce a list of shares that they accept being of negligible value.

Talk to us

Talk to us to find out how you can benefit from making a negligible value claim for shares that have become worthless.

Voluntary Class 2 NICs where 2019/20 tax return filed after 31 January 2021

If you are self-employed, you will pay Class 2 and Class 4 National Insurance contributions if your profits exceed the relevant thresholds. Class 2 National Insurance contributions are the mechanism by which you build up qualifying years to earn entitlement to the state pension and certain contributory benefits. If your profits are below the small profits threshold, you can opt to pay Class 2 National Insurance contributions voluntarily to maintain your National Insurance record.

Extended deadline for filing 2019/20 tax return

The normal filing deadline for the 2019/20 self-assessment tax return was 31 January 2021. However, to help taxpayers affected by the COVID-19 pandemic, HMRC waived the late filing penalty that would usually apply where a return was filed after 31 January, as long as the return was filed by midnight on 28 February 2021. This effectively extended the filing window by one month.

This had unintended consequences for self-employed taxpayers who opted to file their 2019/20 tax return in February 2021, and who chose to pay Class 2 National Insurance contributions voluntarily where their profits for 2019/20 were below the small profits threshold for that year of £6,365.

Nature of the problem

HMRC’s systems were unable to deal with the payment of voluntary Class 2 contributions where the 2019/20 tax return was filed after 31 January 2021. They did not have time to implement alternative procedures either.

The normal deadline for paying Class 2 National Insurance contributions for 2019/20 was 31 January 2021.

If you opted to pay Class 2 National Insurance Contributions voluntarily and paid by this date but before the return was filed, they could not be processed as HMRC were unaware of what the payment related to. This may be the case if you made the payment before the 31 January 2021 deadline, but filed your tax return in February 2021.

If you filed your return in February 2021 and paid your voluntary Class 2 National Insurance contributions when you filed your return, the contributions were paid late as they were paid after 31 January 2021. In this situation, HMRC corrected your return to remove the voluntary contributions.

Payments made in respect of voluntary Class 2 contributions in these circumstances were allocated elsewhere, held on account or refunded.

The solution

If you have been affected by this issue, you should contact HMRC on 0300 200 3500 as soon as you become aware that this is the case, for example, when you receive a refund, or see from your personal tax account that your contributions have been allocated against another payment.

If you have already received a refund, HMRC will let you know how you can pay Class 2 contributions voluntarily. If you have not already received a refund, they will ensure that the payment is correctly recorded as Class 2 National Insurance contributions.

Check your National Insurance record

It is advisable to check your National Insurance record to see if you have any gaps. Failure to contact HMRC if you have been affected by the above issue may mean that you do not receive a credit for 2019/20, resulting in a gap in your contributions record.

Contact us

Contact us if you paid voluntary Class 2 National Insurance for 2019/20 and filed your return in February 2021 to check that your contributions have been credited to your account.

Claim tax relief for expenses of working from home

If you are an employee and you are, or have been, working from home as a result of the COVID-19 pandemic, you may be able to claim tax relief for the additional household costs that you have incurred as a result. HMRC are now accepting claims for the current (2021/22) tax year.

Nature of the relief

You can benefit from the relief if you are an employee and you were told by your employer to work from home as a result of the COVID-19 pandemic and, as a result of working from home, your household costs have increased. For example, your electricity bill may be higher because you are using your computer all day and your gas bill may be higher because you have the heating on while you are working.

You can also claim the relief if you work from home other than because of the pandemic, as long as the nature of your job requires you to work from home. However, you are not able to claim the relief if you simply choose to work from home rather than at your employer’s workplace.

If your employer has met the cost of your additional household costs (to which a separate tax exemption applies), you are not entitled to claim the relief as well.

Amount of the relief

A claim for tax relief for additional household costs of £6 per week (£26 per month) can be made without the need to provide evidence to support the claim. The claim is worth £62.40 a year if you pay tax at the basic rate, £124.80 a year if you pay tax at the higher rate, and £140.40 a year if you pay tax at the additional rate.

If your household bills have risen by more than £6 per week as a result of working from home, you can claim tax relief based on the actual additional costs. However, you will need evidence, for example, copies of bills showing how costs have increased, to back up your claim.

Making a claim

You can claim relief via the dedicated HMRC portal.

Relief is given for the whole tax year, regardless of the number of weeks for which you worked from home. Once HMRC have approved your claim, they will amend your tax code to take account of the relief.

If you worked from home as a result of COVID-19 during 2020/21 and have yet to make a claim for tax relief for your additional household costs, it is not too late – HMRC will accept backdated claims for up to four years.

Get in touch

Why not get in touch to find out whether you can claim tax relief for the additional costs of working from home.

Amending a PSA for COVID-19 benefits

You can use a PAYE Settlement Agreement (PSA) if you wish to settle the tax liability arising on the provision of a benefit-in-kind or an expense on an employee’s behalf. This can be useful if you wish to preserve the goodwill nature of a particular benefit.

Nature of a PSA

Where a PSA is in place, the employer pays tax and Class 1B National Insurance contributions on the items included within the PSA, while the employee enjoys the benefit free of tax and National Insurance.

A PSA is not suitable for all benefits-in-kind. To qualify for inclusion, the benefit must fall within one of the following categories:

• it is minor;
• it is provided irregularly; or
• it is provided in circumstances where it is impractical to apply PAYE or to apportion the value of a shared benefit.

As payment of tax on an employee’s behalf is itself a taxable benefit, the amount of tax that you must pay on items included within your PSA is grossed up to reflect the marginal rates of tax of the employees to whom the benefits are provided. The relevant Scottish and Welsh rates are used for employees who are Scottish and Welsh taxpayers.

You must also pay Class 1B National Insurance contributions at 13.8% on items included within your PSA in place of the Class 1 or Class 1A liability that would otherwise arise, and also on the tax due under the PSA. The tax and Class 1B National Insurance must be paid by 22 October if you make the payment electronically, or by 19 October if you pay by cheque.

Setting up a new PSA

If you do not already have a PSA in place and want to set one up for 2020/21, you need to do this before 6 July 2021. Guidance available on the Gov.uk website explains what you need to do.

An enduring agreement

Once you have set up a PSA, it remains in place until it is cancelled or amended by you or by HMRC. Therefore, if you already have a PSA set up, you should review it to make sure that it is still valid. This should be done in sufficient time for any changes to be made before 6 July 2021.

Adding in COVID-19 benefits

The COVID-19 pandemic changed the way in which many employees worked, and you may have changed the benefits that you provided to your employees during the 2020/21 tax year as a result. If you have provided taxable benefits as a result of the pandemic, and you want to include them within your PSA, you will need to do this by 6 July 2021.

To amend your PSA, you will need to send details of the changes that you would like to make to the HMRC office that issued your PSA. Normally, HMRC will send you a revised P626 (the PSA). However, where the changes relate only to benefits provided as a result of the COVID-19 pandemic, they will instead add an appendix to your existing PSA.

Remember, you do not need to include exempt benefits within your PSA. There are a number of time-limited exemptions for Coronavirus-related benefits, such as those for employer-provided and reimbursed antigen tests.

Speak to us

Talk to us about whether a PSA is for you, and about what you need to do if you want to meet the tax liability on benefits provided to employees during the COVID-19 pandemic.

Reporting expenses and benefits for 2020/21

If you are an employer and you provided taxable expenses and benefits to your employees during the 2020/21 tax year, you will need to report these to HMRC on form P11D, unless all benefits were payrolled or included within a PAYE Settlement Agreement. You will also need to file a P11D(b). Both forms must reach HMRC by 6 July 2021.

Form P11D

A form P11D is needed for each employee to whom you provided taxable expenses and benefits in the 2020/21 tax year (which ended on 5 April 2021) and which you need to report to HMRC. You do not need to include any benefits or expenses which have been dealt with through the payroll, or those which you have been included within a PAYE Settlement Agreement. Likewise, you do not need to report any benefit or expense that is fully exempt. However, remember that an exemption only applies if all the associated conditions have been met.

The information that you will need to provide depends on the nature of the benefit. Some sections of the P11D are relatively brief, requiring only details of the cost of providing the benefit, any amount made good by the employee, and the taxable amount, while more information is required in respect of certain benefits, most notably company cars and employment-related loans.

Taxable amount: the cash equivalent value

Where the benefit is made available to an employee other than through a salary sacrifice or other optional remuneration arrangement (OpRA), the taxable amount is its cash equivalent value. The calculation of the cash equivalent value depends on the particular benefit. Some benefits have their own benefit-specific rules for calculating the cash equivalent value. Where the benefit or expense is of a type for which there is no specific rule, the cash equivalent value is calculated in accordance with the general rule. This is the cost to the employer, less any amount made good by the employee.

HMRC produce working sheets that can be used to calculate the cash equivalent value for some benefits in kind.

Taxable amount: alternative valuation rules

Where the benefit or expense is made available through an optional remuneration arrangement (OpRA), such as a salary sacrifice arrangement, alternative valuation rules apply to all but a handful of benefits. Under the alternative valuation rules, the taxable amount of the benefit is determined by reference to the salary given up, less any amount made good by the employee, where this produces a value that is higher than the cash equivalent value. The alternative valuation rules have the effect of negating any associated exemption. They do not apply to childcare and childcare vouchers, pension contributions and advice, employer-provided cycles and cyclists’ safety equipment, and low emission cars with CO2 emissions of 75g/km or less. These benefits continue to be taxed according to their cash equivalent value and retain the associated exemptions where the qualifying conditions are met.

Under transitional arrangements, the alternative valuation rules do not apply for 2020/21 to living accommodation, school fees or cars with CO2 emissions of more than 75g/km which are provided under an arrangement that was in place on 5 April 2017 and was not renewed, varied or amended prior to 6 April 2021. Variations as a result of the COVID-19 pandemic are ignored for these purposes. The transitional arrangements came to an end on 5 April 2021, and the alternative valuation rules apply for 2021/22 and later years.

Making good

Any amount that the employee is required to contribute (‘make good’) to the cost of the benefit is taken into account in calculating the taxable amount, as long as the amount is ‘made good’ by 6 July 2021. This can be done by deducting the relevant amount from the employee’s salary, or by the employee making a payment direct to you.

Form P11D(b)

You must file a P11D(b) by 6 July 2021 if you provided taxable expenses to your employees in the 2021/22 tax year which have either been payrolled or reported to HMRC on your employees’ P11Ds. Form P11D(b) serves two functions – it is your declaration that all required P11Ds have been submitted to HMRC, and also your Class 1A National Insurance return. You will need to file a P11D(b) even if you have no P11Ds to file because you have payrolled all taxable benefits and expenses that you provided to your employees during the 2020/21 tax year. Payrolled benefits need to be taken into account in working out your Class 1A National Insurance liability.

If you did not provide any taxable benefits in 2020/21, but have been sent either a paper P11D(b) or a reminder letter to complete one, you will need to make a nil declaration online to avoid being charged a penalty. This may be required if you provided taxable benefits in 2019/20 as HMRC’s expectation is that they were also provided in 2020/21.

Filing options

There are various ways in which you can file forms P11D and P11D(b). They can be filed online using HMRC’s Online End of Year Expenses and Benefits Service, HMRC’s PAYE Online Service (up to 500 employees only), or via a suitable commercial software package. You can also complete paper forms and send them to HMRC by post.

Forms for the 2020/21 tax year must reach HMRC by 6 July 2021. You must also give your employees a copy of their P11D (or details of the taxable expenses and benefits provided to them in 2020/21) by the same date.

You must pay your Class 1A National Insurance by 22 July 2021 if you make your payment electronically. If you opt to pay by cheque, this must reach HMRC by 19 July 2021.

We can help

We can help you meet your filing obligations and help you minimise the risk of receiving a penalty for late or incorrect returns.

Higher residential SDLT threshold extended

Stamp duty land tax (SDLT) is payable when you buy a property in England or Northern Ireland. Last year, the SDLT residential threshold was temporarily increased to £500,000 with effect from 8 July 2020. The threshold was due to revert to its normal level of £125,000 from 1 April 2021, but this has now been delayed.

The residential threshold applying in Scotland for Land and Buildings Transaction Tax (LBTT) was also increased for a temporary period, but reverted to its normal level of £145,000 from 1 April 2021. In Wales, the residential Land Transaction Tax (LTT) threshold was increased to £250,000 from 27 July 2020. It will remain at this level until 30 June 2021, reverting to its usual level of £180,000 from 1 July 2021.

SDLT residential threshold – 8 July 2020 to 30 June 2021

The SDLT residential threshold will remain at £500,000 until 30 June 2021. The rates applying until that date are set out below.

SDLT residential threshold – 1 July 2020 to 30 September 2021

From 1 July 2021 until 30 September 2021, a lower temporary residential SDLT threshold of £250,000 will apply. The first-time buyer threshold (which applies where the consideration does not exceed £500,000) reverts to £300,000 from 1 July 2021.

The SDLT rates applying for this period are set out below.

SDLT residential threshold from 1 October 2021

The SDLT residential threshold returns to £125,000 from 1 October 2021. The residential rates applying from that date are set out below.

Contact us

If you are looking to buy a property this year, speak to us to find out what you can save by completing the sale by 30 June 2021 or, if this is not possible, by 30 September 2021. Remember, if you are looking to buy an investment property, you will also benefit from the higher thresholds as the 3% supplement is added to the residential rates, as reduced.

Taxation of company cars in 2021/22

If you are an employee with a company car, you will be taxed on the benefit derived from the car being available for your private use. If you are an employer who makes company cars available to your employees, they will be taxed on the associated benefit. The amount that is charged to tax depends predominantly on the list price of the car and its appropriate percentage. There are some changes to the appropriate percentages for 2021/22.

You can find details of the appropriate percentages applying for 2021/22 here.

Electric company cars

For 2020/21, it was possible to enjoy the benefit of an electric company car tax-free as the appropriate percentage for zero-emissions cars was set at 0%. The appropriate percentage for zero-emission cars is increased to 1% for 2021/22. Although a tax-free company car is no longer an option for 2021/22, an electric company car remains a very attractive benefit. The cash equivalent value (the amount on which tax is charged) for an electric car with a list price of £30,000 is only £300 for 2021/22, costing a higher rate taxpayer £120 in tax and a basic rate taxpayer £60 in tax. If you are an employer, your Class 1A National Insurance hit will be £41.40.

Cars first registered on or after 6 April 2020

The way in which CO2 emissions are measured changed for cars first registered on or after 6 April 2020. From that date, the car’s CO2 emissions are determined using the Worldwide harmonised Light Vehicle Test Procedure (WLTP). For cars first registered prior to that date, the car’s CO2 emissions were determined in accordance with the New European Driving Cycle (NEDC).

For 2020/21, the appropriate percentage for cars first registered on or after 6 April 2020 (and whose CO2 emissions are determined using the WLTP), was two percentage points lower than that for cars first registered prior to 6 April 2020 (and whose CO2 emissions were determined using the NEDC).

The differential is reduced by one percentage point for 2021/22. This means that, subject to the maximum charge of 37%, the appropriate percentage for cars first registered on or after 6 April 2020 is one percentage point higher than its 2020/21 level. Thus, where the appropriate percentage was, say, 15% for 2020/21, it is 16% for 2021/22. The increase will mean that if you have a company car which was first registered on or after 6 April 2020, you will pay slightly more tax in 2021/22 than in 2020/21.

The diesel supplement remains at 4% for diesel cars not meeting the RDE2 emissions standard (subject to the maximum charge of 37%).

Cars first registered before 6 April 2020

There is no change to the appropriate percentages for cars first registered prior to 6 April 2020. This means that if you have a company car that was registered before this date, your tax bill for 2021/22 will be the same as for 2020/21.

Talk to us

If you are thinking of changing your company car or making changes to your company car fleet, we can help you understand the associated tax costs.