HMRC has issued paper copies of Simple Assessments where these had previously been issued digitally. If you have already paid the amount shown on the digital assessment, you do not need to pay again on receipt of a paper assessment.

Key dates

Tax payable under a Simple Assessment is due on the 31st of January after the end of the tax year, i.e. by 31 January 2024 for a 2022/23 Simple Assessment. Whereas the Simple Assessment is issued after the 31^st of October after the end of the tax year, the tax is due three months from the date of the issue of the Simple Assessment.

This note explains the nature of Simple Assessment and when Simple Assessments can be issued digitally.

What is Simple Assessment?

A Simple Assessment is a tax bill that HMRC sends to an individual whose tax affairs are very straightforward. Individuals who are within Simple Assessment do not need complete a tax return. Instead, HMRC calculates the amount of tax that is due and sends the calculation (the Simple Assessment) to the individual on form PA302. Simple Assessments were initially introduced for individuals who only received a state pension. However, they may now be used for other simple cases.

You may receive a Simple Assessment if:

• you owe tax that cannot be deducted from your income;
• you owe tax of £3,000 or more; and/or
• you have to pay tax on your state pension.

HMRC base the information on information provided to them by the Department for Work and Pensions and other organisations. If you receive a Simple Assessment, it is important that you check that it is correct. If you do not agree with it, you have a period of 60 days in which to appeal. If you do not appeal within this window, the Simple Assessment becomes final.

You will not receive a Simple Assessment if you have received a PAYE reconciliation (on form P800).

If you are within Simple Assessment you will be able to view your Simple Assessment by logging into your Personal Tax Account.

Tax due under a Simple Assessment should be paid by 31 January after the end of the tax year to which it relates or, if later, three months from the date on which the Simple Assessment was issued.

Digital Simple Assessments

During the period from May 2021 to July 2022, individuals who had opted to receive paperless communications from HMRC and who were within Simple Assessment received their Simple Assessment digitally via their Personal Tax Account. However, it became unclear whether digital notification in this form complied with the legislation.

Digital Simple Assessments were suspended while the legislation was updated. The legislation has now been updated, and from April 2023 HMRC recommenced the issue of digital Simple Assessments.

Duplicate paper copies

While the legislation was in the process of being updated, HMRC reverted to issuing Simple Assessment in paper format. Additionally, HMRC has recently re-served Simple Assessments that were initially issued digitally to place beyond doubt that the Simple Assessment was correctly served in accordance with the legislation. However, this has led to confusion, and not all recipients have realised that this is a duplicate and have paid the amount shown on the paper copy.

If you opted for paperless communication and receive a paper Simple Assessment, before making any payment it is advisable to check your records to establish whether it is a duplicate of an assessment received digitally and, if so, whether you have already paid it.

 

Please see this HMRC link: https://www.gov.uk/check-simple-assessment

If you need more information regarding any of the topics covered in this update or indeed any other accounting issues, please call An Accounting Gem The Tax specialist in Ipswich, Suffolk on 744700.

To see another An Accounting Gem blog check out this link: https://www.aag-accountants.co.uk/property-owners-planning-review-2023-24/

Disclaimer: This blog is not intended to provide legal or financial advice. This blog is for informational purposes only. The information provided on this blog is not intended to be a substitute for professional advice. Before taking any action, you should seek advice from a qualified professional. The author of this blog is not liable for any losses, damages, or expenses incurred as a result of using the information provided on this blog.

There are certain assets that you can sell without paying CGT.

They include:

• The sale of any chargeable asset, like shares or a second home, if the overall gains in the current tax year do not
  exceed £6,000 (2022-23 – £12,300).
• Any gains on assets you gift to your spouse, as long as you were not separated and didn’t live together during the tax year.
• Qualifying gifts to a charity.
• Gains from ISAs or PEPs.
• Gains on disposal of certain UK government gilts and Premium Bonds.
• Betting, lottery or pools winnings.
• In most instances, the disposal of your
  main home.
• The disposal of your own car unless you have used it for business purposes.
• Any personal possession (jewellery, paintings, antiques and other collectibles) unless sold for more than £6,000.

CGT rates for 2023-24 are:

If you pay income tax at higher rates on your income plus capital gains (40% or above) you will pay CGT at:

• 28% on gains from the sale of chargeable residential property, and
• 20% on gains from the sale of other property.

If you pay income tax at basic rates on income and gains (20%) you will pay CGT at:

• 18% on gains from the sale of chargeable residential property, and
• 10% on gains from the sale of other property.

To qualify for the lower rates your taxable income plus the chargeable gain must be within the basic rate income tax band. If the gain is part under and part over this limit you will pay CGT one part at the lower and part at the higher rates.

Work through the checklist that follows and if any apply to your circumstances call to discuss your options.

Capital Gains Tax (CGT) Planning Check List 2023-24

• Make sure you utilize your annual tax-free allowance of £6,000. Consider selling assets, shares for example, which can be sold within the tax-free allowance.
• The CGT tax-free allowance reduced to £6,000 from April 2023 and will be subject to a further reduction to £3,000 from April 2024. In which case taxpayers contemplating disposals of chargeable assets may be advised to crystalise gains before 6 April 2024 to ensure the higher tax-free allowance for 2023-24 is fully utilised. Planning disposals is key during this period to obtain the best tax result.
• If your chargeable gains are likely to exceed the £6,000 limit, are there any assets you can sell at a loss to reduce the total gains below the tax-free limit? It is no longer possible to sell and buy back shares to facilitate this planning option: the so-called “bed and breakfast” arrangement.
• If you are contemplating the sale of your business, make sure you have arranged your affairs such that you can claim Business Asset Disposal Relief. This will potentially allow you to make qualifying gains of up to £1m and only pay CGT at 10%.
• As the level of your taxable income, for income tax purposes, will affect the rate of CGT you will pay, investigating ways to reduce your income tax earnings may save you CGT as well as income tax.
• A gift of chargeable assets to your spouse does not create a CGT charge.
• Your spouse and children also qualify for a separate tax-free allowance of £6,000. Transferring assets between family members can reduce overall CGT liabilities if considered before a sale.
• It may be possible to claim other reliefs to reduce your potential liability to CGT. These could include rollover and hold-over gains reliefs. If you are likely to make significant capital gains during 2023-24, please contact us for advice as soon as possible so that we can explore available strategies for minimizing your CGT bill.
• Although the sale of your main home is generally free of CGT, if you have let the property at any time during your period of ownership, or if you have made significant use of the property for business purposes, then there may be a CGT liability when you sell. If you are affected, make sure you take advice on this issue.
• CGT payable on chargeable disposals after 5 April 2023 and before 6 April 2024 will be due for payment on 31st January 2025. If you delay the disposal until after 5 April 2024, any CGT due will be payable a year later, on 31^st January 2026. Theoretically, you could delay disposal by one day (from 5th April to 6th April 2024) and this would extend the amount of time you would have to pay the tax by 12 months.
• The only exception to the above payment dates is if you are selling a residential property that is not covered by Private Residence Relief. For example, a personally owned let property or a holiday home. Gains on these property disposals have to be filed with HMRC – and any CGT paid – within 60 days of the property disposal (the completion date not the exchange of contracts date).

Review all the assets you own that are currently worth less than you paid for them. Should you dispose of them and make use of the capital losses? Which would be the best tax year to register the loss? This could include a claim to treat shares as having no value (a negligible value claim).

 

Please see this HMRC link: https://www.gov.uk/capital-gains-tax

If you need more information regarding any of the topics covered in this update or indeed any other accounting issues, please call An Accounting Gem The Tax specialist in Ipswich, Suffolk on 744700.

To see another An Accounting Gem blog check out this link: https://www.aag-accountants.co.uk/record-keeping-for-dividends/

Disclaimer: This blog is not intended to provide legal or financial advice. This blog is for informational purposes only. The information provided on this blog is not intended to be a substitute for professional advice. Before taking any action, you should seek advice from a qualified professional. The author of this blog is not liable for any losses, damages, or expenses incurred as a result of using the information provided on this blog.

Directors of personal and family companies will need to extract profits from their company if they wish to use them for their personal use. It will generally be tax efficient to pay a small salary and to extract further profits as dividends.

Key dates

The 2023/24 tax year runs from 6 April 2023 to 5 April 2024. The optimal profit extraction policy will depend on the director’s personal circumstances.

This note explains how to determine the optimal dividend/salary mix.

Preserving state pension entitlement

To qualify for a full single-tier state pension, an individual needs 35 qualifying years. A reduced state pension is paid where the individual has at least ten qualifying years.

If you do not already have 35 qualifying years, it is worthwhile paying a salary that is at least equal to the lower earnings limit, which for 2023/24 is set at £6,396. Where the salary level is between the lower earnings limit and primary threshold, set at £12,570 for 2023/24, you will be treated as if you have paid notional employee Class 1 National Insurance contributions at a zero rate. The effect of this is that you are able to secure a qualifying year for zero contribution cost. As long as your personal allowance is available, there will be no tax to pay on a salary of this level.

However, depending on whether or not the employment allowance is available, your company may be liable for the employer’s Class 1 National Insurance contributions if the salary paid exceeds the secondary threshold, set at £9,100 for 2023/24.

Remember, directors have an annual earnings period for National Insurance purposes.

Employment Allowance is available.

The employment allowance is an allowance which eligible employers can set against their secondary Class 1 National Insurance liability. Personal companies where the sole employee is also a director are not entitled to the allowance. However, your family company will qualify for the allowance if you have more than one employee as long as your employer’s Class 1 National Insurance liability for 2022/23 was less than £100,000.

The employment allowance is set at £5,000 for 2023/24.

If the employment allowance is available, the maximum salary that can be paid free of tax and National Insurance, assuming that your personal allowance has not been used elsewhere, is £12,570.

Employment Allowance is not available.

If you operate a personal company and you are the sole employee and a director, you will not qualify for the employment allowance. If the employment allowance is not available (or has been utilised elsewhere), unless one of the upper secondary thresholds applies, the employer’s Class 1 National Insurance will be payable to the extent that the salary paid exceeds the secondary threshold of £9,100.

While the maximum salary that can be paid free of tax and National Insurance is £9,100 where the employment allowance is not available, it is still worthwhile paying a higher salary equal to the personal allowance and primary threshold of £12,570. This is because salary payments and the associated employer’s Class 1 National Insurance are deductible in calculating your company’s profits for corporation tax.

For the financial year 2023 (running from 1 April 2023 to 31 March 2024), the rate at which you pay corporation tax will depend on the level of your profits, ranging from 19% if your taxable profits are £50,000 or less to 25% where your taxable profits exceed 25%. This is higher than the rate of employer’s Class 1 National Insurance, set at 13.8%. Thus, the corporation tax saved by paying a salary of £12,570 rather than one of £9,100 exceeds the associated employer’s National Insurance.

It should be noted that if any of the upper secondary thresholds apply, a salary of £12,570 can be paid free of tax and National Insurance even if the employment allowance is not available.

Is a higher salary worthwhile?

If the director is entitled to the standard personal allowance of £12,570, it is not worth paying a salary in excess of this, as the salary will attract tax at 20% and the employee’s National Insurance at 12%. If the employment allowance is not available and none of the upper secondary thresholds applies, the company will also have to pay the employer’s National Insurance of 13.8%. The tax and National Insurance hit will outweigh any corporation tax deduction available.

However, if you have a higher personal allowance, for example, because you receive the marriage allowance or the married couple’s allowance, it will be tax-efficient to pay a salary up to the level of your personal allowance if the employment allowance is available. However, in the absence of the employment allowance, unless one of the upper secondary thresholds applies, the optimal salary will remain at £12,570.

Extract further profits as dividends.

Once your company has paid you a salary at the optimal level, it is more tax efficient to extract further profits as dividends. Remember, you can only pay a dividend if you have sufficient retained profits from which to pay it. Dividends must be paid in proportion to shareholdings, although having an alphabet share structure overcomes this restriction.

All taxpayers regardless of the rate at which they pay tax have a dividend allowance, which for 2023/24 is set at £1,000. Thereafter, dividends are taxed at 8.75% where they fall in the basic rate band, at 33.75% where they fall in the higher rate band, and at 39.35% where they fall in the additional rate band. There is no National Insurance to pay. However, corporation tax has already been paid on the profits that are available to distribute as a dividend.

 

Please see this HMRC link: https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2023-to-2024

If you need more information regarding any of the topics covered in this update or indeed any other accounting issues, please call An Accounting Gem The Tax specialist in Ipswich, Suffolk on 744700.

To see another An Accounting Gem blog check out this link: https://www.aag-accountants.co.uk/tax-planning-for-individuals-2023-24/

Disclaimer: This blog is not intended to provide legal or financial advice. This blog is for informational purposes only. The information provided on this blog is not intended to be a substitute for professional advice. Before taking any action, you should seek advice from a qualified professional. The author of this blog is not liable for any losses, damages, or expenses incurred as a result of using the information provided on this blog.

If you operate your business through a limited company, for example, as either a personal or family company, you will pay corporation tax on your profits. Currently, the rate of corporation tax that is payable is the same regardless of the level of your profits. For the financial year 2022 (i.e., the year from 1 April 2022 to 31 March 2023), the rate of corporation tax is set at 19%.

However, Corporation tax is being reformed from 1 April 2023. The changes may affect how much corporation tax you pay and how you calculate your corporation tax liability. It is important to understand what the changes may mean for your business.

Corporation tax from April 2023

From 1 April 2023:

• The main corporation tax rate is increased to 25% where profits are over the upper profits limit, set at £250,000.
• A small profits rate will apply for companies whose profits are equal to or below the lower profits limit, set at £50,000. The small profits rate is set at 19%.
• Companies with profits between the lower and upper limits (£50,000 and £250,000) will pay tax at the main rate of 25%, but this will be reduced by marginal relief. The effect of marginal relief is that the effective rate of corporation tax gradually increases from 19% where profits are £50,000 or less to 25% where profits are more than £250,000.

The limits are reduced if you have associated companies or if your accounting period is less than 12 months.

Impact if profits are £50,000 or less

If your company is a standalone company without associates and your taxable profits are £50,000 or less, you will be unaffected by the changes to Corporation that come into effect from April 2023. You will continue to pay corporation tax on your profits at 19%.

Marginal relief – profits between £50,000 and £250,000

If your company profits are between £50,000 and £250,000, you will pay more corporation tax than was the case in the financial year ending 31 March 2022.

The amount of tax you pay will be found by multiplying your profits by the main rate of 25% and deducting marginal relief.

Marginal relief is calculated in accordance with the following formula:

F X (U – A) x N/A

Where:

F is the standard marginal relief fraction

U is the upper limit

A is the amount of augmented profits

N is the amount of the taxable profits.

For the financial year 2023, the marginal relief fraction is 3/200.

This formula is not included to confuse you but to illustrate that a new complication has been added to the determination of company tax liabilities.

The upper limit is £250,000. However, this is reduced if your company has associated companies or if your accounting period is less than 12 months.

Augmented profits are total taxable profits plus qualifying exempt distributions that are received from companies that are not 51% subsidiaries or owned through a consortium.

For example, if you have total taxable profits of £100,000 for the year to 31 March 2023, and did not receive any qualifying exempt distributions (so augmented profits are also £100,000), you will be entitled to marginal relief of:

3/200 (£250,000 – £100,000) x £100,000/£100,000 = £2,250.

Therefore, your corporation tax bill will be £22,750 ((£100,000 @ 25%) – £2,250). This is an effective rate of 22.75%.

Likewise, if your taxable profits are £200,000, you will be entitled to marginal relief of £750 and will pay corporation tax of £49,250 ((£200,000 @ 25%) – £750). This is an effective rate of 24.625%.

In this way, the marginal relief smooths the transition from 19% to 25%.

Profits in excess of £250,000

If profits from your standalone company are more than £250,000, the rate at which you pay corporation tax will increase by 6%, from 19% to 25% from 1 April 2023. You will need to plan ahead for the impact of this increase, which will adversely affect your cash flow and will reduce your retained profits. A reduction in retained profits will mean there are fewer funds to distribute as dividends.

For every £10,000 of profits, you will pay an additional £600 in corporation tax from 1 April 2023. 

Impact of associated companies

The lower (£50,000) and upper (£250,000) profit limits are reduced if you have associated companies. The limit is divided by the number of associated companies plus 1. For example, if you have one associated company, the lower limit is £25,000 and the upper limit is £125,000 – the limits are divided by two. Likewise, if you have four associated companies, the limits are £10,000 and £50,000 – the limits are divided by five.

Where you have associated companies, the reduction in the limits will affect the profits which are charged at the small companies’ rate, the band to which marginal relief applies, and the point at which corporation tax is payable at the main rate.

For example, if you have one associated company so that the limits are halved, from 1 April 2023, you will pay corporation tax at the small profits rate if your profits are £25,000 are less. If your profits fall between £25,000 and £125,000 you will pay tax at 25%, as reduced by marginal relief. If your profits are more than £125,000, you will pay corporation tax at the main rate of 25%.

The following table shows the lower and upper-profit limits if you have no associated companies, or between 1 and 4 associated companies.

Number of associates	Lower profits limit	Upper profits limit
0	£50,000	£250,000
1	£25,000	£125,000
2	£16,667	£83,333
3	£12,500	£62,500
4	£10,000	£50,000

You may want to review your company structures prior to 6 April 2023. For example, if you have one company with taxable profits of £40,000 and one company with taxable profits of £5,000, the company with the taxable profits of £40,000 will not benefit from the small profits rate as the profits are above the lower limit of £25,000 that applies to a company with one associate. Merging the companies will mean that there is only one company and the combined profits of £45,000 will be charged at the small profits rate of 19%.

Short accounting periods

The lower and upper-profit limits are also proportionately reduced if your accounting period is less than 12 months. For example, if you change your accounting date and prepare accounts for nine months when moving to the new date, the limits are £37,500 and £187,500.

We can help

If your company is likely to have profits in excess of £50,000 or has one or more associated companies, we will need to revisit options to minimise your corporation tax bills from 1 April 2023.

 

Please see this HMRC link: https://www.gov.uk/corporation-tax-rates

If you need more information regarding any of the topics covered in this update or indeed any other accounting issues, please call An Accounting Gem The Tax specialist in Ipswich, Suffolk on 744700.

To see another An Accounting Gem blog check out this link: https://www.aag-accountants.co.uk/tax-relief-for-rd-april-2023-changes/

Disclaimer: This blog is not intended to provide legal or financial advice. This blog is for informational purposes only. The information provided on this blog is not intended to be a substitute for professional advice. Before taking any action, you should seek advice from a qualified professional. The author of this blog is not liable for any losses, damages, or expenses incurred as a result of using the information provided on this blog.