Super Deductions ends on 31st March 2023

In 2021, the UK government introduced a new tax relief scheme called the ‘super deduction’ to encourage investment by businesses. Under this scheme, companies were able to claim a 130% tax relief on qualifying investments in plant and machinery.

The super deduction scheme was designed to last for two years, starting from April 2021, and ending on 31st March 2023. However, with the UK government’s Autumn Budget announcement in November 2021, it was confirmed that the super deduction scheme would be ending as planned.

What does the end of super deductions mean for businesses?

The end of the super deduction scheme means that businesses will no longer be able to claim the 130% tax relief on qualifying investments in plant and machinery. From 1st April 2023, the standard capital allowance rules will once again apply, which allow for a 100% tax relief on qualifying investments, but without the additional 30% top-up.

Businesses that have not yet taken advantage of the super deduction scheme may wish to do so before it ends on 31st March 2023. However, it is important to note that not all investments in plant and machinery will qualify for the super deduction. The full list of qualifying assets can be found on the HM Revenue & Customs website.  https://www.gov.uk/guidance/super-deduction

What impact did the super deduction scheme have?

The super deduction scheme was designed to encourage businesses to invest in new plant and machinery, in order to boost economic growth and productivity. It was hoped that this would lead to increased employment, higher wages, and stronger economic growth in the long run.

According to the Office for Budget Responsibility (OBR), the super deduction scheme was expected to lead to a £5.5bn increase in business investment in 2021-22, and a further £2.5bn increase in 2022-23. This was likely to have a positive impact on economic growth and job creation.

However, some critics have argued that the super deduction scheme may have been unnecessary, as businesses were already expected to increase investment as the economy recovers from the Covid-19 pandemic. They also argue that the scheme may have incentivised businesses to bring forward investments that they would have made anyway, rather than encouraging new investment.

The super deduction scheme was a temporary tax relief scheme designed to encourage businesses to invest in plant and machinery. Although it is ending on 31st March 2023, it is expected to have a positive impact on economic growth and job creation in the short term. Businesses that have not yet taken advantage of the scheme may wish to do so before it ends, but should be aware of the qualifying criteria.

For more information on the rules around Super Deductions click the link below:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/967202/Super_deduction_factsheet.pdf

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/hmrc-responses-by-sms-text-messages/

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.
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HMRC – Responses by SMS text messages

Individual callers to some HMRC helplines from mobile phones may find that rather than speaking with an adviser they are now sent an SMS text message directing them to online services and guidance.

Key dates

Since 19 January 2023, HMRC have been trialling sending an SMS text message response to some callers to their income tax helpline

This note explains how calls will be routed and outlines concerns raised by the Tax Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW).

Routing calls

Where an individual caller calls the helpline from a mobile phone, the call will be dealt with in one of the following ways:

  • the caller will be sent an SMS text message that directs them to online help and guidance of relevance to the keywords used by the caller to describe the reason for their call. The call will be disconnected automatically after the caller has been told that an SMS text message has been sent;
  • the caller will be given the option of receiving an SMS text message directing them to online help or continuing to speak to an adviser;
  • the caller will be placed on hold for an adviser to deal with their call.

The way in which the call is handled will depend on the keywords used by the caller when describing the reason why they are calling.

Keywords

An SMS will be sent where the following ‘keywords’ are used by the caller:

  • find your unique taxpayer reference;
  • help to register for HMRC online services.
  • lost or forgotten online service password or user ID;
  • registering for self-assessment;
  • whether they need to complete a self-assessment tax return;
  • requests for income tax or employment history;
  • lost National Insurance number;
  • confirmation of National Insurance number; or
  • help to complete their tax return.

The caller may or may not be given the option to hold for an adviser.

Agent dedicated line

The ICAEW has been assured by HMRC that SMS text message responses will not be used on the Agent dedicated line. Agents will continue to be able to speak to an adviser.

Is the text genuine?

HMRC published guidance on their website to help individuals to determine whether texts and other contacts from HMRC are genuine. The guidance is available on the Gov.uk website at www.gov.uk/government/collections/check-a-list-of-genuine-hmrc-contacts.

Concerns

While the Tax Faculty of the ICAEW welcome the use of innovative approaches by HMRC to solving their customer service problem, they have expressed concern that callers may find themselves stuck in a ‘loop of doom’, receiving repeated text messages without being able to reach an adviser to discuss their problem and to get the help that they need.

HMRC believe that their technology is sufficiently robust to recognise when a response by SMS text message is appropriate. However, this has yet to be proved by the trial. The current technology does not identify repeat callers (although this may be available in the future), nor can it tell whether the call has been made from a basic mobile phone without internet capabilities.

HMRC has advised that callers who need to call back after being sent an SMS text message response may need to word their query differently to avoid being sent another text. Alternatively, the caller can call back from a landline as SMS text messages are only sent to callers from mobile phones.

The danger is that callers who are unable to access an adviser may become frustrated and simply give up with their issue unresolved.

Please see the following HMRC link: https://www.gov.uk/guidance/check-if-a-text-message-youve-received-from-hmrc-is-genuine

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/hmrc-penalties-the-impact-of-taxpayers-behaviour/

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.
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HMRC Penalties – The impact of taxpayers behaviour

HMRC has wide-ranging powers to charge penalties for late and incorrect returns. Where errors are made on returns and other paperwork which understate the tax or misrepresent the tax liability, whether a penalty is charged and the amount of the penalty depends on the taxpayer’s behaviour.

Key dates

If a penalty has been charged and you do not think that it should have been, you can appeal against the penalty. This must be done within 30 days of the date of the penalty notice.

This note explains how penalties for inaccuracies are determined.

Four types of inaccuracy

The penalty regime identifies four types of inaccuracy:

  • an inaccuracy made despite the person taking reasonable care;
  • a careless inaccuracy.
  • a deliberate but not concealed inaccuracy; and
  • a deliberate and concealed inaccuracy.

Whether a penalty is charged and the amount of such a penalty depends on the category in which the inaccuracy falls.

Reasonable care

A penalty is not charged where there is an inaccuracy in a document despite a person having taken reasonable care to get things right. Reasonable care is the behaviour that is of a prudent and reasonable person in the position of the person in question.

What constitutes ‘reasonable care’ depends on the person’s abilities and circumstances. For example, HMRC state that they do not expect the same level of knowledge and expertise from a self-employed unrepresented individual that they expect from a large multinational company, and they expect a higher degree of care in relation to large and complex matters than in relation to simple straightforward ones.

HMRC expect people to keep and preserve sufficient records to enable them to make a complete and correct return. A person whose affairs are simple and straightforward will only need a simple regime, but they must follow it carefully. A person with more complex affairs will need more sophisticated systems, which must be followed carefully.

HMRC consider it reasonable for a person who encounters an event or transaction with which they are not familiar to seek out the correct tax treatment or to take professional advice. If the person remains unsure as to the correct tax treatment, they should draw attention to the entry and the uncertainty when they send the return to HMRC. A person who does this will be deemed to have taken reasonable care.

An example of a situation in which a person would be deemed to have taken reasonable care includes an arithmetical or transposition error that is not so large as to produce an obviously odd result, acting on the advice of a competent adviser which later proves to be wrong despite full information having been provided or following advice from HMRC which is later found to be wrong.

Careless inaccuracies

A penalty is charged if the error arose because the taxpayer was ‘careless’. Careless behaviour is defined as a failure to take reasonable care.

In determining whether behaviour counts as ‘careless’, the question to be asked is whether a person did or failed to do what a prudent and reasonable person would have done or not done in the same circumstances. The issue here is not whether the person knew about the inaccuracy when they submitted the return – if they did the error would have been ‘deliberate’ and would fall in a higher penalty category.

Where the inaccuracy arose because the taxpayer was careless, the penalty charged is between 0% and 30% of the extra tax due.

Deliberate but not concealed errors

A deliberate but not concealed error arises when a person sends a document to HMRC which they know contains an inaccuracy but they do not make arrangements to conceal the error. In determining whether the error was deliberate, it is not necessary for HMRC to demonstrate that the person knew what the correct figure was, only that they knew that the figure that they supplied was not accurate.

Examples of behaviours that may be judged to give rise to a deliberate inaccuracy include systematically paying wages without accounting for PAYE or Class 1 National Insurance contributions or knowingly failing to record all sales, particularly if there is a pattern to the under-recording.

Where the error is deliberate, a penalty of between 20% and 70% of the extra tax due may be charged.

Deliberate and concealed

The most serious type of inaccuracy is one that is deliberate and concealed. It occurs when a document contains a deliberate error and steps have been taken to hide the inaccuracy either before or after the document has been sent to HMRC. The act of concealment may include creating false invoices to support inaccurate figures in the return, creating sales records that deliberately understate the goods sold, or destroying books and records so that they are not available.

A penalty of between 30% and 100% of the extra tax due can be charged for loss of tax arising from deliberate and concealed errors.

Mitigation

It may be possible to reduce any penalty charged by telling HMRC about the error, helping HMRC to work out the extra tax that is due, and giving HMRC access to documents to check the figures.

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/which-way-to-turn-coping-with-inflation-recession-and-other-financial-challenges/

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.
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Which way to turn? Coping with financial challenges

This update sets out some of the business and personal financial challenges for 2023-24, and a few ideas for countering these challenges.

The challenges for business owners

The combination of rising energy bills, high inflation, recession and climbing interest rates sets a grim stage for 2023-24.

All of these factors place upward pressure on costs, downward pressures on sales, and for many businesses, no opportunity to increase their selling prices to maintain some measure of profitability.

These challenges, coming hot on the heels of the COVID disruptions, may be the final nail in the coffin for many entrepreneurs.

However, there are strategies that forward-thinking business owners could adopt that would help to protect their balance sheets from the worst effects of the present economic downturn.

Please note – some or perhaps none of the following suggestions will be appropriate for your business. Every firm will have its own unique challenges that will require careful consideration. Please call if you are drawn to adopting any of the options in this update so we can help you make the most appropriate choices.

Which way to turn – business owners

Ideas to help you sustain your business 2023-24:

  • Keep an eye on cash flow. This is not a good time to leave your hard-won sales in your customers’ bank accounts. Create and enforce rigorous credit control.
  • Postpone investments. If you are considering the purchase of significant equipment, ask the question, how will this expenditure help me survive the current downturn. If you can see no immediate benefits, then mothball the investment until more favourable times.
  • Now is not the time to run your business by instinct. At the very least prepare a business forecast for the next year and keep updating the numbers such that you can always see at least 12 months ahead. Your forecasts should show profitability, financial net worth (solvency), and cash flow.
  • Can you meet your obligations? Does the forecast rise in interest rates mean you will struggle to repay loans or other finance agreements? If yes, contact lenders to see if you can organise repayment holidays or extend the term of borrowings to reduce repayments.
  • Likewise, keep an eye on tax payments due and take advice to see if liabilities can be reduced if profits are falling or if you are forecast to make losses.

And finally, pick up the phone and call for advice. We can help you prepare to cope with coming challenges. Very often it’s what you don’t know – they we may know – that will help you through.

The challenges for individuals

Homeowners and those renting property will both see an increase in their mortgage repayments or rent in the coming year as fixed-rate deals expire and mortgages will have to be renegotiated at higher rates. Landlords, in similar fashion, may be forced to increase rents to cover their additional finance charges.

These factors plus the exceptional increase in utility and food costs will place upward pressure on household budgets.

As a result, savings will reduce, and debt will increase as we struggle to make ends meet.

Yet again, these challenges, coming hot on the heels of the COVID disruptions, may nudge many of us into challenging financial circumstances.

Individuals – many of whom may have business interests – still have opportunities to organise their personal finances without driving themselves into bankruptcy.

PLEASE NOTE, some, or perhaps none of the following suggestions will be appropriate for your personal circumstances. Please call before adopting any of our ideas so we can help you make the most appropriate choices.

Which way to turn – individuals

Ideas to help you sustain your personal finances in 2023-24:

  • If your fixed-rate mortgage is up for renegotiation in the coming year, start your research now. Take advice on the likely direction of interest rate changes – up or down – and act accordingly. A competent mortgage broker will help you decide your best option.
  • Plan your financial commitments on a simple spreadsheet to see if your income can meet your obligations in the coming year. If there are shortfalls take advice to see how you could reduce any shortfall and/or fund any deficits. Call if you need help setting up a spreadsheet.
  • See if you can transfer credit card balances on accounts with high-interest rates with cards that offer an interest-free period. Plan repayments and seek to minimise the use of cards.
  • Speak to your bank if you are using overdrafts to see if they could offer a loan with a lower rate of interest that could be used to pay off overdrafts.
  • Take a hard look at your use of gas and electricity. Are there ways you could reduce dependency on either supply?
  • Do you have an opportunity to increase your family income by creating additional income streams? For example, renting a spare bedroom or converting a hobby into a small business. Having multiple income streams is a sound way to protect your finances.
  • If you have existing cash reserves, resist the temptation to spend and keep these funds in reserve. Rainy days may be just around the corner.

Please call, we can help

Planning will be a key element in managing the difficulties of the next year. It is doubtful that any remedial action taken by the government will result in immediate improvements in our financial circumstances. In which case it is up to us to figure out the best way to survive the current downturn.

2023-24 is not a year to dip your head in the sand.

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/business-profits-review-2022-23/

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.
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Business Profits Review 2022-23

The checklist that follows this introduction is relevant for any business structure: sole trader, partnership, or limited company. Where there are ideas listed that are only applicable to one of these three, this will be highlighted in the text.

The aim of this area of business year-end planning is to consider factors that you have some measure of control, and that will enable you to either reduce or increase your published profits for the year under review.

This may seem to be counter intuitive. How can you affect levels of profitability? Isn’t this determined by market conditions?

We shall see…

However adept you are at keeping your accounts, it is likely there are inaccuracies in your numbers that will have an impact on the amount of profit or loss you believe you have achieved. We are not suggesting that you artificially adjust your figures, far from it. The prime aim of pre-year-end planning is to seek out your true financial position and then consider what can be done to improve your position BEFORE the end of your trading period. If you wait until after your year-end, remedial action may no longer be possible.

The benefits of profit planning prior to your trading year-end can be summarized as follows:

  1. An opportunity to arrive at a realistic estimate of profits for the current financial year.
  2. A chance to make decisions based on this estimate that will benefit your longer-term goals.
  3. Time to consider the effects of the current year’s performance on your business investors, your bank, and your staff.
  4. It also flags up the ability of your business to sustain your current and future remuneration and withdrawals from your business.
  5. And finally, all UK businesses will be challenged by the current, dire state of the UK and world economies. In the UK we are facing high inflation, rising interest rates, continuing supply issues – as well as extreme increases in energy costs. Assessing and planning your business profitability will be key to surviving these challenges.

Another word for planning is forethought. If you do not plan your business future, you are apt to end up considering the reasons why things have not worked out as you expected – you will stare at the open stable door, and the empty stall, and wonder why you never repaired the lock.

Business Profit Review Checklist

Accounts:

  • Make sure you have depreciated your fixed assets, equipment, and vehicles, at a realistic rate. You don’t want the written-down value of your assets to exceed their market value.
  • Write off any bad debts.
  • Write off any slow-moving or obsolete stock. Consider an on-site auction or similar sale.
  • Make sure that you have not capitalised any replacement equipment that should have been written as repairs or written off equipment purchases that should have been capitalised.
  • Take a good look at your cut-off procedures. Are all your supplier invoices received and posted? Have you invoiced customers for work you have not delivered yet?

Projections to the end of your
trading year:

  • Base your sales projections on known factors. For example, orders received, consistent with past or repeat sales and considering current economic challenges.
  • Base your cost projections on current fixed costs, rents, wages and salary costs, and additional costs that you feel need to be included. Be realistic.
  • Factor in expenditure on capital equipment that you feel must be acquired to maintain sales or production at the required levels.
  • Make sure that apart from creating profit and loss and balance sheet forecasts, you also prepare a detailed cash flow forecast.

Consider the results:

Do the results:

  • Show an overall improvement or worsening of your financial position.
  • Reveal a healthy cash flow.
  • Point to deteriorating market conditions, falling demand for your products or services. How will this affect your planning for the immediate future and your longer-term goals?
  • If you consider the demand for your services will rise, are you in danger of over-trading?
  • How will your business investors, or your bankers, react to the projected results?
  • Is your business providing you with an adequate return for your capital invested in the business and are you properly remunerated for the time you spend in
    the business?

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.

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.
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Business Tax Review 2022-23

The Basics:

Whether you are self-employed or have your own company your periodic business tax payments will always be based on yearly trading profits and other chargeable gains made in the same period.

If you run your business through a company, corporation tax is payable on adjusted business profits (after allowances for capital purchases), nine months, and one day after your year-end date. Accordingly, corporation tax for the accounting year to 31st March 2022, will be due for payment on 1st January 2023.

As a quick fix, you could transfer between 15% and 20% of your monthly profits to a deposit account to reserve for this liability.

If you are self-employed, your business profits will form part of your self-assessment tax return. The amount of tax you will pay is split into two instalments on account, and a balancing adjustment if necessary.

To reserve cash for your self-assessment tax payments, the mathematics are more complex. Your best option is to deduct £1,000 per month (being your approximate income tax personal allowance) for each business partner, from the trading profits you make, and apply 20% to what is left. Transfer this amount to a deposit account. However, this will only provide the funds to pay tax on your business profits at the basic rate. If you have other taxable income this will need to be factored in.

Pre-year-end tax planning:

If you have a good set of management accounts, for say the first three quarters of your trading year, and a realistic projection for the year, then you can sit back with your trusted tax advisor and consider your options.

Whatever your business structure tax due on business profits needs to be paid at some future date. Pre-year-end tax planning gives you adequate time to estimate your future liabilities and reserve funds to pay the bill…

VAT: Are you using the best scheme?

Both self-employed business owners and companies should consider their options if registered for VAT. If you presently use the standard scheme, you may be advised to look at the VAT special schemes. These include:

  • Cash Accounting,
  • the Flat Rate Scheme, and
  • Annual Accounting.

There are turnover limits that will exclude larger organisations from benefitting, but smaller businesses may be able to secure cash flow benefits and a possible reduction in their overall VAT payments. Worth checking this out.

The checklists that follow have been split into two: the first for self-employed business owners (sole traders or partners), and the second for limited companies and their directors. The suggestions will impact income tax, NIC, and corporation tax payments.

Self-employed tax review check list 2022-23

  • The income tax you will pay for 2022-23 will be based on your profit or share of profits for the trading year ending in the 2022-23 tax year. However, you will have made two payments on account for 2022-23 (January and July 2023) based on your profits for the preceding year. Accordingly, if your profits are increasing you will likely have underpaid tax for 2022-23 and any balance owing will be payable on 31st January 2024. If your profits are decreasing, you can elect to make smaller payments on account. Either way, having your estimated trading figures available, to forecast your 2023 tax payments, means you have ample time to request reductions in payments on account or save to meet any balance due January 2024.
  • Every self-employed person is entitled to earn £12,570 during 2022-23 without paying income tax. If your projected profits (or share of profits), assessable in 2022-23, are lower than this amount your personal tax allowance (or part of the allowance) may be wasted. To avoid this, you can defer claims for capital allowances, or perhaps defer refurbishment or other non-recurring costs to increase your taxable profits, and fully utilize your personal tax allowance. These adjustments will tend to push tax relief on deferred expenditure into future years.
  • If your share of profits looks as if it will breach one of the thresholds and push you into higher, marginal rates of tax (for example: loss of child benefit if income exceeds £50,000, loss of your personal allowance if your income exceeds £100,000, or a 75% reduction in the amount of pension relief you can claim if your income exceeds £150,000). To counter these risks, you could consider bringing forward capital investments, in plant, equipment, or commercial vehicles and claim additional capital allowances.
  • Self-employed farmers, who can experience significant variations in the level of profits achieved, should take advantage of the extended averaging rules that entitle them to average their profits over a five-year or two-year period for 2022-23.
  • In planning for tax payments, based on profits assessable for 2022-23, business owners should be aware that generous tax allowances are still available for qualifying capital expenditure. The Annual Investment Allowance allows you to claim a 100% write-off for expenditures up to a £1m limit. This is a useful adjustment device to reduce taxable profits and save tax, whilst maintaining published profits in your profit statement.
  • Class 4 National Insurance is based on the level of business profits: 10.25% on profits between £11,909 and £50,270, and 3.25% on profits over £50,270. Any reductions you can achieve in your taxable business income will also reduce this significant NIC charge.
  • Since 2016 the rules for the VAT Flat Rate Scheme changed. All users of this scheme should crunch the numbers to see if they qualify as a limited-cost trader. If they do, a flat rate of 16.5% must be applied and this may preclude the advantages of registering for the scheme.
  • Finally, readers should take a look at our check list for individuals’ subject to income tax, as all of the comments made will help self-employed persons reduce their tax liabilities.

And do not forget, you pay tax on the profits you make, not the drawings you take from your business!

Limited company tax review check list 2022-23

  • Incorporated businesses are taxed at corporation tax rates, currently 19%, and any profits retained in the business will be subject to no additional tax charge. This final point illustrates one of the major advantages of running a profitable business inside a limited company structure. If you are self-employed you may want to consider the benefits of incorporating your business.
  • From April 2023, two rates of corporation tax will apply. Smaller companies with profits up to £50,000 will continue to pay corporation tax at 19%. Companies with profits in excess of £50,000 will be subject to a 25% rate. Firms with profits between £50,000 and £250,000 will be able to claim marginal relief.
  • The marginal rates reduction from April 2023 will be reduced if companies have associated businesses. Prior to April 2023, it is recommended that companies consider restructuring these associated businesses to avoid unnecessary increases in their corporation tax payments.
  • Shareholders should review any plans in place to deal with succession, especially, smaller family businesses. This review should consider personal circumstances, changes in the company’s financial status, and changes in tax legislation.
  • Shareholders should also review shareholder agreements to ensure they still reflect the intentions of signatories.
  • Presently, shareholders’ dividends up to £2,000 can be drawn tax-free. Would it be possible to issue shares to adult children and provide them with a tax-free income?
  • If all the shareholders of a small company hold the same class of shares, say ordinary shares, dividends will be paid based on the percentage held. This can be inconvenient if directors want to split dividends in a different proportion to equalise tax liabilities. One way to achieve this result is to convert existing shares into a number of different classes, say “A”, “B” shares, etc., and in this way shareholders can receive dividends in a more tax-efficient manner.
  • Review the active participation of director/shareholder family members. Is there an opportunity to employ a spouse or child; or provide taxable benefits?
  • Directors who have overdrawn their loan accounts with the company should consider taking a dividend to clear the loan (if reserves are available) or otherwise repaying the loan within nine months of the trading year-end. In this way an additional (albeit temporary) 33.75% corporation tax charge can be avoided.
  • Directors with semi-permanent deposits on loan to the company, may be advised to charge the company interest. Basic rate income taxpayers can receive up to £1,000 in interest tax-free, higher rate taxpayers £500.
  • The tax on costs of running a company car fleet – class 1A National Insurance for instance – as well as the considerable tax implications for participating employees, may provide sufficient justification for a change in strategy. For example, could the company lend employees funds to buy their own cars and pay them a tax-free business mileage allowance to cover running costs?
  • If projected profits forecast a temporary dip, or a loss in the short term, could the company’s accounting period be extended to embrace the loss and average down the taxable profits for the preceding period?
  • If projected profits are forecasting a downturn in profits, how will this affect director/shareholders’ remuneration in the coming months; will there be sufficient retained profits to maintain regular dividend payments?
  • Be sure to consider the funding of corporation tax payments that will need to be made nine months and one day after the company’s accounting year-end date.
  • Companies can still claim the 130% super-deduction for purchases of qualifying assets purchased before 31 March 2023. For example, an asset costing £10,000 will create a tax deduction of £13,000. At 19% tax relief, this is a tax saving of £2,470, reducing the after-tax cost to £7,530.

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/energy-bills-discount-scheme-what-you-need-to-know/

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.
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Energy Bills Discount Scheme – What you need to know

The Energy Bill Relief Scheme (EBRS) provides non-domestic energy customers with a discount on their gas and electricity unit prices. The discount is calculated by comparing estimated wholesale element of the unit price with a baseline Government supported price. It is given automatically. The EBRS comes to an end on 31 March 2023. It is to be replaced with a new scheme, the Energy Bills Discount Scheme (EBDS), from 1 April 2023.

Key dates

The EBDS will apply from 1 April 2023 until 31 March 2024. It replaces the EBRS, which comes to an end on 31 March 2023.

Nature of EBDS

Like its predecessor, the EBDS provides non-domestic energy customers, such as businesses, public sector organisations and charities, with help in meeting their energy bills. The help is given in the form of a discount on gas and electricity unit prices. Eligible energy customers will receive a per-unit discount on their energy bills, subject to a cap. The relative discount will be applied if wholesale prices exceed a certain level.

For most non-domestic energy users in Great Britain and Northern Ireland, the maximum discounts are:

  • £19.61 per megawatt hour (MWh) for electricity, with a price threshold of £302 per MWh; and
  • £6.97 per MWh for gas, with a price threshold of £107 per MWh.

The discount is calculated on the difference between the wholesale price associated with the energy contract and the price threshold. The discount is phased in when the contract wholesale price exceeds the floor price, until the total discount per MWh reaches the maximum discount for the fuel in question.

A higher level of support is available for certain energy and trade intensive industries (ETIIS). Details of the business qualifying for the higher level of support can be found on the Gov.uk website.

Eligibility

As with the EBRS, the EBDS is open to energy customers on a non-domestic contract who are:

  • on existing fixed-price contracts that were agreed on or after 1 December 2021;
  • signing new fixed price contracts;
  • on deemed/out of contract or standard variable tariffs;
  • on flexible purchase or similar contracts; or
  • under the Northern Ireland Scheme only, on Day Ahead Index (DAI) tariffs.

Automatic discount

As with the current scheme, the discount under the EBDS will be given automatically by suppliers. However, ETII business that qualify for the higher level of support will need to apply for it. The Government will publish details of how to do this in due course.

The Government will compensate the energy supplier for the price reduction that they pass on to their non-domestic customers. The discount will be applied in pence per kilowatt hour (p/kWh).

While the level of Government support for comparable contracts will be the same across energy suppliers, individual bills will continue to vary depending on the contract and the tariff. The level of support given to each organisation will depend on the type and date of the contract.

Please see the following HMRC link: https://www.gov.uk/guidance/energy-bills-discount-scheme

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/capital-gains-tax-cgt-tax-free-gains-2022-23/

Disclaimer: We have used reasonable care and skill in assembling the information in this document. Information or advice implied cannot be tailored to all personal circumstances or situations. There may also be factors relevant to your circumstances which fall outside the scope of some, or all of the information disclosed. Accordingly, this material does not constitute personal advice. You should not rely solely on this material to make (or refrain from making) any decision or to take (or refrain from taking) any action. Legislation changes frequently and any material in this fact sheet covers all known changes to the date of publication, 1 November 2022.
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Tax Planning for Individuals – 2022-23

Fiscal drag – freezing tax allowances

As announced in the Autumn Statement 2022, most of the personal tax and NIC rates and allowances are to be frozen at current levels for a further two years until April 2028.

This does mean that most pay increases in the next six years will be taxable. If these pay increases are less than inflation, then take-home pay is going to suffer on two counts. Any pay rise at less than the rate of inflation will result in less household spending power, as will the impact of any extra tax paid on the pay increase received.

If you can afford to manage on existing take-home pay you could direct any pay increases into additional pension contributions, which would be tax-free.

Income Tax – Avoiding Marginal Rates

What are these marginal rates?

Most of us know that income tax is charged at three main rates: 20%, 40%, and 45%.

Unfortunately, there are certain levels of income that trigger a loss of benefits or allowances as well as a charge to income tax. Because of this, the percentage rate of tax charged can be higher than the underlying rate of income tax. For example:

Joe’s taxable earnings have always been under £100,000, however, for 2022-23 Joe estimates that his income will be £125,140. Bad news…

As soon as income for tax purposes exceeds £100,000 Joe loses part of his tax personal allowance (£12,570 for 2022-23). In fact, for every £2 that his income exceeds £100,000 he will lose £1 of this allowance. This means that as soon as income is equal to or higher than £125,140 the personal tax allowance is no longer available. Taking this into account, Joe’s tax bill on the top £25,140 of his income is 40% (£10,056) plus, 40% of the lost allowance – a further £5,028. In total, Joe retains just £10,056 of his £25,140 income (£25,140 – £10,056 – £5,028). His percentage tax charge is therefore 60% on this marginal band of income between £100,000 and £125,140.

Similar, marginal rates apply if:

  • your income moves above the threshold where working tax or child tax credits cease to be available,
  • a higher paid parent’s income tops £50,000 for the first time: at which point child benefits would be under threat, or those with incomes in excess of £150,000, paying income tax at 45%, will find the tax relief they can claim for pension contributions will be reduced. Note the £150,000 threshold is reduced to £125,140 from April 2023.

To avoid or lessen the impact of these marginal rate charges you will need to discuss the possibility of reducing your income below the trigger points. There are various strategies that can be employed to achieve this including the sacrifice of salary for non-tax benefits such as increased employer pension contributions or longer holidays. However, since April 2017, HMRC will use new legislation to counter these salary sacrifice arrangements and so it is doubly important to consider options with care.

Work through the checklist that follows and if any apply to your circumstances call us today at 01473 744700 to discuss your options.

Income Tax – Planning Check List
2022-23

  • To lower the impact of higher rate tax (or marginal rates), consider sharing ownership of income-producing assets with your spouse, especially if your spouse pays no income tax or tax at lower rates.
  • Similarly, consider sharing ownership of income-producing assets with your adult children (over 18 years). Your children, whatever age, can earn up to £12,570 this tax year without paying income tax. Transfers of certain assets may create a CGT liability, and so planning is key.
  • If you have a pension scheme, take advice from your pension advisor on the level of contribution you should make this year. The maximum you can pay is £40,000 unless you pay tax at 45% in which case the annual limit could be as low as £10,000.
  • There are no limits to the amount of gift aid donations you can make. These contributions extend your basic rate tax band and are an effective strategy for avoiding the higher and marginal rates of income tax. Charitable donations are also one of the few remaining reliefs that you can carry back, in certain circumstances, to the previous tax year.
  • You can transfer up to £1,260 of your personal allowance to your spouse if you don’t earn enough to fully utilize this allowance against your own earnings. You can only do this if their income is between £12,571 and £50,000.
  • If you are provided with a company car and your employer pays for your private fuel, you should consider repaying this private fuel cost to your employer in order to avoid the punitive car fuel benefit charge. This will also save your employer National Insurance charges.
  • A further consideration for company car drivers is to discuss changing their vehicles for a lower CO2 emissions model. The car benefits charge increases in direct proportion to these CO2 ratings.
  • Don’t forget to use your ISA allowance. In this way, you can invest up to £20,000 in the current tax year and any interest earned will be tax-free.
  • There are a number of specialist investments you can make that are qualifying deductions for income tax purposes. They include the Enterprise Investment Scheme, investments in certain Social Enterprises, Seed Enterprise Investment Schemes, and Venture Capital Trusts. Income tax relief varies between 30% and 50% of the qualifying investments. You will need to consider the commercial risks as well as the tax advantages.
  • Don’t forget that the State Pension is treated as taxable income for tax purposes. You are paid without deduction of tax. If your total income (including your State Pension) exceeds £12,570, this may produce unwelcome bills from the tax office at the end of the tax year.
  • Although not strictly a tax planning matter, if you have an outstanding mortgage on your home, the current upward pressure on interest rates will be causing concern. The funds you use to repay your mortgage come from your after-tax income. Discuss ways to pay off part of the loan with your mortgage adviser and if you can convert an interest-only mortgage to a repayment variety this will drastically reduce the interest cost of your loan.

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 Tax specialist on Ipswich 744700.

 

Disclaimer: We have used reasonable care and skill in assembling the information in this document. Information or advice implied cannot be tailored to all personal circumstances or situations. There may also be factors relevant to your circumstances which fall outside the scope of some, or all of the information disclosed. Accordingly, this material does not constitute personal advice. You should not rely solely on this material to make (or refrain from making) any decision or to take (or refrain from taking) any action. Legislation changes frequently and any material in this fact sheet covers all known changes to the date of publication, 1 November 2022.
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Self-assessment tax – How to pay your self-assessment bill

How I can I avoid late penalty charges for self-assessment taxes?

 

Tax returns for 2021/22 must be filed online by midnight on 31 January 2023. The same deadline applies for paying any tax due under self-assessment for 2021/22 and, where relevant, the first payment on account of your 2022/23 tax liability. The payment can be made in various ways. Interest is charged where tax is paid late, and penalties may also apply.

Key dates

Any outstanding tax owing for 2021/22, together with the first payment on account for 2022/23, must be paid by 31 January 2023, unless the underpayment is being collected through your tax code or you have agreed a time-to-pay agreement with HMRC.

Checking what you owe

Before making the payment, it is important to check what you owe. Remember, the tax calculation produced by HMRC shows the total amount due by 31 January 2023 – it does not take account of any payments on account that may have been made on 31 January 2021 and 31 July 2021 or any other payments that you have made. To ensure that you pay the correct amount, you should view your personal tax account first. This will show not only what tax you owe, but also what payments have already been made.

Payment options

There are various ways in which you can pay the tax that you owe. The options include:

  • direct debit;
  • online banking
  • debit card;
  • at a bank or building society; or
  • by cheque.

If you also pay tax under PAYE and you filed your tax return online by midnight on 30 December 2022 or filed a paper return by 31 October 2022, you may be able to have the tax that you owe collected through your 2023/24 tax code if you owe £3,000 or less.

You can also set up a Budget Plan to make regular payments toward your tax bill.

Direct debit

If you want to pay your self-assessment tax bill via direct debit, you can set up a direct debit through your HMRC online account. However, you can only set up a direct debit for a single payment – it is not possible to set up a recurring direct debit. You will need to set up one for the tax that you owe for 31 January 2023 and a separate one for the July payment on account. If you paid by direct debit last year, the tax that you owe this year will not be collected automatically – you will need to set up a new direct debit for this year’s bill.

The reference number is your 10-digit Unique Taxpayer Reference (UTR), followed by the letter ‘K’. You will be able to find your UTR on your personal tax account or on your payslip from HMRC.

If you are paying by direct debit for the first time, you should allow five working days for it to be processed. Where you have previously paid by direct debit, you should allow three working days.

Online banking

Payments can be made by online banking. The payment reference is your UTR followed by the letter ‘K’. HMRC’s bank details are as follows.

Where payments are made by faster payments they will usually reach HMRC on the same or the following day.

Sort code Account number Account name
08 32 10 12001039 HMRC Cumbernauld

 

Paying via your personal tax account or the HMRC app

You can also make your payment through your personal tax account or the HMRC app. You will need to select the ‘pay by bank account’ option. This will direct you to sign in to your online or mobile bank account to approve the payment.

The payment is usually instant but may take up to two hours to show on your account.

At a bank or building society

Payments can be made at a bank or building society using cash or cheque if you have the paying-in slip sent to you by HMRC. Cheques should be made payable to HMRC and you should write your UTR followed by the letter ‘K’ on the back of the cheque.

Where payment is made in a bank or a building society from Monday to Friday, HMRC will treat the payment date as the date that you made the payment rather than the date on which it reaches their account.

Cheque

Although not advisable, payment can be made by sending a cheque through the post. The cheque should be sent to:

HMRC

Direct

BX5 5BD

The cheque should be made payable to HMRC and you should write your UTR followed by the letter ‘K’ on the back of the cheque. You should allow three working days for your payment to reach HMRC.

Chaps and Bacs

Payment can also be made by Chaps and Bacs. Chaps payments usually reach HMRC on the same day, whereas Bacs payments usually take three working days.

Please see the following HMRC link: https://www.gov.uk/self-assessment-tax-returns

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/making-tax-digital-for-income-tax-start-date-delayed/

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.
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Making Tax Digital for Income Tax – Start date delayed

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) was due to be introduced in April 2024. However, the start date has been delayed. MTD for ITSA will now be phased in from April 2026, applying initially to self-employed individuals and landlords with business and/or trading income of at least £50,000.

Key dates

MTD for ITSA will now apply from 6 April 2026 to self-employed individuals and landlords with trading and/or business income of at least £50,000. It will be extended to self-employed individuals and landlords with trading and/or business income of between £30,000 and £50,000 from 6 April 2027.

Nature of MTD for ITSA

Under MTD for ITSA, you must send quarterly updates to HMRC within one month of the quarter’s end. You must also send an end-of-period statement by 31 January following the end of the tax year and make a final declaration by the same date. The introduction of MTD for ITSA has been put back. It is being phased in and your start date will depend on the level of your business and/or property income.

Previous start date

MTD for ITSA was due to come into effect from 6 April 2024 (the 2024/25 tax year) for self-employed individuals and landlords with business and/or property income of more than £10,000 a year.
Businesses will now have longer to prepare for its introduction.

New timetable

The start date for MTD for ITSA has been put back two years. It will now come into effect from 6 April 2026 rather than from 6 April 2024. Initially, it will only apply to self-employed individuals and landlords with business and/or property income of at least £50,000. It will be extended to self-employed individuals and landlords with business and/or property income of between £30,000 and £50,000 from 6 April 2027.
You may be able to sign up to join MTD voluntarily before your mandatory start date.

A start date has yet to be set for self-employed individuals and landlords whose business and/or property income is less than £30,000.

The new timetable will reduce the number of self-employed individuals and landlords who are required to comply with MTD for ITSA, and give those who remain in its scope longer to prepare.

Government review

The Government has announced that they are to undertake a review into the needs of smaller businesses. The review will consider how MTD for ITSA can be designed to meet the needs of smaller businesses. The outcome of the review will inform any further roll-out of MTD for ITSA beyond April 2027.

Basis period reform to go ahead

The delay to the MTD start date does not affect the reform of the basis period rules, which is to go ahead. Under the reforms, trading income will be assessed on a tax year basis for 2024/25 and later tax years. This means that the income assessed for the tax year will be that for the period from 6 April to the following 5 April, rather than that for the accounting period ending in the tax year (the current year basis). Where accounts are prepared to a date other than 31 March or 5 April (or a date in between), it will be necessary to apportion the results of more than one accounting period to arrive at the profit or loss for the tax year.

The 2023/24 tax year is a transitional year.

Please see the following HMRC link: https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital

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.

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.
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