Tax Roundup Spring 2023

Tax Administration & Maintenance Day

April 27th saw the second Tax administration and Maintenance day when HMRC announced a package of policy proposals to modernise the tax system.

HMRC are consulting on a range of reforms including Cryptoassets, Construction industry, Charities compliance and collection of information. If you want to read more or have your say in the consultations click here

Announced separately was a consultation on a registration scheme for short-term holiday lets/Airbnb. More information on this can be found here

Employers

With tax year end behind us employers are focused on those annual year end tasks. As a reminder for the 22/23 year:

• P60’s should have been given to employees no later than 31 May 2023. 

• P11ds should be filed with HMRC and provide a copy to employees by 6 July 2023

• Employment related securities returns (ERS) including EMI returns to be filed by 6 July 2023

• PSA returns to be filed and tax paid by 22 October 2023 (see our blog post for more information)

PAYE codes

Employees may have seen their Paye codes change in April with the start of the 23/24 tax year but the basic tax code of 1257L remains the same.

Here’s a brief overview of what the different letters before or after the code mean

Prefix S - Scottish taxpayer

• Prefix C - Welsh taxpayer

• Prefix K - Restrictions in the code are higher than the allowances, effectively a negative code.

• BR - Basic rate tax is deducted from this income - currently 20%

• D0 - Higher rate tax is deducted from this income - currently 40%

• D1 - Additional rate tax id deduced from this income - currently 45%

• NT - No tax is deducted from this income

• 0T - No allowances are allocated to this income 

It's important to check your tax code, if it is incorrect it will affect your take home pay. Do not assume that HMRC will issue you with the correct code.

Did you know that you can check and update your tax code through your digital tax account? We can help you set up your account if you do not have one, get in touch with us here 

Self Assessment

Tax return filing for the 22/23 year is underway, although the deadline is 31 January 2024 there are benefits to filing your return early including managing cash flow by planning for upcoming liabilities and claiming back refunds owed. One common misconception is that filing early allows HMRC longer to ask questions about your return - HMRC have 12 months from the filing date to open any enquiries so it doesn't matter if you file on 6 April or 31 January.

Remember you can access your current and previous years returns, manage payments and much more through your digital tax account. 

Key dates

31st May 2023 - P60’s issued to employees

1st June 2023 - Corporation tax payment due for 31 August 2022 year ends

7th June 2023 - Vat return submission and payment deadline for 30 April quarter ends

22nd June 2023 - PAYE payment due for M3 (Month end 5 June )

30th June 2023 - Corporation tax filing deadline for June 2022 year ends 

1st July 2023 - Corporation tax payment due for 30 September 2022 year ends

5th July 2023 - Deadline to agree PAYE settlement agreement for 2022/23

6th July 2023 - P11ds for 2022/23 to be filed with HMRC

6th July 2023 - Employment related securities (ERS) returns to be filed with HMRC for 2022/23

7 July 2023 - Vat Return submission and payment deadline for 31 May quarter ends

19 July 2023 - PAYE, NIC,CIS Class 1A NIC - manual payments due

21 July 2023 - PAYE, NIC,CIS Class 1A NIC - electronic payments due

28 July 2023 - Plastic packaging tax return and payment due for quarter end 30 June

31 July 2023 - Corporation tax return due for year ends 31 July 2022

31 July 2023 - Self Assessment 2nd Payment on Account due

Digital Tax Account - Have you got yours!

Following the surprise news on Thursday that HMRC are closing the Self Assessment helpline from 12th June over the summer months it is more important than ever to have your Digital tax account active as it will be the only way to access your tax records. Read HMRC’s full statement here

Most importantly you can monitor and update your Paye tax codes, check your current tax position and check any payments becoming due. But there are some added features that are really useful including 

• Check your National insurance records and State pension forecast

• Check the progress of any correspondence with HMRC

• Manage your Child benefit claims

• Manage any Marriage allowance claims

• View your earnings records

We would strongly recommend setting up your tax account if you haven't already done so. Need help! - just click here and we can arrange a call to talk you through the process.

We also recommend downloading the HMRC app for easy access from your phone.

Window to top up National Insurance Contributions to end on 31 July 2023

It is normally possible to make voluntary National insurance contributions for the past six tax years, to top up any missing or partial years of a taxpayer’s NI record. If a taxpayer does not have enough full years of NI contributions, this may increase their entitlement to the state pension, as well as other benefits. 

There is an extension currently in place that allows individuals to fill gaps in their NI contributions history from 6 April 2006 to the present date via voluntary contributions. This was due to end on 5 April 2023. 

The government announced that the extension will now end on 31 July 2023. Contributions made between 6 April and 31 July 2023 will be at the voluntary NI rates for the 2022/23 tax year of £15.85 per week. This allows taxpayers more time to identify and plug historic gaps in their NI record. 

From 1 August 2023, the timeframe for making voluntary contributions will revert to the usual six years. From that date, it will be possible to make contributions going back to the 2017/18 tax year only. Contributions will be made at higher voluntary NI rates of £17.45 per week. These higher voluntary NI rates were due to apply from 6 April 2023, but will not apply where payments are made by 31 July 2023 under the extension. 

It is important to check your National Insurance record to identify any gaps in your contribution history, you can do this by logging into your personal tax account and viewing your National Insurance record. You can also view your state pension forecast if you are not already in receipt of your pension. 

If you would like to discuss this with us click here

PAYE Settlement Agreements (PSA)

HMRC have announced a new online service for applying for, submitting, amending or cancelling a PSA. But what is a PSA and what is it used for?

A PAYE Settlement Agreement (PSA) is an agreement between an employer and HMRC that allows an employer to settle the tax liability on certain expenses and benefits provided to employees.

Under normal circumstances, employers are required to report and pay tax on these expenses and benefits on behalf of their employees. However, a PSA enables the employer to make a single annual payment to cover the tax due on all qualifying expenses and benefits provided to their employees.

PSAs can cover a wide range of expenses and benefits, including items such as staff entertaining, certain travel expenses, and work-related training costs. The key is these expenses or benefits must be minor, irregular or impractical, to be included in the PSA. The agreement removes the need for the employer to report and deduct tax on each individual expense or benefit, saving time and administrative costs.

A PSA can be applied for anytime during a tax year and up to 5 July after the end of the tax year your PSA relates to.

When a PSA is in place any Tax and National Insurance owed to HMRC must be paid by 22 October following the end of the tax year.

Please get in touch if you would like to discuss PSA’s further

Spring Statement 2023

In case you missed the Spring Statement last week here's a roundup of the headlines and a few snippets that slipped under the radar:

Headlines

The OBR has forecast that Inflation is set to fall to 2.9% by the end of 2023

• UK expected to avoid recession

• The energy price guarantee is to remain for further 3 months from April 2023

• Energy costs for Prepayment meter and direct debit customers are to be aligned

• 30 hours free childcare to all children aged over 9 months to be in place by September 2025

• Employment support package for the disabled and long term sick

• Support for over 50’s to return to work - a new type of apprenticeship called a “returnership” for learning new skills

• Focus on Employment, Education, Enterprise, Everywhere

• No major changes to personal and corporate tax rates and allowances  
  

Capital allowances - full expensing of expenditure for companies

For expenditure incurred from 1 April 2023 to 31 March 2026 a 100% first year allowance will be available on plant and machinery expenditure that would normally qualify for main rate capital allowances and a 50% first year allowances on expenditure that would qualify for special rate allowances.

Note that cars are excluded from the full expensing and the asset purchased must be new and not second hand.

Remember new electric vehicles already qualify for 100% capital allowances until 2025 and the chancellor extended 100% allowances on EV charge points expenditure until 2025 too.

Pension allowances 

The amount that an individual can save into their pension scheme each tax year has been increased from £40,000 to £60,000 with effect from 6 April 2023. The tapered annual allowance threshold has also been increased from £240,000 to £260,000.

The lifetime limit on pension savings has been abolished.

Research & Development update

It has already been announced that the SME enhanced expenditure rate is reducing from 130% to 86% and the credit payable is reducing from 14.5% to 10%. From 1 April 2023 all R&D claims will have to be made digitally and the time limit has been amended to 2 years from the end of the accounting period

The chancellor announced on Wednesday additional support for R&D intensive companies (40% intensity rate) who will be entitled to claim a higher SME payable credit of 14.5% rather than 10%. This additional support will not be available to claim until 1 August 2023 so Companies will either have to delay their claim or submit an amended claim after this date.

Under the Radar 

Some small but still important changes that were announced in the spring statement

• Capital Gains Tax and Divorce - Separating couples will now have three years to transfer assets between them with no tax due previously this had to be done in the year of separation . No time limit on transfers as part of a formal divorce agreement.

• EMI Share Options - From 6 April 2024 new EMI options will no longer need to be notified to HMRC within 92 days. The deadline has been extended to 6 July following the end of the tax year

• Pension Tax Relief Net Pay Arrangements - Low earners who contribute to a pension under a net pay arrangement where contributions are deducted from gross pay are receiving relief at 0%. HMRC will pay top ups to those eligible equivalent to the 20% tax relief.

• Trusts and Estates - with income under £500 per tax year will no longer be required to pay tax on that income.

• Cryptoassets - From 2024-25 HMRC are introducing a new section on the personal and trust tax returns for reporting disposals of cryptoassets.

• Help to Save scheme -Has been extended for a further 18 months to March 2025. This is a savings account aimed at those claiming working tax credit or universal tax credit. The government will add 50p for every £1 saved over the 4 year life span of the account. 

• Seed Enterprise Investment Scheme - The amount that investors can claim SEIS relief on has increased from  £100,000 to £200,000. The gross asset limit of the company receiving the investment has increased from £200,000 to £350,000. (Announced Autumn 22 coming into effect from 6 April 2023)

Tax Rates and Allowances

There were no changes to the tax rates and allowances in the Spring Statement so here is a recap of the current rates from April 2023 

Corporation Tax

• Main rate rising to 25% for profits over £250,000

• Small profits rate of 19% for profits under £50,000

• Marginal relief for companies with profits between £50,000 and £250,000

• Annual Investment allowance £1,000,000

Income Tax

• Personal Allowance - £12,570

• Personal allowances tapered when income between £100,000 and £125,140

• Basic rate of 20%, on £37,700

• Higher rate of 40% on income between £37,701 and £125,140

• Additional rate of 45% on income over £125,140 

• Dividends rates of tax 8.75%, 33.75% and 39.35%

• Dividend allowance reduced to £1,000 from April 2023 and £500 from April 2024

• Note that different rates may apply for taxpayers living in Northern Ireland, Scotland and Wales.

Capital Gains Tax

• Annual exemption for individuals - £6,000

• Annual exemption for Trustees - £3,000

• CGT rate for residential property and carried interest disposals 18%/28%

• CGT rate for all other disposals 10%/20%

• Business asset disposal relief (BADR) - 10% on £1 million lifetime limit.

National Insurance 

• Employees rate - 12% on £12,570 to £50,270 then 2%

• Employers rate - 13.8%

• Class 2 (self employed) £3.45 pw

• Class 3 (Voluntary) £17.45 pw

• Class 4 (self employed on profits) 9% on profits between £12,570 and £50,270 then 2%.
  
  
  
  

Spring Statement 2022

Did you listen to the Spring Statement 2022 on Wednesday 23rd March?

Fear not, we’ve summarised the key points beneath.

Fuel duty cut

A 5p cut in fuel duty from 6pm on Weds 23rd March was announced.

Critics say that the Chancellor could have gone further with this cut as, since the fuel price increase, the Government are receiving much more in VAT from fuel and so even with the 5p cut, they will still be earning more from fuel than they were before the increase

Others also question how this cut sits with the UK’s long term sustainability plans.

Income tax, national insurance and Employment allowance

The chancellor announced three measures relating to employees & the self employed:

First is an increase in the employment allowance from £4k to £5k from April 22. This will help eligible employers who will not pay the first £5k of employers NI.

Second was the rise in the National insurance threshold for employees to £12,570 from July 22. For the self employed, an increase to £11,908 for the 22/23 year takes place to match the employed split rate.

Third was the announcement regarding an income tax to drop from 20% to 19% by 2024.

Energy Saving Equipment VAT rate

Households purchasing energy saving equipment, such as solar panels or heat pumps, will attract a VAT rate of 0% instead of 5%.

Household support fund

Household support fund doubled to £1bn, this will be used by councils to support vulnerable households.

To be announced in the Autumn budget - People, Capital, Ideas:

The chancellor also summarised the 3 areas that businesses will be consulted on in the run up to the Autumn budget:

• People - Consider current staff training incentives such as apprenticeship schemes

• Capital - Capital investment incentives review

• Ideas - Reform of R&D tax credits

So overall, some good points to help individuals but not much for businesses. The chancellor has been criticised that the announcements don’t tackle the rise in the cost of living crisis. What are your thoughts?

January is the perfect time for a health check.... for your finances

Happy New Year!

We all know the January feeling of resolutions, healthy eating and dry January, so we’re all used to health checks for ourselves, but what about our company finances?

We’re here to tell you it’s just as important to review your company books, and what better time to do it than the start of the new year?

Are you sure you’re making decisions based on accurate data and utilising cloud software to it’s fullest extent? We can tell you that the majority of small businesses aren’t!

Fear not, we’re here to help

Did you know that we offer a Xero health check service? We review your current processes to ensure you’re making the most of the subscription, and provide suggestions of better ways to do things. We also review your figures to ensure they are being processed properly and highlight problem areas.

Let us put your mind at rest and get in touch for your Xero health check today!

3 things you might not know about self assessment tax returns

With the tax return filing deadline just around the corner (31st January if you weren’t sure!), here are 3 things you might not know about self assessment tax returns.

High income child benefit charge

If you receive child benefit and your individual income is over £50,000 then you may have to pay a high income child benefit charge.

If both your and your partners individual income is over £50,000 then whoever has the highest income will be liable for the charge.

If you earn over £50,000 then you have two options:

1. continue to receive child benefit and pay the tax charge at the end of each year

2. stop receiving child benefit

If you choose to continue to receive child benefit then you’ll need to submit a self assessment return each year to pay the high income child benefit charge.

Trading Allowance

Started a side hustle during Covid?

The first £1,000 of income from self employment is tax free. This means you don’t need to submit a tax return until earning over £1,000 from that new side hustle!

If your other income is between £1,000 and £2,500 then you need to notify HMRC.

Earning over £2,500? Then you’ll need to report your earnings on a self assessment tax return.

Property Allowance

Do you earn income from property? If so, the first £1,000 of the gross income is tax free.

If you earn between £1,000 and £2,500 then you need to notify HMRC and if earning over £2,500 you must register for self assessment.

If in doubt get in touch and we can let you know your options!

Autumn budget 2021 - our top 5 announcements affecting small businesses

On 27th October Rishi Sunak presented his Autumn Budget to parliament. Here we summarise the top 5 announcements that affect small businesses:

1.

National Living Wage to increase next year by 6.6%, to £9.50 an hour from April 2022. This coupled with the new Health & Social care levy will have an impact on wage costs for small businesses. It’s important to model how this will affect your business allowing plans to be put in place to cover the cost.

2.

Business rates reforms include:

• A 50% business rates discount for the retail, hospitality, and leisure sectors in England in 2022-23. To support local high streets as they adapt and recover from the pandemic, the government is introducing a new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022-23, worth almost £1.7 billion. Over 90% of retail, hospitality and leisure businesses will receive at least 50% off their business rates bills in 2022-23.

• Reform of business rates will make the system fairer, more responsive and more supportive of investment. The proposals set out will collectively reduce the burden of business rates in England by over £7 billion over the next five years.

• The government is freezing the business rates multiplier in 2022-23, a tax cut worth £4.6 billion over the next five years. This will support all ratepayers, large and small, meaning bills are 3% lower than without the freeze.

• From 2023, a new business rates relief will support investment in property improvements so that no business will face higher business rates bills for 12 months after making qualifying improvements to a property they occupy. This will enable businesses to adapt to meet rising demand and make improvements to their premises that support net zero targets and enhance productivity as employees return to the workplace.

3.

Investment in R&D and innovation will help drive economic growth and create the jobs of the future. The government is increasing public R&D investment to record levels: £20 billion by 2024-25.

Reforms to R&D tax reliefs will ensure that they better support cutting-edge research methods and that the UK more effectively captures the benefits of R&D funded by the UK taxpayer through the reliefs. This will take combined public direct and indirect support for R&D to 1.1% of GDP in 2024-25 – well above the 2018 OECD average of 0.7%.

The government will also set out plans to tackle abuse of and improve compliance with the R&D tax reliefs later in the autumn.

4.

Apprenticeships funding will increase to £2.7 billion by 2024-25 to support businesses to build the skilled workforce they need.

Funding for the Help to Grow schemes will help SMEs improve their productivity through world-class management skills training and support for digital adoption.

5.

The Recovery Loan Scheme will also be extended until 30 June 2022 to ensure that lenders continue to have the confidence to lend to small and medium-sized businesses. Finance will be available up to a maximum of £2 million per business, supporting them to recover from the impact of the pandemic and to grow. The government guarantee will be reduced from 80% to 70% to encourage the lending market to move towards normality as the economy continues to recover.

Bookkeeping - what do I need to do and how do I do it?

Have you ever thought:

“I won’t need to do bookkeeping if I’m using cloud bookkeeping software as it does it all for me?”.

Well, as much as cloud bookkeeping software, like Xero, make the bookkeeping easier, there is still some human interaction required. This can be done by you, the business owner, or a bookkeeper/accountant. Your choice is whether to give up time to do it yourself or money to hire a qualified bookkeeper/accountant to do it all for you.

Here, we’ll walk you through the 3 main areas of bookkeeping and what you’ll need to do in each area.

Sales

First things first, you need to know how much your turnover is and to do this, you’ll need to record your sales. There are a couple of ways to do this and the industry you’re in will decide which is the best fit for you:

Raise sales invoices - If you need to send your customers an invoice, you should raise these in Xero. The sales invoice template can be customised and emailed out to your customer straight from the software. Raising the invoice also accounts for the income in your software, so you’re killing 2 birds with one stone!

Feed sales through from another software - The other option is to feed your sales through from another software, this could be a sales channel for e-commerce businesses or project management/time tracking software for service based businesses. By finding a solution that connects directly with Xero, or via another app, you’ll be ensuring that the data is fed through correctly and automatically, meaning you can see your income position on a real time basis!

Purchases

Hands up if you’ve heard that old saying:

“Turnover is vanity, profit is sanity”

Well, by processing your sales as detailed above, you’ll be able to monitor your turnover, but without also accounting for your purchases, you’ll never be able to monitor your profit.

As a practice, we use Dext to process invoices for our bookkeeping clients as this helps automate the process, however purchases can be recorded straight into Xero, it’s just a lengthier process.

Each cost should be categorised accurately depending on the type of cost, is it a direct cost, an overhead, a capital item, a personal cost?

If you are a VAT registered company then the VAT rate also needs assigning correctly, is the cost vatable and if so, is that VAT claimable or is the cost client entertaining or a similar disallowable VAT cost?

Bank

The final main area of bookkeeping is reconciling the bank transactions. Xero supports bank feeds from lots of high street and challenger banks so the bank transactions are fed in automatically each day. Wahoo!

The human element is in matching and assigning these transactions. Each bank transaction must be matched against the corresponding sale or purchase invoice or coded to the correct code in Xero.

These are the basics of bookkeeping. There are other elements such as reviewing aged payables and receivables transactions, registering assets, posting payroll to name a few.

If you have any questions or would like assistance with your bookkeeping then get in touch!