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Month: February 2023

Tax warnings for online sellers, influencers and content creators

Written by admin on . Posted in Income Tax, self-assessment, Self-Employed. No Comments on Tax warnings for online sellers, influencers and content creators

HMRC’s latest wave of ‘nudge letters’ ­– used to prompt a response from the recipient – has been targeted at online sellers, influencers and content creators warning them that they may not have paid enough tax.

It is likely HMRC has obtained information from various online platforms and is using this as the basis for the nudge exercise. The wide range of recipients illustrates the scope of HMRC’s data analytics capabilities, as they have managed to identify people running blogs or social media accounts that include sponsorship.

Although any profit from online activity is taxable, there is an exemption if annual gross trading income does not exceed £1,000.

Certificate of tax position

Any online seller who receives a nudge letter is asked to complete a certificate of tax position within 30 days.

If the seller has undeclared income, HMRC recommends making a voluntary disclosure using its online Digital Disclosure Facility. Once HMRC is informed of the intended disclosure, they will send an acknowledgement letter. Outstanding tax must be paid within 90 days from the date of this letter.

If the seller does not need to inform HMRC of any additional income, they either have to declare that all income from online marketplace sales has been correctly declared or explain the reason why income need not be declared. This could be because of the de minimis £1,000 exemption, or if income is less than the personal allowance of £12,570.

Tax position alternatives

Unlike the self-assessment tax return, there is no legal requirement to complete and return the certificate of tax position. However, non-completion will inevitably attract more attention from HMRC.

If an online seller’s tax affairs are not straightforward, it will probably be better to respond by letter instead. A more detailed explanation of the seller’s tax affairs can then be given. Professional tax advice, is, of course, essential.

A step-by-step guide for any online sellers, influencers and content creators who need to set themselves up as self-employed can be found here.

Photo by Markus Spiske on Unsplash

Profit withdrawal changes for 2023/24

Written by admin on . Posted in National Insurance Contributions, PAYE. No Comments on Profit withdrawal changes for 2023/24

Owner-managers have historically benefited by withdrawing profits by way of dividends, rather than taking director’s remuneration, due to the national insurance contribution (NIC) saving. However, tax changes taking effect from April 2023 will mean this approach may no longer be such an attractive option.

From 1 April 2023, the current 19% rate of corporation tax will only be available for the first £50,000 of profits. On profits between £50,000 and £250,000, the effective rate will be 26.5%, with 25% payable thereafter. As far as personal tax is concerned for 2023/24:

  • The tax-free dividend allowance will be cut from £2,000 to £1,000; and
  • Dividend tax rates are not reduced by 1.25% in line with the reduction to NIC rates.


Case study

The profit withdrawal decision will differ from owner-manager to owner-manager, but let’s take the situation where company profits are forecast to be £150,000 for the year ended 31 March 2024 and the owner-manager wants to withdraw £50,000 either as dividends or director’s remuneration (this will be their only income). The company does not have any other employees.

  • Dividend: After allowing for corporation tax, a dividend of £36,750 can be taken. Income tax on this will be £2,028, so net of tax income is £34,722.
  • Remuneration: After allowing for employer NICs, gross remuneration of £45,040 will be paid. After income tax and employee NICs, the net of tax income is £34,650.

There is virtually no difference between the two options. However, the remuneration option would be better if some or all of the £5,000 employment allowance was available to set against employer NICs. At higher levels of income, dividends have the advantage – for example, some £1,793 more in net of tax income for a £100,000 withdrawal – but again, the availability of the employment allowance could swing this around.

The employment allowance is not available if a director is the sole employee. This can be rectified by employing a family member and paying them at least £9,100 a year. The salary must of course be justified.

Forecast

Directors who want to take regular monthly or quarterly dividend payments will need a fairly accurate forecast of company profits. This might be difficult, but directors – assuming they have sufficient funds to live on – have the option of waiting until towards the end of the tax year before deciding on a profit withdrawal strategy, as the tax position will not change.

Higher Scottish rates of income tax mean the remuneration option is more expensive for Scottish taxpayers. It is assumed that rates of NIC will remain unchanged for 2023/24.

Tax rates and allowances for 2023/24, along with some useful tax calculators, can be found here. Scottish income tax information can be found here.

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New energy bill support scheme for businesses

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A new business energy support scheme is set to run from 1 April 2023 to 31 March 2024 but will be less generous than the scheme currently in effect. Businesses with energy costs below £107/MWh for gas and £302/MWh for electricity will not receive any support.

The current scheme runs until 31 March 2023 and is based on fixed prices. The new scheme will instead provide a discount on wholesale prices.

The new discount

Businesses will receive a unit discount of up to £6.97/MWh unit discount on gas bills, with a discount of up to £19.61MWh on electricity bills. The discounts only apply above a threshold level of £107/MWh for gas and £302/MWh for electricity.

  • At first glance that might not seem too bad, but energy billing is in kWh. When converted ­– two pence off a kWh of electricity and just over half a penny for gas – the reduction can be seen as much less generous.
  • Many smaller firms are struggling to pay energy bills even with existing support. For a typical retail store, the total reduction over the 12 months under the new scheme will be just £400.
  • As for the current scheme, the discount will not be available to businesses on existing fixed-price contracts agreed prior to 1 December 2021.

Although businesses do not need to take any action or apply for the new scheme, they should be aware of how the changes from 1 April 2023 will impact their cash flow forecasts.

Energy and trade-intensive businesses

A higher level of support will be provided to businesses in sectors identified as being the most energy and trade intensive. Similar to the current scheme, the discount for these businesses will reflect the difference between government-supported prices and wholesale prices.

Businesses may need to register for this additional support.

A full list of eligible energy and trade-intensive sectors can be found here.

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Company cars: not-so-free fuel

Written by admin on . Posted in benefit-in-Kind, Company Car Tax, Employment Tax, self-assessment. No Comments on Company cars: not-so-free fuel

If your employer pays for the fuel in your company car, it may cost you more than you expected.

As the Autumn Statement was not a Budget, detailed publications that would normally emerge as the Chancellor sat down have taken time to appear. For example, the HMRC projections of how many more capital gains tax (CGT) payers there would be because of the much-reduced annual exemption (another 570,000 by 2024/25) did not appear until the Monday after the Autumn Statement, missing the weekend personal finance pages.

One even later arrival – three weeks after the Autumn Statement – was an HMRC bulletin on the fuel benefit charge for company cars in 2023/24. For some years the basis has been an increase in line with September annual CPI inflation (published in mid-October), so there was no explicit reason for HMRC’s procrastination. The number that was eventually revealed was the current figure, increased by 10.1%, as had been expected.

Taxable value for 2023/24

That means for 2023/24 if you have ‘free’ fuel, its taxable value will be assessed by multiplying £27,800 by your car’s percentage scale charge. For example, if you have a petrol-engine car with CO2 emissions of 130–134 g/km, your scale charge is 31% and £8,618 (£27,800 x 31%) will be added to your income for tax purposes. In terms of hard cash, that is an extra £3,447 going to the Exchequer if you are a 40% taxpayer.

At this point you are probably wondering how far £3,447 of petrol would take you. Assume a price of £1.60 a litre and 40 miles a gallon and the answer is about 19,000 miles. In 2019, before the pandemic disrupted travel, the average car covered 7,400 miles a year. If that figure still applies – and it is probably less because of increased working from home – then the ‘free’ fuel break-even point is more than 250% of typical use.

Not all benefits are so harshly taxed – electric cars can be an attractive option – but the large cost of ‘free’ fuel is a reminder that when it comes to anything financial, ‘free’ is a word to be treated with great caution.

Photo by Hans Isaacson on Unsplash

 

Tax implications for the bank of mum and dad

Written by admin on . Posted in Capital Gains Tax, Property, SDLT, Stamp Duty. No Comments on Tax implications for the bank of mum and dad

With property prices expected to fall during 2023, parents may be thinking about getting their children onto the property ladder. However, although help with a deposit does not raise that many tax issues, joint ownership can have expensive tax consequences.

Nearly half of first-time property buyers aged under 35 have received help from the bank of mum and dad. However the following implications should be considered alongside generous intentions.

Help with a deposit

  • Outright gift: This will be treated as a gift for inheritance tax (IHT) purposes. There is no immediate tax cost, but it could mean more IHT is payable if the parent subsequently dies within seven years.
  • Loan: An interest-free loan arrangement avoids any IHT implications, but it could impact on mortgage affordability calculations.


Stamp duty

Joint ownership is likely to mean upfront stamp duty consequences.

  • In England and Northern Ireland, first-time buyers can benefit from a nil-rate threshold of £425,000, saving a potential £8,750 compared to a normal purchaser. However, with joint ownership, all purchasers need to be first-time buyers to qualify for relief; parents are unlikely to qualify.
  • There is a similar, although much lower, relief for Scottish first-time buyers.
  • Furthermore, the inclusion of parents will probably mean that the stamp duty surcharge on second homes is payable. For property in England and Northern Ireland, this is 3%, with higher surcharges for Scottish and Welsh property.

The surcharge can mean an extra cost of £9,480 for a property purchase in England at the latest published average price (October 2022) of £316,000.

Capital gains tax (CGT)

CGT exemption on property disposal only applies if a property has been the seller’s main residence, and this again is unlikely to be the case for a joint owning parent. The tax charge will probably be mainly, or wholly, at 28%. The future reduction of the CGT annual exemption to just £3,000 will not help.

A useful guide on helping a child buy their first home can be found here.

Photo by Jason Dent on Unsplash