Skip to main content

Author: admin

Handy hints ahead of self-assessment

Written by admin on . Posted in benefit-in-Kind, Company Car Tax, High Income Child Benefit Charge, self-assessment, Self-Employed. No Comments on Handy hints ahead of self-assessment

The 31 January 2024 deadline for submitting a 2022/23 self-assessment tax return is not far off, especially for those not yet registered.

Anyone who has not previously registered for self-assessment – but needs to submit a tax return for 2022-23 – should do so as soon as possible.

  • A self-assessment activation code can take a week to arrive (three weeks if overseas); and
  • It can take two weeks (again, three weeks if overseas) to obtain a unique taxpayer reference, although using a personal tax account or the HMRC app can speed things up.

For anyone who has not previously submitted a tax return, the deadline for informing HMRC of the need to do so for 2022/23 has already passed. Individuals who have missed the deadline might face a fine.

First-time registration

There are a number of reasons why a taxpayer might fall into the self-assessment system for the first time. For example, anyone who has:

  • Started part-time self-employment, including work in the gig economy, trading on eBay and similar websites, or earning money as an influencer (although the first £1,000 of self-employed income is exempt);
  • Disposed of cryptoassets (any profits are subject to capital gains tax); or
  • Rented out property for the first time, possibly through sites such as Airbnb (again, the first £1,000 of rental income is exempt).
  • Become liable to the High Income Child Benefit Charge as a result of their income exceeding £50,000.

Sooner rather than later

Leaving registration to the last moment will mean there is no time to deal with any unforeseen problems. You might need to consult HMRC’s self-assessment helpline, which is now available again after its summer closure.

There will also be little time before the related tax bill is due for payment, and this could be an issue if the amount payable is higher than expected.

More information about whether you need to submit a self-assessment tax return can be found here.

Photo by Markus Winkler on Unsplash

Free property alerts for landlords

Written by admin on . Posted in Property. No Comments on Free property alerts for landlords

Landlords in England and Wales might not be aware, but there is a free property alert service that monitors any significant activity on let property.

There is greater risk of a property being fraudulently sold or mortgaged if the landlord lives overseas, the property is empty or if there is no mortgage.

Signing up for a property alert will not automatically block any changes to the property register, but it will act as a warning when something changes, such as a new mortgage being taken out against the property.

Although property fraud is rare, HM Land Registry has prevented more than £100 million of fraud over the past five years.

Set-up process

An important first point is that a property can only be monitored if it is already registered with HM Land Registry, which may not be the case if acquired prior to 1990 and not mortgaged since then. A search of English and Welsh property can be made here.

For registered property, it is simply a matter of:

  • Creating a property alert account; and
  • Adding the properties to be monitored.

Up to ten properties can be monitored. However, you don’t need to own a property to monitor it, so it is easy enough to enlist family members to get around this restriction.

Unregistered properties

There is also more risk if a property is not registered, so it is recommended that an application be made to have such property registered. Although registration can be done by a landlord, many may prefer to use the services of a solicitor or conveyancer.

Restriction on title

Going a step further, putting a restriction on a property’s title will prevent a sale or mortgage being registered unless certified by a solicitor or conveyancer. The request itself is free for landlords, although a fee will likely be payable should a certificate be required.

The starting point for setting up a property alert, along with some guidance, can be found here.

Photo by Tiffany Tertipes on Unsplash

An uncertain future for the Triple Lock

Written by admin on . Posted in Pensioners, Pensions, Wealth. No Comments on An uncertain future for the Triple Lock

In mid-September, the Office for National Statistics (ONS) published the latest earnings data, covering the period May to July 2023. Earnings data has been the focus of much attention recently because a fall in the pace of pay growth is seen as a pre-condition for the Bank of England to consider a pause – and eventually cuts – in interest rates. However, the data that emerged in September was doubly important as, in theory, it sets the level of increase for the old and new state pension from April 2024.

Both the old and new state pensions are subject to the Triple Lock, which means they are due to increase by the greater of:

  • Annual earnings growth (including bonuses) for the May to July period;
  • Annual CPI inflation to September; or
  • 5%.

Given the publicity it receives, you may be surprised to learn that the Triple Lock is nowhere to be found in pensions legislation. The Triple Lock is a discretionary feature that the government can ignore, although with an election almost certain in 2024, it would be difficult to imagine that it would depart much from its requirement this year.

May to July earnings total earnings growth this year was 8.5%, 0.3% higher than expected, a surprise that the ONS attributed to NHS and civil service one-off payments in June and July. That means from next April the old state pension will rise by £13.30 to £169.50 a week and the new state pension (applying to those who reach state pension age after 5 April 2016) will increase by £17.35 to £221.20 a week, unless the government decides to suspend the Triple Lock. It did so in 2022/23, when Covid-19 distorted earnings data and for 2024/25 it could tweak the earnings definition to exclude those one-off payments.

Whether the Triple Lock will survive beyond the next election is unclear. Shortly before the earnings data was published, the Prime Minister refused to commit to the Triple Lock being in the Conservative manifesto. At about the same time, the Institute for Fiscal Studies published a critical report saying that the Triple Lock created uncertainty both for the government and for individuals planning their retirement.

If you find yourself thinking you could retire on £221 a week, think again. It represents less than two thirds of this year’s 35-hour week National Minimum Wage.

Source: IFS.

Energy efficiency targets shelved. Will some landlords benefit from this?

Written by admin on . Posted in Uncategorized. No Comments on Energy efficiency targets shelved. Will some landlords benefit from this?

The government’s backtracking over the introduction of energy performance targets for property let out in England and Wales is facing criticism, but it will be welcome news for landlords with older properties deemed too expensive or difficult to upgrade.

Let property must currently have an energy performance certificate (EPC) rated E or above. Without this, the property cannot be legally let regardless of whether the tenancy is an existing one, a renewal or a new let. The government’s intention was to raise the EPC requirement to C or above by 2028.

The penalty for not having a valid EPC is £5,000. Under the now scrapped proposals, the penalty was going to be £30,000.

The cost

The cost of moving from a D or E rating to a C would typically be in the region of £10,000 to £20,000. There were reports that the government would have covered anything over £10,000, but that would still leave a significant burden for many landlords. As capital expenditure, most upgrades would not even have qualified for tax relief against rental income.

  • Raising energy efficiency to the required standard might have required improving insulation, installing double glazing or replacing old gas boilers.
  • However, it would have been very difficult, if not impossible, to bring some older properties up to an EPC C rating.

One concern considered by the government was that costs would have been passed on to tenants by way of higher rents.

The future

Although new EPC rules are off the agenda for now, there is every chance this could change if Labour wins the next election. Regardless of future changes, however, landlords should be aware that a good EPC rating makes a property more attractive to tenants given current high energy costs.

For Scottish landlords, it looks as if the Scottish Government still intends to go ahead with a move to an EPC C rating by 2028.

A useful guide to energy performance certificates can be found here.

Photo by American Public Power Association on Unsplash

Farewell to inheritance tax?

Written by admin on . Posted in Inheritance Tax. No Comments on Farewell to inheritance tax?

In July, the government was reported as holding talks on abolishing inheritance tax (IHT). This wasn’t given much credence at the time, but there are now reports that the March 2024 Budget will include a reduction to the 40% IHT rate as a prelude to future abolishment.

IHT is charged at the rate of 40% on estates worth more than £325,000. However, there is also a further allowance of £175,000 that can be set against the value of a main residence if the property is inherited by descendants. Both allowances are shared between spouses or civil partners, so there is a potential family exemption of £1 million.

Although the combination of frozen allowances and higher property values has brought more estates into the IHT net, the tax is only paid on around 4% of estates.

Argument for change

Given that investments are generally paid for out of taxed income, IHT can be seen as a double charge to tax, preventing people passing on their wealth to children and grandchildren.

  • It applies to virtually all assets, without the exemptions given for capital gains tax – such as for a main residence.
  • Although IHT is mainly paid by the wealthy, the very rich typically have far more scope for reducing their overall IHT burden by, for example, making lifetime gifts and using trusts.

The moderately wealthy, where a main residence may account for the majority of wealth, may not be able to afford such tax planning measures.

How likely?

Although a rate reduction of a percentage point or two cannot be ruled out, full abolition is almost certainly going to be too costly in the current economic climate – some £7 billion in lost tax revenue annually – especially as HMRC is on course to have a record-breaking year from IHT receipts.

Then there is the forthcoming general election. A Labour government would be more likely to move in the opposite direction by cutting IHT allowances – in particular, the £175,000 main residence allowance.

In the meantime, if your estate may become liable for IHT, there are measures you can take. HMRC’s basic guide to IHT, including details of various exemptions, can be found here.

Photo by Glenn Carstens-Peters on Unsplash

Mitigating rising corporation tax rates

Written by admin on . Posted in Company Director, Corporation Tax, Pensions, Wealth. No Comments on Mitigating rising corporation tax rates

New HMRC statistics have shed some light on how many companies are affected by the recent hike in corporation tax rates. Just over 1.5 million companies paid corporation tax for the financial year to 31 March 2022, but only 7% fell above the £50,000 small profits threshold.

Although fewer than 100,000 companies are likely to be facing the 26.5% marginal rate of corporation tax where profits fall between £50,000 and £250,000, they will be mainly owner-managed companies with owners keen to mitigate the tax increase.

For a company with a 31 March year end and profits of £200,000, this year’s corporation tax bill is going to be £11,250 higher than last year.

Director’s self-invested personal pension (SIPP)

Even if a director has not previously been in favour of making sizable pension contributions, there can now be a compelling case for doing so.

  • With a marginal tax rate of 26.5%, investing the maximum £60,000 into a SIPP will save corporation tax of £15,900.
  • Once the director reaches 55, 25% of the pension fund can be withdrawn tax free, but virtually immediately if a director is already 55.
  • There will be an overall tax saving if the tax rate eventually paid on pension withdrawals – taking into account the tax-free element – is less than 26.5%.

Even if there is no overall tax advantage as such, there will still be a timing benefit. The current year’s corporation tax bill is cut, but the tax cost does not apply until the director receives their pension income.

Mitigating cost and risk

By choosing a low-cost provider, the annual cost of maintaining a SIPP can be kept to a minimum.

If there are only a few years until retirement, a director might not want to be exposed to stock market volatility. This risk can be avoided by investing in fixed-term cash deposit accounts.

A basic guide to SIPPs can be found here.

Photo by micheile henderson on Unsplash

Deferring your state pension

Written by admin on . Posted in Pensions. No Comments on Deferring your state pension

The current state pension age (SPA) – the earliest age at which you can draw your state pension – is 66. It will be gradually increased to 67 between April 2026 and April 2028. A further rise to 68 is due, probably between 2037 and 2039, but the confirmation of that timing has (conveniently) been delayed until after the next general election.

Most people draw their state pension as soon as it becomes available, which requires a claim to be made. If you do not make that claim, your state pension is automatically deferred until you choose to claim it. Up until then your deferred pension will increase every week you defer, provided you defer for at least nine weeks. The rate of increase is the equivalent of 1% for every nine weeks, which works out at just under 5.8% a year.

For example, if you defer the current state pension of £203.85 a week for 52 weeks you would receive an extra £11.82 a week once it started before adding the normal inflation related uplift. The increase is not compounded, so for two years’ deferral the extra would be £23.64, and so on.

5.8% a year does not sound bad, but don’t forget, your higher pension will be paid for a shorter period, as it started later. It can take a long time for the extra payments to overtake the loss of the full pension in the deferred period. For example, for a one-year deferral you will need to wait until you are about 81 before the total pension payments you have received are higher because of deferral, assuming 2.5% CPI inflation.

Nevertheless, there can be good reasons to defer. For example, if you are still working, your state pension would attract tax at your highest rate(s) which could be lower once you fully retire. There are other tax planning situations where being able to minimise income in a tax year can be useful, for example when cashing in an investment bond. Before you claim your state pension, make sure you take all your circumstances into consideration.

Government guidance on deferring your state pension can be found here.

Photo by Tim Hüfner on Unsplash

Don’t get caught in the VAT penalties net

Written by admin on . Posted in VAT. No Comments on Don’t get caught in the VAT penalties net

The 50th anniversary of the UK’s introduction of VAT was earlier this year, but despite being around for a while, many VAT-registered businesses still find VAT too complex and confusing. No surprise then that more businesses than ever are getting hit with penalties for inaccuracies.

Inflation and frozen thresholds

Two things that are not helping are the high rate of inflation combined with a freeze on various VAT thresholds.

Since 2017, the registration threshold has been £85,000, so with increased prices it is easy for a business to become liable for VAT despite staying the same size.

Meanwhile the thresholds for remaining within the flat rate, cash accounting and annual accounting schemes, have remained virtually unchanged for around 15 years, so, again, it is easy to mistakenly continue with a scheme when no longer eligible to do so.

Beware penalties

With HMRC aiming to close the tax gap for VAT, the risk of penalties for inaccuracies will only increase; for 2021/22, the number of penalties issued was already substantially higher than for the previous year, a trend which is sure to continue.

HMRC is able to charge a penalty of up to 30% of the extra VAT due if an error arises due to lack of reasonable care.

In HMRC’s view, it is reasonable to expect a business to find out about the correct VAT treatment or to seek appropriate advice when encountering a transaction with which they are not familiar.

A get out of jail card?

Incurring such a penalty is somewhat careless. However, there may be a get out of jail option if this arises.

HMRC have the discretion to suspend a penalty, for period of up to two years, during which time a business must comply with certain conditions. The aim is to prevent further penalties in the future, so a business could, for example, be asked to improve its record keeping.

If this is done, the penalty will be cancelled at the end of the suspension period, but best to avoid such a scenario in the first place.

HMRC’s guidance on VAT errors can be found here.

Photo by Oxana Melis on Unsplash

Fraud countermeasure drives R&D tax relief changes

Written by admin on . Posted in Corporation Tax, R&D, Tax. No Comments on Fraud countermeasure drives R&D tax relief changes

The level of fraudulent claims being made for research and development (R&D) tax relief has prompted HMRC to introduce a new procedure: companies must provide detailed information ahead of making their claim.

HMRC figures show that nearly 20% of claims for R&D tax relief are fraudulent, so it is no surprise they are tightening up on the claim process. Non-compliance is a particular problem when it comes to small value claims, with nearly 80% of claims for less than £10,000 being suspect.

The new requirement will mean having to submit an additional information form to HMRC to support a claim for R&D tax relief or for expenditure credit.

This new form is a separate requirement to the claim notification form a company must submit to HMRC in advance of a claim for R&D tax relief. Notification applies for accounting periods beginning on or after 1 April 2023.

Submitting the new form

The additional information form must be sent to HMRC before the company’s corporation tax return is filed. If the tax return is filed without the additional information being provided, HMRC will simply remove the claim for R&D tax relief from the company’s tax return.

  • HMRC has set up an online portal for submitting the additional information form.
  • The new process will allow HMRC quickly to assess the validity of a claim, especially the level of expertise of those involved in preparing the claim.
  • The form requires detailed information on the R&D project, including a breakdown of the costs involved. For SMEs with just one to three projects, a full description of each project is required.

HMRC now require a considerable amount of additional information to be submitted, and this will be a challenge for SMEs. Companies should therefore start preparing for their R&D tax relief claims as far in advance as possible to avoid any last minute surprises.

HMRC guidance about the new requirements can be found here.

Photo by Growtika on Unsplash

Interest rate rises fuelling increased tax take

Written by admin on . Posted in Capital Gains Tax, Income Tax, PAYE. No Comments on Interest rate rises fuelling increased tax take

The Bank of England base rate increase is impacting on the government’s tax takes, with more taxpayers paying tax on savings income due to higher interest rates. Increased mortgage rates are contributing to rocketing capital gains tax (CGT) takings too.

The impact of savings on tax

National Savings & Investment is offering a 5% return on its one-year bonds, and some financial institutions are offering 6% for a similar investment. So, a higher rate taxpayer with £10,000 or more invested will easily exceed their £500 savings allowance. In fact, it is estimated that the number of taxpayers paying tax on their savings income for 2023/24 will be a million more than the previous year.

There are two options to minimise tax liabilities:

  • You could move savings into ISA accounts, up to an annual investment limit of £20,000. This limit could restrict the scope of such planning for some.
  • You could invest in tax-free premium bonds. Although not paying interest as such, the expected annual return for larger investments is 4.65% – equivalent to a gross 7.75% for a higher rate taxpayer.

It’s advisable to keep careful track of your savings income for tax purposes. If tax is owed, it will be paid through self-assessment or via a PAYE coding adjustment.

Why is capital gains tax revenue increasing now?

The substantial increase in CGT receipts reported recently is partly explained by the number of buy-to-let landlords who are selling up. A buy-to-let was a good investment choice when mortgage costs were low, property prices were increasing, and cash savings accounts offered a very poor return in comparison. But all three of these factors are now in reverse, and landlords will often be able to get a better return investing their funds elsewhere.

Uncertainty around possible future increases to CGT is also pushing landlords to sell sooner rather than later.

If selling up, landlords can keep CGT bills as low as possible by:

  • Making sure any qualifying expenditure is claimed, including any enhancement expenditure which hasn’t qualified as a deduction against property income.
  • Disposing of any other investments standing at a loss in the same tax year, because capital losses cannot be carried back to earlier tax years.
  • Putting property into joint ownership with a spouse or civil partner prior to disposal.

These measures can help alleviate some of the seemingly punitive rates of CGT.

HMRC information on the taxation of savings income on can be found here [savings interest] and we are always happy to advise you on your options.

Photo by Andre Taissin on Unsplash