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Help to Grow: Digital scheme expanded

Written by admin on . Posted in Making Tax Digital, MTD. No Comments on Help to Grow: Digital scheme expanded

The government’s Help to Grow: Digital scheme has just been expanded to businesses with at least one employee. Previously, only businesses with five or more employees were eligible. The scheme provides a 50% discount towards the cost of software.

The extension of the scheme’s eligibility criteria means that some 1.2 million businesses can now benefit. The scheme has also been expanded to include:

  • Additional software in the form of eCommerce software that can help businesses sell online and reach new markets; and
  • One-to-one advice on how best to adopt digital technology, although this service will not go live until later this year.

The discount

The 50% discount is worth up to £5,000 (excluding VAT) on approved software, which is purchased for the first time. Only one software product can qualify for the discount, and only the first 12 months of software costs are covered. The business has to be incorporated and trading for at least 12 months.

The types of software covered are:

  • Customer relationship management software that allows a business to store its customer contact and order data all in one secure, central location.
  • Digital accounting software that makes essential business finance tasks like raising invoices, expense tracking, and sharing information easier to manage.
  • eCommerce software that helps a business sell its products and services online.

On average, using customer relationship management software boosts productivity by 18%, with digital accounting software increasing employee sales by nearly 12% over three years.

There are currently 14 approved technology suppliers listed on the Help to Grow: Digital website, which also provides a considerable amount of guidance. Business owners can learn about the different types of software available, how to identify their business needs, and use step-by-step guides to embrace new ways of working.

More information about the Help to Grow: Digital scheme can be found here.

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Setting new taxpayer records

Written by admin on . Posted in Employment Tax, High Income Child Benefit Charge, Income Tax, Inheritance Tax, Lasting Will & Testaments, self-assessment. No Comments on Setting new taxpayer records

New data from HMRC reveals there are now over six million people paying higher or additional rate tax in the UK.

In recent years, the end of June has been the time for HMRC to issue its annual statistics on taxpayer numbers. This series is more up to date than some of HMRC’s releases and includes a projection for the current tax year.

The latest set of data received more press attention than usual for several reasons:

  • The number of income tax payers jumped by 1.3 million (4%) for 2022/23, the largest increase since 2004/05.
  • Higher rate taxpayer numbers rose by 750,000 (16%), an increase unmatched in over 30 years of HMRC data.
  • The population of additional rate taxpayers grew by 66,000 (12%). When the additional rate of tax was introduced in 2010/11, only 0.75% of taxpayers were in this lofty band, a proportion that has since grown to 1.75%.
  • Add together higher and additional rate taxpayers and the total exceeds 6.1 million, over one in six of all income taxpayers.

This means there are more taxpayers than ever before and more of them are paying higher and additional rates due to a combination of two main factors:

  1. The then Chancellor Rishi Sunak’s decision in March 2021 to freeze the personal allowance, higher rate and additional rate thresholds from 2021/22 through to 2025/26. In fact, the additional rate threshold has never moved from its initial £150,000.
  2. Inflation has been vastly higher than anticipated back in March 2021, when the CPI rate was running at 0.7% (a year, not a month) and the Office for Budget Responsibility (OBR) was projecting that it would not reach 2% until 2025. The OBR’s projection for total inflation over the four years from the start of 2022 to the end of 2025 was 7.7%, a figure that is almost certain to be below what 2022 alone will deliver.

The winner in all of this is the Treasury, so much so that there is now talk of tax cuts being announced in the Autumn Budget, if not sooner. As with July’s ‘tax cut’ in National Insurance contributions, any new income tax cut will be a reduction in the size of the previously planned increase.

Meanwhile, if you have become a higher rate taxpayer this year, you should make sure you are using all available reliefs and allowances to the full. The one piece of good news is that tax relief on your pension contributions has potentially doubled.

Source: HMRC.

Planes, trains and automobiles – managing employees’ transport challenges

Written by admin on . Posted in benefit-in-Kind, Benefits, Employment Law, Employment Tax, PAYE. No Comments on Planes, trains and automobiles – managing employees’ transport challenges

With strikes and cancellations affecting trains, the underground and flights, employers need to decide how they are going to treat employees who cannot get into work or are stuck overseas.

Commuting

Although inconvenient, there is generally plenty of notice when it comes to train, tube and tram strikes, and therefore the chance to make contingency plans. With hybrid and homeworking now commonplace for many offices, this will be the simple and obvious answer to discuss with employees on affected days.

Employees who are required to attend work in person may face a longer and/or more expensive journeys than normal – especially if an alternative mode of transport is required. So employers should consider offering help with some financial assistance. Some absences may be avoided by rearranging work patterns or promoting car-pooling for instance.

Stuck overseas

The treatment of employees who cannot return to work after a holiday because they are stuck overseas due to a cancelled flight is somewhat more problematic.

  • If an employee can resume work as usual while abroad then they should obviously be paid as normal. It is unrealistic, however, to expect most employees – especially if not in a senior position – to have travelled with their work laptops.
  • Assuming sufficient annual leave is available, extending a holiday may be an answer where an employee is unable to work remotely. Or the employee may be happy to take unpaid leave.
  • Although there is no requirement to otherwise pay an employee who is stranded overseas, the employer might consider treating it the same as an emergency situation and remunerating on a similar basis to other emergencies, especially if the employee is taking all reasonable steps to return home.

Employees may not be able to leave the UK for their holiday in the first place and so need to rearrange their dates. Employers do not have to agree to this, especially given short notice, but a flexible approach is advisable where possible.

The Government’s guide to holiday entitlement for employers and employees can be found here.

Photo by Lisanto 李奕良 on Unsplash

Has a 60% income tax rate reappeared?

Written by admin on . Posted in Employment Tax, Gift Aid, High Income Child Benefit Charge, Income Tax. No Comments on Has a 60% income tax rate reappeared?

The high marginal tax rates created by phasing out the personal allowance are back in the news.

‘A million to pay 60% income tax within years,’ ran a recent headline in The Sunday Telegraph. The next day The Times picked up on the same story with the article ‘Inflation may leave million more workers paying 60% tax’.

How the 60% tax rate happens

In 2022/23, Yasmin expects to have an income of £100,000 and is therefore entitled to a personal allowance of £12,570. If she receives an unexpected bonus of £10,000, her total income will be £110,000 and her personal allowance will be reduced by half of the amount by which her total income exceeds £100,000 – i.e. £5,000. As a result, she will not only pay tax of £4,000 on her bonus (at 40% outside Scotland), but she will also have to pay £2,000 of tax on the £5,000 of her income no longer covered by the personal allowance. The result is:

   Total extra tax          =    £4,000 + £2,000 x 100% = 60%
Total extra income                £10,000

If Yasmin received a bonus of over £25,140, she would lose all her personal allowance.

Whether either article counts as ‘news’ is debatable. The 60% income tax rate (or 61.5% on earnings in Scotland) has been around, in one form or another, since 2010/11. It is not, as The Times suggested, the result of ‘a glitch in the personal allowance regime’ but was the product of a carefully crafted piece of legislation. At the time, the aim was to raise extra revenue while keeping the threshold for the newly introduced 50% additional rate tax at £150,000.

The newspaper articles indirectly highlighted that:

  • The £100,000 threshold at which the personal allowance is tapered has been unchanged since 2010; and
  • The personal allowance has almost doubled since 2010, resulting in a £25,140 band of income in which the 60% rate can bite.

Both factors mean that more taxpayers are being caught as incomes rise over time.

The one piece of good news is that if you are hit by 60% income tax you may also be able to claim 60% tax relief on pension contributions or gift aid.

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Defining ‘period of ownership’ on residence disposals for CGT purposes

Written by admin on . Posted in Capital Gains Tax, Litigation & Dispute Resolution, self-assessment. No Comments on Defining ‘period of ownership’ on residence disposals for CGT purposes

The disposal of a private residence is exempt from capital gains tax (CGT) if used as a main residence throughout the period of ownership. A recent case heard in the First-Tier Tribunal has come up with a very favourable interpretation of what this means.

The facts

In the case heard by the Tribunal:

  • A married couple purchased a plot of land.
  • Over the next two and a half years the land was redeveloped, with the original house demolished and a new house built.
  • The couple then moved in before selling the new house a year later.
  • The sale resulted in a gain of over £500,000 for each spouse.
  • The couple claimed private residence relief for the total amount gained, but HMRC argued that full exemption was not available as the house had not been lived in for the entire period from when the land was originally purchased.

The decision

The question for the First-Tier Tribunal to decide was whether the period of ownership covered just the new house (one year) or whether it went back to when the land was bought (some two and half years earlier).

Both parties put forward detailed arguments to support their respective positions, but in the end the decision was simply that the natural reading of the legislation was the ‘period of ownership’ means the period of ownership of the house being sold – so the couple’s gains were fully exempt.

It is of course possible that HMRC might chose to appeal the decision.

There may be tax planning scope for anyone sitting on a plot of land representing a potential substantial gain if they can build a house on the land and live in it for a few years before a sale to claim private residence relief.

However the other important caveat to bear in mind is that First-Tier Tribunal decisions do not set a precedent. View HMRC’s guidance on private residence relief here.

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Tax implications of no fault divorce

Written by admin on . Posted in Capital Gains Tax, Income Tax, Litigation & Dispute Resolution, Wealth. No Comments on Tax implications of no fault divorce

No fault divorce became a reality in April this year. Although it brought no associated changes to the tax rules, divorcing couples should now be in a better position to focus on financial issues – particularly important if not using a lawyer or solicitor.

Capital gains tax

For most couples, the main tax issue will be the capital gains tax (CGT) consequences of transferring assets as part of the divorce settlement.

The basic rule is that transfers only escape CGT (on a ‘no gain, no loss’ basis) if made by the end of the tax year in which the couple are no longer living together – the year of separation.

After the end of the year of separation, but before the divorce is finalised, any transfers of assets will be treated as made at market value, so CGT can be payable – but with no proceeds to fund the tax liability.

Couples dissolving a civil partnership can now also do so on the same no fault basis.

Private residence relief will generally mean there are no – or few – CGT implications if transferring the family home, but someone with a portfolio of property and investments could face a large, unnecessary, CGT bill without careful planning.

Timing

With a no fault divorce, the applicant is required to wait 20 weeks from the start of the divorce proceedings until a Conditional Order (previously the Decree Nisi) is made. This is the time for reaching a financial agreement on how assets are to be divided. There is then a further wait of six weeks until the Final Order (previously the Decree Absolute) can be made.

This is a minimum of six months. Add on possible paperwork processing delays, and a separation in the second half of the tax year means a straightforward transfer of assets will not be possible until the next tax year, making CGT an issue.

HMRC has provided an updated help-sheet on the CGT implications of divorce, dissolution and separation here. During such a stressful process, it’s more important than ever to ensure you have the right expert guidance, so let us know if we can help.

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Are you on top of Making Tax Digital’s latest developments?

Written by admin on . Posted in Making Tax Digital, MTD, National Insurance Contributions, self-assessment, Self-Employed, VAT. No Comments on Are you on top of Making Tax Digital’s latest developments?

The widening scope of Making Tax Digital (MTD) is highlighting several issues, including the limited availability of the MTD for income tax pilot scheme, and low awareness of the recent expansion of MTD for VAT to all VAT registered businesses.

Pilot scheme

Although the functionality of the MTD for income tax pilot scheme is constantly evolving, HMRC is still restricting sign-up to small numbers, citing the need for detailed, individual guidance for users.

From this month, taxpayers can join the pilot if they have the following types of income:

  • self-employment, even if there is more than one business;
  • UK property;
  • employment income; or
  • UK savings and dividend income.

Functionality to be added over coming months will mean that pilot scheme users will be able to claim relief in respect of personal pension contributions and the marriage allowance, and it will also be possible to report capital gains, pay voluntary class 2 NICs and make student loan repayments.

The scope of the pilot scheme is still quite restricted, with taxpayers only able to sign up through their software provider.

MTD for VAT

MTD for VAT was extended to all VAT registered businesses from 1 April. Previously, it only applied to those above the £85,000 VAT registration threshold.

Some new entrants will currently be in the process of preparing their first MTD compliant VAT return – although research indicates considerable misunderstanding as to how MTD for VAT differs from the previous electronic VAT return filing requirement. Some 30% of responders thought they had already signed up to MTD, when in fact they had not.

There will be something of a delay for those businesses who submit VAT returns annually. For example, with an annual accounting period running to 31 March 2023, the first MTD return will not need to be submitted until 31 May 2023.

As MTD progresses, stay up to date with HMRC guidance here.

Please take professional advice if you require assistance with your MTD transition.

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Charitable giving pitfalls

Written by admin on . Posted in Gift Aid, Income Tax, self-assessment. No Comments on Charitable giving pitfalls

Many individuals donate to charity simply for altruistic reasons, but this doesn’t mean the tax benefit should be ignored. With Gift Aid donations saving tax at an individual’s marginal rate, donors need to watch out for any pitfalls that might preclude relief.

If a Gift Aid donation helps to preserve a person’s entitlement to the personal allowance, the tax saving is 60%. For example, a gross donation of £1,000 costs just £400.

Benefit received

Any benefit received in return for making a donation must be minor. An acknowledgement of the donor’s generosity – such as a plaque – is permitted but should not take the form of business advertisement or sponsorship.

When it comes to right of admission, such as a National Trust membership fee, the donation must be at least 10% more than the normal admission cost. For example, £11 would need to be paid for entrance that would otherwise cost £10. Alternatively, admission rights can be for at least 12 months during public opening hours.

Other pitfalls to be aware of include:

  • Gifts: Tax relief is not available for an individual membership or subscription gifted to someone else, such as a spouse or parent. However, this restriction doesn’t apply where a donor’s minor child is the recipient.
  • Double counting: Where charitable giving is via a Charities Aid Foundation account, tax relief is given on donations to the account – not when donations are made from the account to charities. Therefore, be careful not to double count when claiming relief. The advantage of using a centralised charity account like this is that only one Gift Aid declaration need be completed.

Tax planning

If a donor’s income varies from year to year, donations can be made in the tax years when the tax saving is greatest.

  • The ability to treat donations as being made in the previous tax year is a great help here because – unlike pensions – tax planning can be done retrospectively once the donor’s tax position is established.
  • The same approach should be followed for spouses or partners. If a donation comes from a joint bank account, the donor who will benefit the most should make the Gift Aid declaration.

Detailed guidance from HMRC on Gift Aid for individuals and companies can be found here.

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Off-payroll mistakes now penalised

Written by admin on . Posted in Employment Law, Employment Tax, Income Tax, IR35, Litigation & Dispute Resolution. No Comments on Off-payroll mistakes now penalised

The private sector off-payroll working rules have been in place since April 2021, but for the first 12 months businesses have benefitted from HMRC’s relaxed stance on penalties. HMRC will now, however, penalise mistakes made in applying the rules.

HMRC will charge penalties for any inaccuracies relating to the operation of the off-payroll working rules that occur from 6 April 2022 onwards.

Medium and large-sized private sector contracting companies are responsible for determining the employment status for any contractors they use.

Size check

Small private sector contractor companies are not subject to the new off-payroll working rules. Size classification is based on the Companies Act definition and should be checked each year.

  • This is particularly the case if a business has grown in size or been bought by another organisation.
  • It is good idea to confirm small company status with contractors as they will be responsible for determining their employment status.

Compliance

There would be no problem complying with the rules if there was a clear definition of employment as opposed to self-employment. Unfortunately, HMRC’s Check Employment Status for Tax (CEST) tool falls well short of what is required, and even government departments have found themselves liable for millions in additional tax after erroneously relying on the CEST tool.

Two recent Court of Appeal cases (both pre-dating the change in rules) show how difficult determining employment status can be:

  • Paul Hawksbee, a regular presenter for TalkSport Radio, prevailed at the First-Tier Tribunal, but HMRC was successful at the Upper Tribunal. This has been confirmed by the Court of Appeal, resulting in a tax cost of over £140,000.
  • Kaye Adams, a presenter for BBC Radio Scotland, was successful at both the First-Tier Tribunal and Upper Tribunal, but the Court of Appeal felt the Upper Tribunal had erred in making its decision. The case has therefore been sent back to the Upper Tribunal to be reheard. Tax of over £124,000 is at stake, with Adams’s legal costs outweighing this amount.

Guidance on the off-payroll working rules for contractor companies, along with some useful links, can be found here.

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Company insolvencies on an upward trend

Written by admin on . Posted in Bankruptcy, Director Disqualification, Insolvency, Litigation & Dispute Resolution, Restructuring & Insolvency. No Comments on Company insolvencies on an upward trend

Although showing a slight improvement from March, the number of company insolvencies in April of this year was more than double the number from April 2021. This shows just how important it is to get advice sooner rather than later if your company is experiencing problems.

The majority of insolvencies were creditors’ voluntary liquidations (CVLs):

  Total insolvencies CVLs
April 2019 1,429 1,024
April 2020 1,199    933
April 2021    925    815
April 2022 1,991 1,777

Figures already available for May show no improvement. The government’s support measures kept insolvencies at bay during the Covid-19 pandemic, but the expected post-pandemic boom has not materialised for many businesses, followed instead by other damaging economic factors such as high inflation, the Ukraine war and supply chain challenges due to continuing Chinese lockdowns.

The insolvency figures suggest many directors lack confidence in their company’s ability to continue trading in the current climate possibly pre-empting later forced closure by bringing forward a difficult decision. Directors who have any doubts about their business are advised to seek advice as soon as possible. There are two tests which can act as a warning sign of insolvency:

  • Cash flow test: Signs that a company is failing this test include late payment of suppliers and falling behind with payments to HMRC.
  • Balance sheet test: Where a company’s liabilities exceed the value of its assets.

For small businesses and the self-employed, free advice can be obtained from the Business Debtline charity.

Avoiding insolvency

Two recently introduced measures might help a company avoid formal insolvency procedures.

  • A moratorium period gives a struggling business a formal breathing space from creditors to explore rescue and restructuring options.
  • A new type of restructuring plan can be implemented even if certain classes of creditors vote against it.

Guidance on tell-tale signs of potential insolvency, and how managing an insolvent company incorrectly can lead to personal liability and/or being disqualified as a director, can be found here.

Please get in touch with us sooner rather than later if you believe you may need help.

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