Author: admin

HMRC withdraws P11D PDF alternative

Written by admin on June 10, 2022. Posted in Uncategorized. No Comments on HMRC withdraws P11D PDF alternative

HMRC has decommissioned its interactive PDF that businesses have been using to submit up to 150 P11Ds. For 2021/22, former users will instead have to turn to HMRC’s PAYE online service or use commercial payroll software.

The deadline for filing P11Ds to report taxable benefits and expenses for 2021/22 is not due until 6 July, so there is still time to go with one of the alternatives.

P11Ds are not required if all taxable benefits have been payrolled, although it is still necessary to submit the employer declaration (form P11D(b)) to confirm that all the required P11Ds have been filed.

Paper returns Although there is no requirement to file P11Ds online, paper returns will only be an option for those employers with just a few returns to file.
PAYE online HMRC’s PAYE online service may be the natural choice for businesses that can no longer use the interactive PDF – it can be used for submissions for up to 500 employees. The online service provides more functionality than the decommissioned PDF, such as the ability for an employer to check what is owed, pay bills, see payment history and provide company car details.

The same Government Gateway details can be used as for the interactive PDF service.

Payroll software

Since software must be used for payroll purposes, it makes sense to also use the same software to file P11Ds. However, not all payroll software has this feature. If you are moving from using the interactive PDF it might be a good time to look at changing providers but keep an eye out for what improved software will cost.

Those employers that need to make more than 500 submissions have no choice but to do so using payroll software.

Payrolling

Although not an option for 2021/22 or 2022/23, looking further ahead, the P11D obligation can be avoided by payrolling taxable benefits. However, payrolling might not be as simple as it appears:

Registration is required before the start of the tax year;
The payroll software used must be able to deal with the payrolling of benefits; and
Benefit information has to be available for each pay period.

The starting point for using HMRC’s PAYE online service can be found here.

Photo by Renee Fisher on Unsplash

Chancellor’s May economy statement: all about energy

Written by admin on June 10, 2022. Posted in Budget, Tax. No Comments on Chancellor’s May economy statement: all about energy

In late May, the Chancellor announced new measures to counter the rising cost of living, in particular energy prices.

Initial measures for 2022

In early February 2022, the Chancellor announced a package of measures to reduce the impact of the £693 April 2022 increase in Ofgem’s energy price cap. These were primarily:

A £150 council tax rebate for those with properties in bands A–D in England, with corresponding funding for Scotland, Wales and Northern Ireland under the Barnett formula;
An Energy Bills Support Scheme to provide a £200 reduction in utility bills for the year starting in October 2022. This was effectively a loan, to be repaid by £40 a year added to bills from April 2023. The scheme applied throughout the UK apart from Northern Ireland, which again received Barnett formula cash; and
Extra discretionary funding of £500 million under the Household Support Fund for English councils to allow them to provide support for vulnerable people and individuals on low incomes, again with Barnett money for the UK’s other constituents.

The package, which has had problems with the distribution of the council tax rebates, had a value of about £9 billion. However, with the suggestion from Ofgem that the October price cap will be around £2,800 and inflation already running at 9%, February’s measures looked increasingly inadequate under widespread criticism.

Source: Ofgem

Photo by Andrey Metelev on Unsplash

Making Tax Digital Update

Written by admin on June 7, 2022. Posted in Making Tax Digital, MTD. No Comments on Making Tax Digital Update

Making Tax Digital (MTD) will become mandatory for the self-employed and landlords in 2024. Although there is no major news, a recent webinar co-hosted by HMRC has shed more light on the sign-up process, the use of spreadsheets and joining the pilot scheme.

MTD will come into effect for accounting periods commencing on or after 6 April 2024. For general partnerships (those with only individuals as partners), the start date is 6 April 2025.

Large partnerships with 20 or more partners are not included within the definition of a general partnership, and for them – along with other non-general partnerships – there is still no start date.

Signing up

It is going to be necessary for each taxpayer to sign up individually, but tax agents will be able to do this on behalf of clients. Agents will be able to sign up clients up to 12 months in advance of needing to comply with MTD.

Unfortunately, no further details have been provided, although HMRC did say the process will be different to the current MTD pilot sign-up process, which requires a substantial amount of information, plus a Government Gateway account.

Spreadsheets

HMRC has made it clear that spreadsheets can be used to fulfil the record-keeping requirement of MTD. However, when it comes to the filing requirement, MTD-compatible bridging software will be necessary.

The bridging software will need to be more advanced than that used for MTD for VAT. That is because for VAT returns, information is only sent in one direction – to HMRC. For income tax submissions, the software will also receive data from HMRC.

Pilot scheme

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

Anyone who needs to report income from other sources, such as employment income, cannot join.
Only sole traders and landlords with a 5 April accounting date (not 31 March) can join.
Anyone who is not up to date with their tax payments (so excluding those who have set up a time to pay arrangement) or tax return submissions cannot join.

HMRC’s list of software that is compatible with MTD for income tax can be found here.

Photo by Markus Spiske on Unsplash

More disclosure on the cards for businesses

Written by admin on May 31, 2022. Posted in Uncategorized. No Comments on More disclosure on the cards for businesses

A downside to running a limited company is that financial information is publicly available. However, micro-entities and small companies do not have to file a profit and loss account, so available information is somewhat restricted. This situation is set to change.

The information currently filed by a micro-entity at Companies House can be as little as just three figures: total fixed assets, current assets and current liabilities. If a company provides services, with profits largely withdrawn as remuneration, these figures might all be negligible.

Thresholds

For a company to be classed as either a micro-entity or small company, it needs to be below any two of three thresholds for turnover, balance sheet total (total of fixed and current assets) and average number of employees:

	Micro-entity	Small company
Turnover	£632,000	£10.2 million
Balance sheet total	£316,000	£5.1 million
Employees	10	50

A company can continue to qualify under either definition if it temporarily fails to meet the criteria for just the one year.

Changes

The key change in the government’s white paper, Corporate Transparency and Register Reform, published in February – setting out its final position on reform ahead of introducing legislation – is that micro-entities and small companies will have to file their profit and loss account. This means that sensitive commercial information will be readily available to a company’s competitors. Employees, customers, family members and any other interested parties will also be able to see how profitable a company is. In addition, small companies:

will lose the option of preparing abridged accounts, so a full balance sheet will be required; and
will have to file a directors’ report.

Although it will be some time before the extended filing requirements come into effect, they are an additional consideration when setting up a new business or deciding whether to incorporate an existing business.

Companies House accounts guidance can be found here.

Photo by Polina Silivanova on Unsplash

Zero rated food confusion

Written by admin on May 23, 2022. Posted in Tax, VAT. No Comments on Zero rated food confusion

The distinction between zero-rated food and standard VAT confectionery is a crucial, and complex, one – not helped by what may appear to be apparently arbitrary rulings. Despite its predecessor losing a notorious ruling over the zero-rating of Jaffa Cakes more than 30 years ago, HMRC refuses to give ground on marginal cases. The latest target was the simple flapjack.

As an example of the complexity, tap water is zero-rated, but a bottle of water is not (although a bottle of milk is). It ‘logically’ follows that ice is zero-rated if made from tap water, but not if from bottled water – although good luck telling the difference. Baked goods are a similar minefield.

Flapjacks

There might be little obvious difference between a flapjack and a cereal bar, but flapjacks benefit from zero-rating, being classed as cakes, simply because they were around first. The more recent cereal bars are classed as VAT-able confectionery.

Not surprisingly, HMRC is not at all happy with the distinction, and define flapjacks as narrowly as possible.

HMRC only allow zero-rating of ‘standard’ flapjacks, along with minor variations, such as the addition of dried fruit or chocolate chips.
HMRC will not accept any alteration to a flapjack that takes it into the category of being a cereal bar.

In two cases, HMRC pursued these distinctions to the detriment of the companies involved.

Glanbia Milk

This company was recently on the wrong side of a First-Tier Tribunal decision. Compared to a ‘standard’ flapjack purchased in a cafe or at a supermarket, the flapjacks produced by Glanbia Milk had fewer calories, about 10 times less sugar, and very low levels of fat. The products were not baked like traditional flapjacks, and contained significant amounts of protein, an ingredient not traditionally associated with cakes.

DuelFuel

This small start-up has hit a similar problem with its range of flapjacks and protein cake bars, and may have to close as a result. HMRC is not permitting zero-rating for their products because of issues similar to the Glanbia Milk case. Based on the taste, texture, ingredients, packaging and marketing, the products produced by DuelFuel are not considered to be cakes.

If you are tempted to embark on a baking career, be warned. HMRC guidance on the VAT treatment of food products (VAT Notice 701/14) can be found here.

Photo by Denny Müller on Unsplash

Small business: double hit from rising prices

Written by admin on May 17, 2022. Posted in Uncategorized. No Comments on Small business: double hit from rising prices

Rising prices hurt just about everyone, but small business owners face a double hit: the impact on their own spending power, but also less revenue coming in from cash-strapped customers.

The volume of retail sales fell 1.4% in March, with spending on food dropping by 1.1%. These are the first signs of the effect of high inflation, which for March was measured at 6.2%.

Managing your spending

The well-publicised drop in the number of streaming subscriptions is just one example of how household budgets are being slimmed down to cope with the cost-of-living crisis. Suggestions from government ministers to change shopping habits to own brand items may not have been well received, but there are other potential ways to make much larger short-term savings:

At the immediate personal level, cancelling or suspending gym memberships and other exercise-related subscriptions could produce valuable savings.
If you have time on your side, regular personal pension contributions can be put on hold or revised down until your finances are back to some sort of normality. Although it is also possible to opt out of workplace pension contributions, this is generally not advisable because the free employer contributions will be lost.
If you are facing serious difficulty, it might be possible to temporarily stop or reduce monthly mortgage repayments. The decision will depend on the lender and mortgage contract and is not a decision to be taken lightly.

Business owners

Some small business owners may have actually seen improved sales, with the amount spent on DIY and furniture increasing. However, most retailers will need to ensure their prices remain competitive to retain customers who are trimming household spending and cutting products seen as superfluous.

For small businesses providing services on credit, managing cashflow is essential, especially as clients might be tempted to delay payment for weeks or even months. The human touch is always important, and any potential non-payers need to be dealt with swiftly and decisively.

And of course, the business’s own costs need to be kept under review, especially fuel costs in the coming months. Budgeting for increased prices needs to be factored in to your planning.

If you’re walking this tightrope, the MoneySavingExpert website has a useful cost of living survival guide across a range of issues which can be found here.

Photo by Joshua Rodriguez on Unsplash

Sharp rise in higher rate taxpayer numbers…….

Written by admin on May 12, 2022. Posted in Employment Tax, Income Tax, IR35, self-assessment, Self-Employed, Tax, Wealth. No Comments on Sharp rise in higher rate taxpayer numbers…….

……and if that’s you, then advice is now more important than ever.

There was once a time when paying tax at more than the basic rate made you a member of a somewhat select club. In 2010/11, the first year in which additional rate tax was introduced, the proportion of taxpayers who were taxed at more than the basic rate was 10.4%.

Five years later, a dose of austerity pushed the figure close to 16%. Then it began to drop as higher rate thresholds were raised, so that by 2019/20 it was down to 13.6%. From that low, the upward path was resumed.

Alongside the Chancellor’s Spring Statement in March, the Office for Budget Responsibility (OBR) issued estimates that the freeze in the personal allowance and, outside Scotland, and basic rate bands through to 2025/26 will mean by that year almost 19% of taxpayers will be liable for higher rate tax.

The number of taxpayers will also be increasing too because of the personal allowance staying at £12,570. The rising taxpayer numbers explain why the Chancellor could announce a 1p cut in basic rate tax in 2024/25 at the same time as the OBR calculated that income tax revenue for the year would increase by £12 billion. Scotland already has a starter rate of 19%.

If your head is spinning from all the numbers, there is a simple message you: you are likely to pass more of your income to HMRC in the coming years. To limit just how much extra the Exchequer gains and you lose, there are plenty of actions to consider wherever you are in the UK:

If you are married or in a civil partnership, make sure you are maximising the benefits of independent tax and, if you are eligible, claiming the transferable marriage allowance.
Check your PAYE code – it could be wrong.
Ensure you are claiming full tax relief on the pension contributions you make. Do not assume this will be given automatically, especially if you pay higher rate tax.
Consider an ISA first for any investment as it is free from UK income tax and capital gains tax.
Choose any employee perks with care. Some are highly tax efficient, while others carry a heavy tax burden.

Remember that if you are or likely to become a member of the ever-expanding higher rate taxpayer club, the value of taking independent financial advice rises with your tax rate.

Source: ONS data, OBR projections.

A new breed of digital nomad

Written by admin on April 28, 2022. Posted in Income Tax, self-assessment, Self-Employed, Tax. No Comments on A new breed of digital nomad

The pandemic has freed many workers from the confines of the office, leading to the emergence of a new breed of digital nomad – people who can take their laptop, jump on a plane and set up a remote ‘office’ somewhere exotic.

Some countries have responded with schemes to assist long-term workcations. For example, with the Barbados Welcome Stamp, digital nomads can stay in Barbados for up to 12 months with no tax implications – the fee is $2,000 for an individual. But before packing your bags there are some practicalities that cannot be overlooked.

The self-employed should not have any insurmountable problems, but employees will need to consult with their employer to see if they are going to be supportive of a move away, potentially to a different time zone.

UK property

There might not be much of a problem if currently renting in the UK, but home ownership comes with more issues. Simply leaving a home empty – even if affordable – could be in breach of the mortgage agreement and may invalidate household insurance. Property rental is a solution but means meeting serious requirements; a good letting agency should be able to advise. Some remedial work may be necessary, such as the installation of fire alarms.

You should definitely retain your UK bank account, but also look at online options for holding currency and transferring funds overseas.

Tax status

It’s all very well having tax-exempt status where you are based, but it is of limited benefit if you remain subject to UK tax. It is important to remember that UK residence status is determined separately for each tax year. The rules can be quite complicated, but you can be classed as non-resident if you:

Spend fewer than 16 days in the UK during a tax year. Unfortunately, it’s probably too late now to meet this requirement for the current year;
Work full-time overseas, whether self-employed or employed – and you are allowed to visit the UK for up to 90 days each tax year; or
Balance your visits and ties to the UK. For example, if you just make use of a UK home, UK visits will need to be restricted to no more than 90 days.

A good starting point for establishing residence status is HMRC’s guidance on the statutory residence test. This can be found here.

Photo by Peggy Anke on Unsplash

Student loan rule changes from 2023

Written by admin on April 28, 2022. Posted in Student Loans, Tax. No Comments on Student loan rule changes from 2023

Around three quarters of those students who started full-time undergraduate degrees in 2020/21 are not expected to fully repay their student loans. However, changes starting with the 2023 student cohort will see many paying more, and over half of new student loans are likely to be repaid in full.

Current rules

English and Welsh students don’t make student loan repayments until their annual income exceeds £27,295, with repayment at the rate of 9% on the excess. After 30 years, any remaining debt is cleared.

The 30-year limit means that even someone with a good income may not make full repayment given the relatively high rate of interest that can be charged. This means it is often not worthwhile paying off a student loan any earlier than required.

New rules

The changes will come in for students starting their university courses from September 2023:

The most contentious change is the extension of the repayment term from 30 to 40 years. This, in what has been described as a ‘lifelong graduate tax’, will see many students paying for their degree until retirement.
Students will also start making repayments at a reduced income level of £25,000.
The interest rate charged – it can currently be as high as the Retail Prices Index (RPI) + 3% – will be cut to just RPI for new borrowers.

The first two measures will increase the cost of student loans, especially for those lower earners who just earn sufficient to make repayments. There will be little difference for the lowest earners, but the interest rate cut will mean gains for higher earners who would have paid off their loans in any case.

If you have children leaving school this year, they might want to rethink any plans for a gap year. Starting at university this year will mean their student loan being repaid under the existing rules.

Changes in Scotland

Student loans will not change for Scottish students, although they already have a £25,000 income threshold following a large increase in 2021. New Scottish students have a 30-year repayment term, with the interest rate currently set at 1.5%.

A detailed analysis of the changes to the student loan system can be found here.

Photo by Brooke Cagle on Unsplash

Can the child benefit charge be fixed?

Written by admin on April 16, 2022. Posted in Employment Tax, High Income Child Benefit Charge, Income Tax, self-assessment. No Comments on Can the child benefit charge be fixed?

A critical review of how the government taxes child benefits has raised a major question mark over HMRC’s approach to collecting payments.

Child benefit tax, or the High-Income Child Benefit Charge (HICBC) to use its legal name, is a case study in how not to introduce and operate a tax. It was designed as a quick fix to political pressure for the withdrawal of child benefit from high earners during a period of austerity.

When the HICBC was introduced in January 2013 – not even the start of a tax year – broadly speaking, it applied if either parent had ‘adjusted net income’ of over £50,000. At the time, the higher rate income tax threshold throughout the UK was £42,475, meaning the ‘high income’ label had some meaning. The threshold has remained at £50,000 ever since, with the result that, outside Scotland, it has now been overtaken by the higher rate threshold (£50,270 in 2022/23). A corollary is that the proportion of families affected has increased over the period from one in eight to one in five, according to the Institute for Fiscal Studies.

In a recent review, the OTS has been highly critical of HICBC and the convoluted way in which HMRC collects the tax. The OTS notes that in 2019/20, HMRC opened over 125,000 compliance checks on ‘customers’ who it suspected had not paid the correct amount of HICBC. The OTS report also noted that HMRC had written to 94,000 potentially affected people in 2020/21, many of whom could face shock tax bills in the near future.

The HICBC is structured as a tax charge equal to 1% of child benefit received for each £100 of income above the £50,000 threshold. So, for example, if you have:

two children and are entitled to child benefit of £36.25 a week (£1,865 a year); and
your ‘adjusted net income’ is £54,000; then
you face a tax charge of £754 (£1,865 @ 40%).

At £60,000 or more of income, the tax charge matches the child benefit, making it sensible to opt for non-payment of the benefit. However, you or your partner should still register for child benefit because it gives entitlement to national insurance credits.

In some circumstances, it is possible to use tax planning to limit or even sidestep the HICBC completely, but given the charges’ complexities, doing so requires professional advice.