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The Autumn Budget – taxed and spent

Written by admin on . Posted in Budget. No Comments on The Autumn Budget – taxed and spent

After already increasing taxes by £42 billion a year in 2021, the main focus of Chancellor Rishi Sunak’s Autumn Budget was on spending.

The first Autumn Budget in three years – and Mr Sunak’s third in less than 20 months – featured no significant increases in tax. The task of raising extra revenue had already been dealt with earlier in the year, with a range of measures, including allowance freezes and increased corporation tax.

The Budget’s main highlights on the personal front were:

  • There were no changes to inheritance tax and only one technical administrative change to capital gains tax. Both capital taxes had been the subject of extensive reports from the Office for Tax Simplification, so the Chancellor may have abandoned ideas of reform for the short term.
  • A change to pension tax relief was announced, but not the one some had feared. It involved a potential increase in relief for low earners from 2024/25.
  • The increases to National Insurance Contributions and dividend tax, announced alongside the NHS/Social Care package in September, were confirmed and will start to take effect from April 2022.
  • The income tax personal allowance and higher rate threshold (outside Scotland) were left frozen, despite higher inflation effectively making the freeze a greater tax increase.
  • The main ISA contribution limit was frozen at the £20,000 level originally set in April 2017.
  • The increase to the new and old state pension will be in line with inflation to September 2021 (3.1%) rather than the Triple Lock, saving the Treasury (and costing current and future pensioners) over £5 billion a year.

Although the Chancellor said in his speech, “My goal is to reduce taxes”, this will not happen next year. It is not too early to start thinking how you might start cutting tax through year-end tax planning.

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Positive news for business rates from the Chancellor

Written by admin on . Posted in Budget, Business Rates. No Comments on Positive news for business rates from the Chancellor

The Autumn Budget announcements included a series of measures to alleviate the burden of business rates in England. For 2022/23, 50% relief will be available for eligible retail, hospitality and leisure properties, and the business rates multipliers will again be frozen.

2022/23 measures

The business rates multipliers for the current year have already been frozen at 2020/21 levels, and this measure will continue until 31 March 2023, keeping the multipliers at 49.9p (small business) and 51.2p (standard).

Many businesses already pay no business rates due to small business rates relief, and retail, hospitality and leisure properties currently benefit from a 66% discount. For 2022/23, retail, hospitality and leisure properties not qualifying for small business rates relief will receive a 50% business rates discount, subject to a cash cap of £110,000 for each business.

Eligibility for the 2022/23 50% discount will not be as wide as the current 66% discount, although detailed guidance has not yet been published.

Longer term

The Budget announcements are a far cry from the hoped-for radical reform of business rates, although a raft of other measures effective from 2023 will help over the longer term. These include:

  • Revaluations to take place every three years starting from the next revaluation in 2023 (recently, the interval has been longer than the scheduled five years);
  • A 100% improvement relief will provide relief for 12 months from any additional rates charge where improvements increase a property’s rateable value. Most plant and machinery has no impact on rateable value, but the new relief will help, for example, if CCTV is installed or bike sheds added.
  • For green investments, an exemption from higher rates bills will apply where, for example, rooftop solar panels or electric charging points are installed. A 100% relief will also be provided for eligible low-carbon heat networks.

Details of current business rates relief for properties in England can be found here.

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Apprenticeship levy transfers simplified in England

Written by admin on . Posted in Employment Tax, National Insurance Contributions. No Comments on Apprenticeship levy transfers simplified in England

Larger employers can transfer up to 25% of their annual apprenticeship levy pot to support other, smaller, employers to take on apprentices in England. While there is nothing new about this, what is new is an online service where funds can be pledged by larger employers.

Apprenticeship levy funds are lost if not used within 24 months, so transferring surplus funds is obviously more rewarding than losing them.

Pledging

With the new service, the pledging employer simply uses their apprenticeship service account to create a transfer pledge. This will specify the amount of funds available for the current financial year. They can then choose four optional criteria to reflect priorities for transferring funding. These are:

  • Location;
  • Sector;
  • Type of job role; and
  • Apprenticeship qualification level.

It is entirely up to the pledging company whether to accept or reject an application.

At the time of writing, there were 45 funding pledges listed on the new online service, ranging from £1,618 up to a maximum of £342,263 – some without any criteria.

Apprenticeships

The benefit for smaller and medium-sized employers receiving a transfer of funds might not be as beneficial as it appears, because, for up to ten new apprenticeship starts each year, the employer only pays for 5% of the apprenticeship fees (and nothing if they have less than 50 employees). However, a transfer will remove the 5% cost, and the full cost if the ten-apprenticeship limit is exceeded.

Although any employer can receive a transfer, they will need to set up an apprenticeship service account.

  • The transfer can only be used to cover apprenticeship training costs up to a funding band limit. Transfers cannot be used to cover, for example, wages or travel costs.
  • Transfers can only be used for new apprenticeship starts, although this could be an existing employee.

One notable benefit is that funding will run for the full duration of the apprenticeship and cover 100% of relevant costs.

The current list of funding opportunities can be found here.

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New tipping rules to come into force within months

Written by admin on . Posted in Employment Tax, Income Tax. No Comments on New tipping rules to come into force within months

Five years after carrying out a consultation, the government is going to make it illegal for employers to withhold tips from workers. The change to legislation, due to take effect over the next 12 months, is not just for staff in restaurants, hotels and bars, but also anyone employed in industries such as hairdressing, casinos and private car hire.

With some 80% of tipping now occurring by card, the change is considered urgent. Cash tips to workers are already protected, but for card tips, an employer can either choose to keep tips or pass them on to staff. This new change to legislation will bring consistent treatment regardless of how a tip is paid.

Legislation

The legislation will mean that employers will have to:

  • Pass on all discretionary card tips to workers without any deductions. Employers have typically made deductions to cover card processing costs, payroll, staff food and drink, recruitment and training.
  • Distribute tips fairly and transparently, have a written policy on tips, and record how tips have been dealt with.

Workers will have the right to make a request for information relating to an employer’s tipping record, enabling them to bring an employment tribunal claim for compensation if the rules have not been followed.

Tronc scheme

A tronc is a separate organised pay arrangement used to distribute tips, gratuities and service charges. The troncmaster runs the related payroll and reports information to HMRC.

A tronc scheme run by an independent troncmaster will be the most effective way for many employers to comply with the new requirements.

A tronc, if run independently, will meet the fair and transparent requirement, and workers can have a say in how tips are shared, which should help improve staff motivation. Another benefit is that tips shared from a tronc are free of NICs, but this is not the case where the employer decides how tips are shared out.

HMRC’s guide to how tips are taxed can be found here.

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Are your young adults missing out on their Child Trust Fund?

Written by admin on . Posted in Tax, Wealth. No Comments on Are your young adults missing out on their Child Trust Fund?

HMRC says many teenagers are missing out on their Child Trust Funds (CTFs), urging parents to check for hidden cash and forgotten accounts.

The first CTFs matured just over a year ago, at the start of September 2020. CTFs will continue to mature until January 2029 as their owners reach the magic age of 18. At present, about 55,000 CTFs mature every month.

HMRC has been looking at the CTFs that have already matured. Its interest is more than academic because over the life of the scheme, HMRC set up one million CTFs – about 15% of the total. HMRC took the CTF establishment role when parents or guardians had failed to do so within 12 months of receiving a CTF government voucher. HMRC randomly allocated an approved CTF provider to each such orphan.

In a recent press release, HMRC said “Hundreds of thousands of accounts have been claimed so far, but many have not”. Annoyingly – and perhaps deliberately – HMRC does not spell out specific numbers of non-claimants, but said if only 10% miss the date, that amounts to over 5,000 a month.

It should come as no surprise that many parents, guardians and children have forgotten that a CTF exists. To judge by data issued earlier this year, over 80% of CTFs are worth less than £2,500, with many probably only valued in the hundreds, having received no more than one voucher of £250 or £500 before government payments ceased.

If you want to find a ‘lost’ CTF, the best starting point is HMRC’s online tool (see https://www.gov.uk/child-trust-funds/find-a-child-trust-fund). To use this, you will need to create a Government Gateway user ID and password if you do not already have one.

CTFs that carry on beyond their owner’s 18th birthday continue to offer the same tax benefits as ISAs – no UK tax on income or capital gains. However, the underlying investments may be unattractive – deposits with minimal interest rates, for example. The same investment drawbacks can apply long before maturity, so it is worth reviewing any existing CTFs. A transfer to a Junior ISA (JISA) could be a better option than carrying on with a CTF.

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IHT receipts reach £6 billion record

Written by admin on . Posted in Inheritance Tax, Lasting Will & Testaments. No Comments on IHT receipts reach £6 billion record

The amount of inheritance tax (IHT) collected by HMRC over the past year reached a record £6 billion, some £1 billion more than the previous 12 months. This increase comes as no surprise given booming property values and frozen nil rate tax bands. It seems the tax is no longer the preserve of the super-rich.

The IHT nil rate band has not been uprated for 12 years and is set to remain at £325,000 for another four. For a reasonably well-off couple, the loss of indexing means around an additional £200,000 of assets being subject to tax. The residence nil rate band (RNRB) is also fixed, at £175,000, until 2026.

Property

Although the nil rate bands total £1 million for a couple, the average value of a terraced house in London, for example, is now over £700,000. Unfortunately, there may be little scope for any IHT planning if the value of your estate comes mainly from your property. However, it is important to have an up-to-date will, and to make the best use of reliefs and exemptions – especially the RNRB.

You might wish to take out life assurance if you want your heirs to hold on to your home, rather than being forced to sell to fund IHT. The policy should be written in trust and increase in line with property values.

Planning

Any IHT planning will depend on your age, assets and how much you can afford to gift without impacting your lifestyle. Professional advice is always recommended, but there are some important considerations:

  • Pensions: There are various possibilities, but, for example, you could fund pension contributions for your children or grandchildren. The recipient can benefit from tax relief, and your estate is reduced over time without the need for a large capital gift.
  • Business property relief: Riskier, and there is no guarantee of future exemption, but you might consider ISAs that are invested in the AIM market. The ISAs will escape IHT after being held for two years.

HMRC’s basic guide to how IHT works, including details of various exemptions, can be found here.

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Maxing Tax Digital delayed until 2024

Written by admin on . Posted in Income Tax, Making Tax Digital, MTD. No Comments on Maxing Tax Digital delayed until 2024

In recognition of the challenges to many businesses due to the pandemic, the government has delayed the introduction of Making Tax Digital (MTD) for income tax self-assessment (ITSA) by a further year.

MTD will not be mandatory for self-employed individuals and landlords until accounting periods commencing on or after 6 April 2024. The start date for general partnerships (those with only individuals as partners) will now be from April 2025, with the date for other types of partnerships still to be confirmed. The planned April 2026 commencement date for MTD for corporation tax now also seems uncertain.

Knock-on effect

The one-year delay means that:

  • The reform of the basis period rules for unincorporated businesses has been pushed back until at least April 2024, with the transition year no earlier than 2023 – so yet another change that now appears less certain than previously.
  • The new penalties for late payments and late submissions will now no longer apply to the self-employed and landlords (mandated to use MTD for ITSA) until April 2024, with other ITSA taxpayers included a year later.

No change

Although the delay will be welcomed by the majority of businesses, a delay is all it is. There is no change to the entry point (taxable turnover from self-employment and/or income from property over £10,000), nor to the requirement to keep digital records and provide quarterly returns using third-party software to HMRC.

HMRC has estimated the average transitional cost of becoming digital as £330, with an annual cost of £35 per business, although that assumes no new hardware will be required.

The delay will mean that more software packages are available before MTD for ITSA comes in, and there will be more opportunity to join the pilot scheme. If you are self-employed or a landlord, you should make the most of the extra time to ensure your business is ready come April 2024.

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New VAT penalties regime on the horizon

Written by admin on . Posted in VAT. No Comments on New VAT penalties regime on the horizon

The existing penalty regime for VAT returns has the advantage of simplicity, but it’s something of a blunt instrument. The new system coming in for return periods beginning on or after 1 April 2022 will be fairer, but some businesses will find themselves caught up in a complex web of escalating penalties.

The penalty scheme will be clearly divided, with one regime for late payments and another for late VAT return submissions.

Late payments

Unlike the current system of default surcharges, each late payment will be considered separately, with the following penalties charged unless there is reasonable excuse:

Days late Penalty
Up to 15 None
16 to 30 2% of outstanding VAT
More than 30 A further 2% penalty plus a daily penalty at a rate of 4% p.a. on the outstanding VAT

A business can avoid any further penalties accruing by entering into a time to pay arrangement with HMRC. For example, penalties are avoided if a business approaches HMRC when payments are already 12 days late.

For the first year, HMRC will take a light-touch approach to the initial 2% late payment penalty.

Regardless of whether any late payment penalties are charged, interest will be incurred from the due date until payment is made. A time to pay arrangement will not stop interest accruing.

Late submissions

Under a points-based system, a business will incur a penalty point for each late VAT return Businesses that file quarterly will be charged a £200 penalty when they reach a penalty threshold of four points.

  • Subsequent late VAT returns will also incur a £200 penalty.
  • Points expire after two years, but not once the penalty threshold is reached.
  • Once the penalty threshold is reached, a business filing quarterly will have to submit returns on time for twelve months for their points total to be reset to zero.

More detail is available on both late penalties and interest and late submissions from HMRC.

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‘No jab, no job?’ and other workplace challenges

Written by admin on . Posted in COVID-19, Employment Law. No Comments on ‘No jab, no job?’ and other workplace challenges

Now that more employees have been returning to the workplace, employers face several potentially challenging issues. Vaccination is one of the most problematic – businesses may wish to insist on employees being vaccinated, but there is concern that such policies could leave employers open to a legal claim of unfair dismissal or discrimination.

Reluctance to return

If workers feel they are not able to return to the workplace, this cannot be treated as a redundancy situation because the employee’s job still exists. Where an employee has been successfully working from home, it will be quite difficult for the employer to then reject a request to make home or flexible working permanent. Developing a clear and sustainable hybrid working model, where suitable for the position, may be the sensible way forward.

Safeguarding

Over the last 18 months most businesses have already invested in safeguarding measures for employees – from additional sanitising precautions to barriers in the workplace between desks and workstations. As more people return, additional measures may be required, including testing.

There is no reason why an employer cannot implement a policy requiring regular Covid-19 testing as a condition for workplace attendance. This could be achieved by:

  • the employer buying tests and setting up workplace testing;
  • paying an approved provider; or
  • asking employees to arrange their own testing.

Employers should draw up a clear plan on how positive test results are to be managed. Other issues to iron out may be around how testing will apply to everyone attending the workplace, such as visitors, or only employees.

 Vaccination policy

Insisting on employees being vaccinated as a condition of workplace attendance is a more contentious issue, especially if it’s just one or two employees who are opposed to immunisation. UK employment rights mean that employers are expected to tread carefully.

Although there is no legal reason why an employer cannot adopt a full vaccination policy, this is a risky approach to take. Along with potential legal claims, it could also mean the resignation of key personnel. A more practical approach is for employers to encourage employees to get vaccinated support this by offering time off during working hours to do so and where possible discuss concerns. Homeworking might be the easiest way to deal with the issue of an employee who does not wish to be vaccinated and handling their colleagues’ expectations.

The employment service ACAS has produced a guide to workplace testing for Covid-19.

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Are you ready for MTD?

Written by admin on . Posted in Income Tax, Making Tax Digital, MTD. No Comments on Are you ready for MTD?

Making Tax Digital for income tax self-assessment may still be 18 months away, but if you are self-employed or a landlord, it is time to get ready for digital record keeping, ahead of the deadline.

MTD ITSA (as it’s known) is set to begin on 6 April 2023, and it looks like businesses will need to enter the new regime from the first accounting period commencing on or after 1 April 2023; the proposed basis period rules deem an accounting period ending on 31 March as ending on 5 April.

More than four million taxpayers are set to start MTD ITSA from 6 April 2023, and the current timetable has met fierce opposition. The limited nature of the pilot scheme has not helped.

How MTD ITSA will work

MTD ITSA will initially apply to the self-employed and landlords with total annual turnover exceeding £10,000. There is no exclusion if you have, say, £6,000 of trading income and £6,000 of rental income.

  • Income and expenditure will have to be recorded digitally. Spreadsheets are fine, but, if you do it yourself, MTD-compatible software will be needed to submit quarterly updates.
  • A quarterly summary of income and expenses must be sent to HMRC, with a final declaration replacing the self assessment tax return.
  • There will be a new penalty system and no soft landing. However, a late filing penalty will not apply until four quarterly submissions are late.

The biggest impact will be for those currently maintaining paper records. A move to spreadsheets should not be too onerous, however, and it will then be fairly straightforward to use these as a basis for the filing requirements.

If you are thinking of moving to a software package, be warned there are currently only seven providers of suitable software. HMRC has issued guidance on MTD ITSA and of course we’re here to help.

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