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Overseas workday relief set to improve

Written by admin on . Posted in Employment Tax, Income Tax, PAYE. No Comments on Overseas workday relief set to improve

Employees coming to work in the UK should see an improvement in the new version of overseas workday relief set to be introduced from 6 April 2025.

Current system

Under the current system of overseas workday relief, earnings for employment duties performed overseas are exempt from UK tax if:

  • The employee is not domiciled in the UK;
  • The employee is taxed on the remittance basis; and
  • The earnings are not remitted to the UK.

Relief is available for a maximum of three tax years.

From 6 April 2025

From 6 April 2025, domicile – along with the remittance basis – will be replaced by a new regime based solely on residence. Overseas workday relief will then be available to an employee coming to work in the UK if they are a qualifying new resident:

  • They can claim relief for up to four tax years after arriving in the UK, with a separate claim required each year. The claim will be made on the employee’s self-assessment tax return.
  • As is currently the case, a claim will exempt remuneration for duties performed overseas. However, it will not make any difference whether or not this remuneration is remitted to the UK.
  • Relief will be capped (per tax year) at the lower of:
    • £300,000; and
    • 30% of the employee’s worldwide employment income.

A qualifying new resident is someone who was not UK resident for the ten consecutive tax years immediately before they arrived in the UK.

Under the current system, there is no entitlement to the income tax personal allowance and the capital gains tax annual exempt amount as a result of using the remittance basis. It will be the same under the new system, because a claim for overseas workday relief for a particular tax year will result in the loss of both allowances.

HMRC’s technical note on reforming the taxation of non-UK domiciled individuals (with overseas workday relief covered on pages 12 to 16) can be found here.

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The Autumn Budget – a brave new tax world

Written by admin on . Posted in Budget, Capital Gains Tax, Corporation Tax, Income Tax, Inheritance Tax, National Insurance Contributions. No Comments on The Autumn Budget – a brave new tax world

Chancellor Rachel Reeves’ first Budget was a significant one in all senses.

“…this Budget delivers a large, sustained increase in spending, taxation, and borrowing.”

So said the Office for Budget Responsibility (OBR) in the first paragraph of its overview of the Autumn Budget. The numbers are indeed large:

  • spending is up by almost £70 billion a year over the next five years;
  • taxation will rise by £36 billion a year; and
  • borrowing will still be above £70 billion a year in 2029/30.

The Chancellor’s tax-raising opportunities were constrained by the Labour manifesto pledges to hold the rates of income tax, VAT, corporation tax and national insurance contributions (NICs) – only for employees, although other interpretations are available. The result was that other taxes had to carry the burden of providing extra funds for the Treasury:

  • Over half the additional revenue came from changes to employer’s NICs from 2025/26. These saw the class 1 employer rate rise from 13.8% to 15.0%, and the starting point for payments fall from £9,100 of annual earnings to £5,000. The impact of this was mitigated slightly by a £5,500 increase to £10,500 in the employment allowance – effectively an employer NIC credit.
  • The main capital gains tax rates have increased from 10% to 18% (for non-taxpayers and basic rate taxpayers) and from 20% to 24% (for higher and additional rate taxpayers). The rate for business assets disposal relief will rise from 10% to 14% in 2025/26 and then 18% in the following tax year, with the maximum amount of lifetime relievable gain staying at £1 million.
  • Inheritance tax (IHT) relief for businesses and agricultural property will be cut back from April 2026, with the relief for qualifying shares listed on the Alternative Investment Market halved to 50%.
  • Death benefits from pensions will be brought into IHT from 2027/28, although there were none of the other tax changes that had been rumoured in the weeks before the Budget. Notably full income tax relief on contributions remains and employer contributions continue to be free of NICs.

If you could be affected by any of these changes (or further changes not mentioned in this update), make sure that you seek advice. The sooner you are prepared for this new, higher tax environment, the better.

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Can you spot a fake HMRC letter?

Written by admin on . Posted in Income Tax. No Comments on Can you spot a fake HMRC letter?

Unfortunately, scam warnings have become a regular occurrence. The latest scam highlighted by HMRC is rather ‘old school’, involving letters posted to companies instead of the more usual digital communication.

The scam letters being sent out are quite convincing. They come with a genuine-looking HMRC letterhead, and purport to come from the ‘Indv and Small Business Compliance’ team.

Targeted companies

The scam focuses on the claim that a targeted company is required to verify their income in order to identify any business not declaring their full income. They then request:

  • business bank statements for the past 13 months;
  • the latest set of filed accounts, including information which – for smaller companies – would not be available from Companies House;
  • VAT returns for the last four quarters; and
  • for each director, a copy of their passport or driving licence.

Scammers can easily use copies of a director’s passport or driving licence to steal their identity for fraudulent purposes, possibly even accessing the company’s bank account.

The scam letter uses intimidation tactics, threatening an investigation and a potential freeze on business activity if a response is not received.

Spotting the scam

These scam letters use correct technical legislation and avoid obvious spelling and most linguistic mistakes that are usually clear giveaways. Two things to bear in mind when looking out for such frauds:

  • HMRC does usually request information from companies by letter or via a business tax account, rather than by email. However, HMRC email addresses end @hmrc.gov.uk, while the email address used in these fraudulent letters is: companies-review@hmrc-taxchecks.org.
  • A legitimate HMRC letter will include the company’s unique tax reference (UTR).

HMRC has published a list of their recent letters to help you confirm if a letter is genuine. The list can be found here.

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Small businesses top tax gap defaulters

Written by admin on . Posted in HMRC Investigations, Income Tax, Insolvency, PAYE. No Comments on Small businesses top tax gap defaulters

The tax gap increased in 2022/2023, to a record £39.8 billion, with small businesses being blamed for around 60% of uncollected taxes.

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC and, , what is actually paid. Despite the record high receipts in monetary terms, the overall tax gap has fallen in percentage terms. It is now estimated that 4.8% of taxes are unpaid compared with 7.4% back in 2005/06.

Small companies

The worst offenders are small limited companies, with the amount of unpaid corporation tax now standing at £10.9 billion, nearly triple the £3.7 billion of five years ago. This means:

  • In percentage terms, the tax gap for small companies is a somewhat alarming 32.2%.
  • Some 45% of small businesses have submitted an incorrect corporation tax return containing an under-declared tax liability.

By comparison, the tax gap for mid-sized companies is 6.7%, and for large companies is 2.9%.

High tax take

Recently released figures also give a stark illustration of how much the tax take has increased:

  • The theoretical amount of tax liabilities has been growing at around 15% a year, increasing from £640.1 billion for 2020/21 to £823.8 billion in 2022/23.
  • The theoretical amount has nearly doubled since 2005/06.

Tax receipts as a proportion of GDP over the past 20 years have previously been steady at around 28% but now stand at just over 30%.

Behaviour

The two types of behaviour contributing most to the tax gap are:

  • failure to take reasonable care; and
  • criminal actions.

Failure to take reasonable care means not spending the time and effort to make sure reported figures are correct. Directors of limited companies are generally expected to exercise a higher level of reasonable care compared to small sole traders.

If you need help with your tax liabilities, please get in touch.

HMRC’s summary of the latest tax gap figures can be found here.

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Class 4 NIC reductions benefit the self-employed

Written by admin on . Posted in Income Tax, National Insurance Contributions, self-assessment, Self-Employed. No Comments on Class 4 NIC reductions benefit the self-employed

Self-employed workers will see a substantial reduction in their Class 4 national in announced in the 202surance contributions (NICs) for the current tax year after two percentage cuts were 3 Autumn Statement and 2024 March Budget.

Maximum saving

Class 4 NICs are earnings-related with the main rate paid on profits between £12,570 and £50,270. For 2023/24, the main rate was 9%, but for 2024/25, it is reduced to 6% – representing a maximum saving of £1,131. Add to that:

  • Self-employed people with profits of £6,725 or more no longer pay £179 of Class 2 NICs with potential savings of £1,310 compared to last year.
  • A husband-and-wife partnership could benefit to the tune of £2,620.

The additional rate of Class 4 NICs on profits in excess of £50,270 is 2% and this rate is unchanged from 2023/24.

However, there can be less tax saving for business investment for 2024/25. Buying a new laptop for £1,500, for example, would have saved a basic rate taxpayer £435 last year, but the tax saving is now £390.

Lower profits

Those who are self-employed with profits of less than £50,270 will see the following reductions to their total NIC liability:

Profit 2024/25 NICs Reduction
£15,000    £146 £232
£25,000    £746 £552
£35,000 £1,346 £852
£45,000 £1,946 £1,152

Tax thresholds

NICs cannot, of course, be considered in isolation. The personal allowance and basic rate income tax thresholds remain frozen at 2021 levels with the NIC reductions insufficient to offset fiscal drag.

However, for Class 4 NIC purposes, it has been beneficial to have the main rate threshold frozen at £50,270. If it had been increased to, for example, £60,000, the self-employed would be paying 6% – rather than the 2% additional rate – on a further £9,730 of profits.

A House of Commons explainer on fiscal drag gives a summary of the points here.

The 2024 Budget factsheet explaining the changes can be found here.

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Election tax stories…………………

Written by admin on . Posted in Income Tax, Pensioners, Pensions, VAT. No Comments on Election tax stories…………………

It’s early days yet, but some pointers on tax have emerged from both the main parties.

Within one week of the surprise firing of the general election starting gun, both the Conservatives and Labour have been promoting their tax plans. We can expect more to emerge in the coming weeks and in the manifestos, which will probably appear during the second week of June.

The Conservatives were first out of the blocks with a new tax proposal – higher personal allowances for pensioners. The driver for this is, ironically, an existing Conservative policy, the freezing of personal allowances until April 2028. At present the new State pension (£221.20 a week – £11,502 a year) is below the personal allowance (£12,570). However, given the State pension rises each year in line with the triple lock, it is destined to overtake the personal allowance in the future. As a result, a pensioner with only State pension would have tax to pay.

Mr Sunak’s solution is ‘triple lock plus’, which would see the personal allowance rise in line with the State pension increases, but only for those who have reached State pension age. The cost would be £2.4 billion a year by 2029/30, which the Conservatives said would be funded by that favourite revenue source of politicians seeking re-election, clamping down on tax avoidance.

Rachel Reeves, the Shadow Chancellor, subsequently said that the Labour party would not copy the personal allowance reform. She already has tax avoidance measures earmarked to replace the revenue she had planned to raise from increased tax on non-domiciled individuals. The non-domiciled option was effectively closed off by Chancellor of the Exchequer Jeremy Hunt’s March 2024 Budget, which had its own (similar) ‘non-dom’ proposals.

The Labour party has also responded to Conservative campaign rhetoric with pledges not to increase income tax, National Insurance, corporation tax or value added tax, removing major revenue-raising options.

Budget plans?

On the subject of Budgets, the Shadow Chancellor was asked whether she would hold an emergency Budget if she entered 11 Downing Street. She replied that there would be no Budget without a report from the Office for Budget Responsibility (OBR) – a sideswipe at the Truss Mini-Budget which lacked any OBR oversight. The OBR requires a minimum of ten weeks’ notice to prepare a report, meaning that there will be no Reeves’ Budget until mid-September, at the earliest. The corollary is that August could be a busy month for tax planning.

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Have you overlooked a changed tax status?

Written by admin on . Posted in Employment Tax, Income Tax, self-assessment, Tax. No Comments on Have you overlooked a changed tax status?

With allowances frozen or cut, you may have underpaid tax for 2023/24.

Your tax position may have changed for the last year without you really noticing. Consider the following:

Tax Year 2021/22 2023/24 2024/25
Personal allowance £12,570 £12,570 £12,570
Dividend allowance £2,000 £1,000 £500
Personal savings allowance £1,000 max* £1,000 max* £1,000 max*
Bank of England base rate Close to 0% Average 4.5% 5.25% May 2024
New State pension £9,339 £10,600 £11,502

*£1,000 for basic and nil rate taxpayers, £500 for higher rate taxpayers, and nil for additional rate taxpayers.

Rising income – for example in the form of pensions, dividends or interest – and frozen or reduced allowances are a recipe for creating more taxpayers and higher tax bills. This is becoming increasingly clear as some people are discovering that they became taxpayers in 2023/24 despite their only income being a State pension (new or old, supplemented by the additional State pension). For those affected, HMRC will issue a simple assessment tax bill as the Department of Work & Pensions provides details of payments made.

If you do not already complete a self assessment tax return, it is your duty to inform HMRC of your income if a new tax liability arises because:

  • Your interest has exceeded your personal savings allowance, and/or:
  • Dividends breached the dividend allowance.

You can inform HMRC of a change of circumstances through your online personal tax account, if you have one, or by trying to call them (good luck with that!). In most circumstances, you will not have to complete a full self assessment return: you can check whether you have to file at the government website. If you do not tell HMRC about your interest receipts, be aware that building societies and banks (including those located offshore) automatically report information to HMRC.

A similar situation applies to greater payments for capital gains tax where the annual exempt amount has fallen from £12,300 in 2021/12 to £6,000 in 2023/24, and just £3,000 in the current tax year.

Careful planning may help you to sidestep HMRC’s growing slice of your income and gains, but, as ever, expert advice is needed to avoid the traps.

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Thoughts for buy-to-let owners selling up

Written by admin on . Posted in Capital Gains Tax, Income Tax, Landlord, Leasehold, self-assessment. No Comments on Thoughts for buy-to-let owners selling up

While the higher rate of capital gains tax (CGT) on residential property disposals has dropped by 4%, from 28% to 24%, from 6 April 2024, the vast majority of landlords who sell up are facing a higher CGT bill when compared to two years ago.

Buy-to-let landlords may be selling because of the implications of the Renters Reform Bill, while furnished holiday homeowners will see their advantageous tax benefits removed from April 2025.

Higher CGT bills

Landlords will generally be worse off despite the 4% rate cut, because it generally doesn’t compensate for the recent reduction of the annual exempt amount from £12,300 to £3,000.

  • Basic rate taxpaying sellers: will be worse off as the lower rate for gains falling within the basic rate tax band is unchanged at 18%.
  • Higher/additional rate taxpaying sellers: with a gain of less than £68,000, will be worse off; such as newer landlords who have benefited from less price growth and northern landlords where property values are generally lower.

Only higher and additional rate taxpayers with a gain in excess of £68,000 will find themselves better off.

Already sold up

 Landlords who have already sold their property and face a CGT liability at the previous higher rate of 28% could consider a risky strategy of potentially benefiting from the 4% rate reduction – by deferring the gain through an enterprise investment scheme (EIS). The gain will come back into charge when the EIS investment is realised.

There are two main risks associated with this plan:

  • EIS investment risk: some or all of the investment could be lost; and
  • CGT rate change: the rate of CGT could go up again by the time the gain comes back into charge.

While not worth it solely for the rate reduction, this is a useful bonus if considering an EIS investment for the 30% income tax relief.

HMRC’s guide to tax when you sell property can be found on the government website.

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The onward march of the higher rate taxpayer

Written by admin on . Posted in Company Director, Employment Tax, Income Tax, self-assessment, Self-Employed. No Comments on The onward march of the higher rate taxpayer

New calculations issued alongside the Spring Budget show just how higher rate taxpaying status is becoming ever more common.

The Office for Budget Responsibility (OBR) received plenty of attention leading up to the Budget. It was widely portrayed in the media as the body that placed constraints on the Chancellor’s tax-cutting options ahead of the coming election.

That portrayal of the OBR’s powers is an over-simplification. While the OBR does calculate whether the Chancellor can meet his fiscal rules, it neither sets those rules nor, crucially, the assumptions underlying the calculations. For example, in projecting how much tax revenue the government will receive from 2025/26 onwards, the OBR is obliged to follow the Treasury’s assumption that the ‘temporary’ 5p cut in fuel duty will be scrapped and duty itself will rise in line with the Retail Price Index (RPI) inflation. Nobody, least of all the OBR, believes this will happen. Fuel duty rates last rose in 2010.

Despite these limitations, or perhaps because of them, the OBR has paid increasing attention to the impact of planned tax changes (or lack thereof), highlighting facts that the Chancellor might prefer not to discuss.

A good example, which the OBR has regularly highlighted in its reports, is the consequences of freezing the personal allowance and higher rate income tax threshold until April 2028. The impact of this freeze on the population of higher rate taxpayers is demonstrated in the graph below. By 2028/29, the OBR estimates that there will be 7.3 million falling into this category, 2.7 million (59%) more than if indexation had applied to the higher rate threshold.

That is not the entire story – the near-£25,000 cut to the additional rate threshold in 2023, followed by an indeterminate freeze, will result in 0.6 million more additional rate taxpayers. Overall, the OBR estimates that about two in nine income taxpayers will be paying more than the basic rate by 2028/29.

Source: OBR EFO March 2024

HMRC, eBay and second-hand news

Written by admin on . Posted in HMRC Investigations, Income Tax, self-assessment. No Comments on HMRC, eBay and second-hand news

The media storm surrounding HMRC taxing eBay and other online sellers from the start of 2024 was, in fact, itself counterfeit goods.

A crop of stories across social and traditional media swirled across the start of the new year about HMRC cracking down on ‘side hustle’ tax from 1 January, leaving sellers using sites like eBay and Vinted feeling uncertain. Coming after an early December announcement that HMRC had effectively closed its main self-assessment helpline until 1 February 2024, the story only fuelled the outrage directed at the Revenue.

Except that it was not fresh news or, even, news at all. There was no new ‘side hustle’ tax. HMRC was starting the first year in which digital platforms, such as eBay, would be required to automatically report details of sellers who in a calendar year:

  • Had sales of at least €2,000 (about £1,725 at current exchange rates); or
  • Made at least 30 sales.

Further, this was not a UK-led law as revealed by the denominating currency. The initiative started with a set of model rules published in July 2020 by the Organisation for Economic Co-operation and Development (OECD), of which the UK is a member, aimed at reducing tax avoidance via digital platforms. The first reports from platforms will not be sent to HMRC until January 2025 and will cover only the current year.

Contrary to fears raised online earlier this year, neither HMRC nor the OECD have any interest in the sale of personal items no longer required, whether clothing or mobile phones. The new reporting requirements are for people who are trading ie buying and selling goods with the aim of making a profit, something that has always been taxable.

It is worth bearing in mind that there is also a little-known trading allowance, which exempts from tax £1,000 of trading income (before expenses) in a tax year. A similar £1,000 allowance applies to property income (also before expenses), which matters here because Airbnb falls within the scope of the reporting regime.

There are a couple of lessons to learn from this saga of the ‘side hustle’ tax. The first is that tax is rarely simple and media information – especially social media – can be misinformation. The second is that HMRC’s ability to gain insight into your sources of income is ever-expanding.

You have been warned…………..

The government has published information on who may be affected by the advent of reporting rules for digital platforms,

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