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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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Making Tax Digital Update: Small Business Review

Written by admin on . Posted in Making Tax Digital, MTD, self-assessment. No Comments on Making Tax Digital Update: Small Business Review

The outcome from the Making Tax Digital (MTD) small business review is that MTD for income tax self-assessment (ITSA) will not be extended to those earning under £30,000 for the foreseeable future.

MTD ITSA for the self-employed and landlords is to be introduced from April 2026, with the initial mandate applying to those with income over £50,000. Those with income between £30,000 and £50,000 are set to join from April 2027.

The government said it would review the needs of smaller businesses – those with income under the £30,000 threshold ­­– before extending MTD further. The latest announcement means there will be no extension, although the decision will be kept under review.

There is no set mandation date for general partnerships (those with individuals), non-general partnerships (those with a corporate partner) and limited liability partnerships.

An important point to note is that the £30,000 and £50,000 limits apply to total self-employment and property income, and not to the profits actually made.

Reporting

Some reporting changes have also been announced:

  • Year-end reporting was originally going to consist of two separate steps – an end of period statement and a final declaration. This would have caused considerable confusion, so there will now be just the one final declaration; and
  • Quarterly reports are now to be cumulative, so any errors will simply be corrected on the next report – rather than the previous requirement to resubmit past quarters.

Ongoing concerns

Despite the latest attempt to simplify the MTD process, there are still concerns that HMRC has simply lost sight of the needs of taxpayers. A recent House of Commons committee report criticised the project’s spiralling costs, design flaws and missed deadlines.

The report recommends HMRC research what business taxpayers would actually find most helpful, and to take into account the substantial costs of implementing MTD.

HMRC’s guide to using MTD ITSA can be found here.

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Cash basis to become default

Written by admin on . Posted in Income Tax, Making Tax Digital, self-assessment, Self-Employed. No Comments on Cash basis to become default

From 2024/25, restrictions to the cash basis will be removed, making it the default method for calculating trading profit for the self-employed and most partnerships.

The accruals basis is currently the default, with a business having to opt in to use the cash basis. In future, a business will need to opt out of the cash basis if it wants to use the accruals basis.

Restrictions removed

A business, regardless of size, will be able to use the cash basis once the £150,000 turnover restriction has been removed. The removal of two other restrictions will mean there are no longer any obstacles to – otherwise qualifying – businesses choosing to use the cash basis:

  • Interest costs will in future be fully deductible. Currently, there is a maximum deduction of £500.
  • Losses incurred under the cash basis will be relievable in the same way as accruals basis losses. Currently, a cash basis loss cannot be relieved against other income or carried back.

When moving from the accruals basis to the cash basis, a number of adjustments may be necessary to avoid double counting or items being omitted.

Pros and cons

The cash basis removes complexities such as accruals and most capital allowances, though it will be unsuitable for some businesses, especially larger ones.

  • The cash basis does mean it is quite easy to calculate trading profit by, for example, extracting information from easily accessible documents, such as bank statements – so there may be less need for a bookkeeper.
  • It is also easier to legally manipulate a period’s trading profit. For example, paying suppliers early towards the end of a period will reduce profit.

The accruals basis, however, is a more accurate reflection of a period’s trading profit, so banks and other financial institutions may insist on this basis being used.

HMRC’s guide to calculating trading profits, notably section 3 on moving to the cash basis, can be found here.

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Handy hints ahead of self-assessment

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

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

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

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

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

First-time registration

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

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

Sooner rather than later

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

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

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

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Finalising tax return figures and filing early

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HMRC is chasing taxpayers who have submitted tax returns for 2021/22 containing unresolved provisional figures, while also extolling the benefits of filing early for 2022/23.

What are provisional figures?

A provisional figure is not the same as an estimated one.

  • An estimated figure is used when it is not possible to provide a more accurate figure – so it is intended to be final. For example, small amounts of income might be estimated, or records could have been lost, making an accurate figure impossible.
  • A provisional figure, on the other hand, is one that is used temporarily, with the intention to submit a more accurate figure later.

On a tax return, a box needs to be checked if a provisional figure has been supplied. HMRC will then be aware that an amended tax return is due.

HMRC is not chasing taxpayers directly, but via letters to tax agents. The strict deadline for amending a 2021/22 tax return is 31 January 2024, but HMRC is pushing for amendments by 30 November (if actual figures are now available), or otherwise by 31 December.

If the missing information is now too old to obtain, it will instead be necessary to confirm the provisional figure as final.

Why filing early is often a good idea

The deadline for submitting 2022/23 tax returns is also 31 January 2024, but there are benefits to earlier filing:

  • Tax liabilities will be established sooner, enabling more accurate financial planning throughout the year.
  • Using HMRC’s budget payment plan, as a taxpayer you can make regular weekly or monthly savings towards your tax bill.
  • Any tax refunds you are owed will be received earlier.
  • It is always advisable to contact HMRC well in advance if it’s not going to be possible to pay a tax bill in full.

If you submit your tax return early, you will avoid the worry of last-minute filing – always a stressful task and especially so if your record-keeping is not all that it should be.

We are always ready to assist you with your self-assessment filing, so don’t leave it too late to file your 2022/23 tax return

HMRC’s guidance on self-assessment tax returns can be found here.

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Tax and your home solar panel system

Written by admin on . Posted in Income Tax, self-assessment, Tax. No Comments on Tax and your home solar panel system

With continuing high electricity prices, now could be a very good time to install solar panels at your property. Unless a solar battery is part of the system, it makes sense to sell excess electricity back to the national grid. Normally such sales are free from tax, but there is an exception you should be aware of.

Exemption rules

The sale of excess electricity – from what is known as microgeneration system – is exempt provided the intention is to match the individual’s own home consumption needs.

  • The system must be installed at or near an individual’s home, e.g. rooftop solar panels; and
  • The amount of electricity generated by the system should not significantly exceed domestic needs – HMRC allow a 20% margin here, so the system can generate 120% of domestic needs before sales to the grid become taxable.

Even if electricity sales to the grid are taxable, they might still be covered by the £1,000 trading allowance. If income exceeds the allowance, a £1,000 deduction can be claimed.

Unless a solar battery is used, around half of the electricity generated may end up being sold back to the grid. Install too large a system and these sales will be taxable. This will extend the typical eight-to-ten-year payback period for solar panels, especially if higher rates of tax are involved.

Smart export guarantee

Larger energy suppliers have to pay for excess electricity that is exported to the national grid under the smart export guarantee (SEG) scheme. Any energy company can be chosen, but care should be taken as rates vary significantly – from 1p/per kWh up to a potential 15p/per kWh. Even higher rates might be available if a variable tariff is chosen.

The best SEG rates are normally only available when the same energy supplier is used to supply electricity.

Details of the best SEG available rates can be found here .

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Self-assessment threshold rises from 2023/24

Written by admin on . Posted in PAYE, self-assessment, Self-Employed, Tax. No Comments on Self-assessment threshold rises from 2023/24

There is a long list of reasons why it is necessary to complete a self-assessment tax return, but PAYE taxpayers are generally exempt from the requirement. Previously, exemption was subject to a £100,000 income ceiling, but the threshold has been increased to £150,000 for the current tax year onwards.

The £150,000 threshold applies to total income – not just gross salary – and also any taxable benefits and income from savings and investments.

Other reasons to file a return

There are a number of other reasons why an employee with income below £150,000 will still be required to complete a tax return. For example, where the taxpayer also has:

  • Income from property rental;
  • More than £10,000 in either dividend income or savings income;
  • Income from a trust;
  • To pay capital gains tax (more likely now with the exempt amount reduced from £12,300 to £6,000);
  • Income from self-employment or partnership income; or
  • To pay the High Income Child Benefit Charge.

When a return is not required

Employed taxpayers with income between £100,000 and £150,000 for 2022/23 ­– and with no other reason for completing a return – should receive a self-assessment exit letter from HMRC confirming that they do not need to complete a return for 2023/24.

In other situations, it will be necessary for taxpayers to contact HMRC and inform them why a return is no longer necessary.

Taxpayers can ask for a return to be withdrawn even after HMRC has charged late filing penalties. Subject to HMRC agreement, the penalties will then be waived.

Even if a tax return is not strictly required, there are some situations where a taxpayer might want to complete a return anyway. The main reason will normally be to claim a relief, such as pension contributions or donations to charity.

If a tax return is not submitted, it will be more important than ever to check your tax code, which will typically be used to collect tax on taxable benefits and savings income.

To check if a self-assessment tax return is required, use HMRC’s online tool found here.

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2023/24 – the 23-month tax year?

Written by admin on . Posted in Budget, Income Tax, self-assessment, Self-Employed, Tax. No Comments on 2023/24 – the 23-month tax year?

If you are self-employed, the new tax year may be longer than you think.

If you are self-employed, until 2023/24, you have normally been taxed on the profits made in the accounting year that ends in the tax year. For example, if your accounting year ran to 30 April, then in the last tax year, 2022/23, you are taxed on the profits for your accounting year ending on 30 April 2022 – a few weeks after the start of the tax year.

Some while ago, the government decided that it would speed matters up by forcing all the self-employed (including partners in partnerships) to pay tax on the profits earned in the tax year. As is obvious from the example above, moving from the accounting year system to a tax year one implies a catch-up exercise that theoretically results in more than 12 months’ profits being taxed in a single tax year.

Unless your accounting year ends on 31 March or 5 April, that is what will start happening in this tax year. Taking the 30 April year end again, in 2023/24 the default position will be that your taxable profits are:

  • The “normal” calculation of profits for the accounting year ending 30 April 2023, plus
  • One fifth of a catch-up element equal to:
    • Your profits from 1 May 2023 to 5 April 2024 (341/366ths of the profits in your account year ending 30 April 2024), less
    • Any overlap relief because of double taxation that occurred earlier (typically when you started trading).

In the following four tax years (during which the personal allowance and higher rate threshold are frozen), your taxable profits will be those earned across the 12 months of the tax year (with pro-rated calculations, if necessary), plus that one fifth catch-up element. As an alternative, you can opt for any amount more than a fifth up to the full catch-up element to be taxed in 2023/24 with corresponding adjustments for later years.

If your head is hurting, you are not alone. At least you have the remainder of the tax year to consider the implications and prepare for what is likely to be a larger tax bill (as more income is being taxed) come January 2025. Make sure you take advice about the planning opportunities that arise – 2023/24 could be the right time to make a large pension contribution.

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Second Tax Day brings change and consultation

Written by admin on . Posted in Income Tax, National Insurance Contributions, self-assessment. No Comments on Second Tax Day brings change and consultation

The second ever Tax Administration and Maintenance Day (Tax Day) took place on 27 April, with the government publishing a range of technical proposals and consultations.

The Tax Day announcements were grouped around simplification and modernisation of the tax system, tackling the tax gap and general policy and administrative issues. A total of 23 technical tax updates were published, although only a few of them will be directly relevant to the average taxpayer.

Definite changes

National insurance credits: Some parents will not have received credits if they have not been claiming child benefit, mainly because of the impact of the High Income Child Benefit Charge. This affects future entitlement to the state pension, so the government is going to correct the problem on a retrospective basis.

Repayment agents: Some businesses specialising in making repayment claims from HMRC have been criticised due to the speculative nature of claims being made. From 2 August 2023, repayment agents must be registered with HMRC.

Consultations

A range of consultations were also announced on Tax Day, including:

  • How the Help to Save scheme might be simplified. The scheme, which offers a 50% government bonus for low-income savers, is set to run in its current form until April 2025. The government wants to encourage take-up in the target group.
  • Non-compliance with the off-payroll working rules can result in tax and national insurance contributions being paid twice on the same income – by the deemed employer and also by the personal service company. The government is looking at a potential change so that the tax paid by the personal service company can be set off against the duplicate liability payable by the deemed employer.
  • Umbrella companies are coming under further scrutiny, with initial replies to a 2021 consultation to be published shortly, alongside calls for options for additional regulation to tackle non-compliance.
  • Even though the Construction Industry Scheme has been reformed several times since its inception, some further changes are being considered. In particular, VAT could be added to the list of taxes to be taken into account when deciding whether a company qualifies for gross payment status.

A summary of the Tax Day announcements, along with links to the related consultations, can be found here.

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Cash basis reform: potential turnover threshold changes

Written by admin on . Posted in Capital Gains Tax, self-assessment, Self-Employed, VAT. No Comments on Cash basis reform: potential turnover threshold changes

With basis period reform now underway, HMRC is looking at further tax simplification for sole traders and partnerships by increasing the cash basis turnover threshold. The cash basis scheme removes complexities such as accruals and most capital allowances.

The cash basis can only be used currently if a business’s annual turnover does not exceed £150,000, although the business can then remain in the scheme until turnover reaches £300,000.

Income threshold

HMRC is considering two alternatives to expand the availability of the cash basis:

  • The turnover limit could be set at £1.35 million, with businesses not required to leave until turnover reaches £1.6 million. These are the same limits that apply for the VAT cash accounting scheme.
  • The turnover threshold could be removed so that any business, regardless of size, can join.

HMRC is also looking at making the cash basis the default method of calculating trading income for eligible businesses, so the scheme would become ‘opt out’, rather than the current ‘opt in’.

Other proposals

Two reasons why a business may currently choose not to use the cash basis are because of restrictions on relief for interest costs, and the use of losses. HMRC is looking at changes here, although nothing definite has been announced:

  • Interest and bank charges are restricted to a maximum deduction of £500. This limit might be increased, possibly as high as £1,000. With the rise in interest rates, the £500 restriction means the cash basis is currently not beneficial for many businesses.
  • If the cash basis is used, any losses can only be carried forward – they cannot be relieved against other income or carried back. A number of options are being considered, but it does look as if loss relief rules will be relaxed, just not to the extent that relief is available where normal accounting rules are used.

HMRC’s guide to the cash basis can be found here.

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