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Late payment interest warning

Written by admin on . Posted in self-assessment, Tax, Time To Pay Arrangements. No Comments on Late payment interest warning

A warning for the 1.1 million taxpayers who missed the 31 January filing deadline. It isn’t just penalties you will be incurring for subsequent late payment, but also late payment interest.

A record amount of late payment interest was paid to HMRC during 2024 to a total of £409 million, more than triple what it was three years ago.

Why the increase?

The interest rate charged by HMRC was 2.6% at the start of 2022 but increased to an average of 7.6% for 2024. The rate has been 7.0% since 25 February 2025:

  • With tax allowances and thresholds frozen since 2021 – and with no increases on the cards until 2028 – more taxpayers are either being drawn into the tax net or facing higher rates of tax.
  • The reductions to the capital gains tax (CGT) exemption have also contributed.

If that were not bad enough, things are only going to get worse from 6 April 2025, from when HMRC will be adding a 1.5% surcharge to the late payment interest rate. So, if nothing changes, the current rate will jump to 8.5%.

Preventative measures

With the rate of late payment interest so high, it will almost certainly make sense to use savings to pay off any overdue tax liabilities.

With another tax year ending, get your self-assessment tax return in as early as possible. You will then know what your tax liability is well in advance of the due date and can plan accordingly.

Regular saving into a separate bank account is a good approach. Or set up a budget payment plan with HMRC to make weekly or monthly payments towards your next self-assessment tax bill.

Simply burying your head in the sand over an overdue tax liability will only see the debt spiral. You should engage with HMRC and try to agree a payment arrangement even though this will not prevent interest being charged.

Details about setting up a budget payment plan with HMRC can be found here.

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Welcoming Simon Newsham to the Nexa Law Tax Team

Written by admin on . Posted in Employment Tax, Law, Litigation & Dispute Resolution, Tax, VAT. No Comments on Welcoming Simon Newsham to the Nexa Law Tax Team

As some of you will recall, a few months ago, following an increase in the number of insolvency-related inquiries, I reached out to my LinkedIn contacts for help in finding professionals to join my team at Nexa Law. I am pleased to report that the search exceeded expectations and I now have three excellent practitioners in my team and one in training!

The significant expansion in the number of insolvency instructions has meant that my tax practice has taken a hit as I have been too busy to take on new instructions and have been turning clients and Nexa colleagues away or outside the firm.

Not anymore though:

It gives me great pleasure to announce the arrival of Simon Newsham to Nexa Law.

Simon is both a Solicitor and CTA (Chartered Tax Adviser). He brings a wealth of experience and expertise to our firm and will work closely with our colleagues and clients, to provide them with a combination of legal and taxation skills to provide the optimum solution for complex situations where tax knowledge is crucial to avoiding future problems and maintaining business value.

Simon’s arrival will allow me to concentrate on growing Nexa Law’s insolvency capacity as we continue to see an influx of requests for adjournments/injunctions following the issuing of winding up petitions – predominantly focussing on those issued by HMRC who are being quite active in this space, and a ten-fold increase in applications for validation orders for clients with frozen bank accounts as a result of same.

Welcome aboard, Simon Newsham! Here’s to a successful journey ahead at Nexa Law!

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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Daily penalties come in for late self assessment returns

Written by admin on . Posted in MTD, self-assessment, Self-Employed, Tax. No Comments on Daily penalties come in for late self assessment returns

Around 1.1 million taxpayers who failed to submit the self assessment tax return for 2022/23 on 31 January 2024 now face a £10 daily penalty charge by HMRC.

HMRC has imposed a daily penalty of £10, effective from 1 May 2024, on late submissions. The penalty can run for 90 days, reaching a potential fine of £900 and is charged even if nothing is owed to HMRC, or a tax refund is due. Separate penalties, along with interest at the high rate of 7.75%, are charged for paying tax liabilities late.

What to do?

  • Submit an online tax return as soon as possible. This will not avoid penalties up to the date of submission but will prevent further fines accumulating.
  • If there is information missing for 2022/23, submit a provisional return with estimated figures. The return should note which figures are provisional, why accurate figures are not available, and when accurate figures will be provided.
  • HMRC will cancel penalties already charged if they have asked for a 2022/23 tax return in error. For example, if you have ceased self-employment or no longer rent out property.

HMRC can cancel a tax return within two years of the submission deadline, which means there is time to have a return for 2022/23 cancelled by 5 April 2025.

Reasonable excuse

You can appeal against the daily penalty if you can demonstrate a reasonable excuse, such as prolonged ill-health or bereavement. However, work pressure, lack of information or missing reminders from HMRC are unlikely to be accepted.

The challenge with appealing against the daily penalty is providing HMRC with a credible excuse running from the original filing date (31 January) through to the issue of penalties (from 1 May).

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Employment Tax: Deductibility of training costs

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HMRC has recently published guidance to provide greater clarity about the tax deductibility of training costs for the self-employed. Apart from updating current skills, costs are also deductible if they provide new skills or knowledge to support the business.

What costs count?

Training costs must relate to the existing business, including:

  • Keeping pace with technological advances and changes in industry practice; and
  • Training which is ancillary to a person’s main trade, such as digital skills or bookkeeping.

HMRC has provided various examples, such as a potter who takes courses on e-commerce and website development with the aim of making online sales. Although the courses have nothing to do with pottery, the costs should be deductible as they are helping a move into online selling.

Similarly deductible would be the costs for a writer who takes a course on drawing illustrations with the aim of illustrating his or her own books. Again, the new skills will be used to improve an existing business.

Despite the changes, the training costs deductibility rules for the self-employed are still stricter than they are for employers.

What costs don’t count?

There is no deduction for training costs that allow a person to start a new business or to expand into a new, unrelated, area of business. For example:

  • A make-up artist takes tattooing courses with the aim of opening their own tattoo studio. The training costs are unrelated to the make-up business, so they are not deductible.
  • An unemployed person completes a course to become an approved driving instructor. There is no deduction for the training costs as new skills are being acquired that will help the person start a business which does not already exist.

The changes date back to a 2018 consultation, so don’t expect further relaxation of the rules anytime soon.

The full list of examples provided by HMRC can be found on the government website.

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Another lesson learned in equal pay

Written by admin on . Posted in Employment Law, Equal Pay, PAYE, Tax. No Comments on Another lesson learned in equal pay

Having already paid out over £1 billion in equal pay claims, and now facing claims for further millions, Birmingham City Council’s financial crisis is a stark reminder of why it is so important to get equal pay right.

All employers will undoubtably know the basic principle that men and women must receive equal pay for doing equal work. However, it is possible for employers to be caught out by some complications of the rules:

  • Associated employers: equal pay applies across associated employers. This is not about overall control, but also where one organisation sets the pay and benefits for both entities.
  • Pay: equality extends to payment for holidays, overtime, redundancy, sickness and performance. Entitlement to benefits, such as company cars, must also be on an equal basis, along with pension funding and entitlement.
  • Terms and conditions: the whole employment package needs to be equal – not only salaries. For example, working hours and annual leave allowance must be equivalent.
  • Right to equal pay: it does not matter whether employees are full-time or part-time when considering equal pay; apprentices and agency workers are also included.

Equal work

Where equal pay rules become less black and white is in the arena of equal work. This is where Birmingham City Council came unstuck. The original dispute in 2012 arose because bonuses given to staff in traditionally male-dominated roles discriminated against female workers working in roles such as cleaners, teaching assistants and catering staff.

Comparisons are not necessarily on an exact like-for-like basis. It might be that the level of skill, responsibility and effort needed to do work are equivalent, or work might simply be of equal value, even if the roles seem different, such as comparing warehouse and clerical jobs.

Differences in pay

Although differences in pay terms and conditions are permitted, this must have nothing to do with gender identity. For example, someone in a similar role could be paid more if they are better qualified or are employed in a location where recruitment is difficult.

One way for employers to avoid equal pay disputes is to be transparent in regard to pay and grading systems. Job descriptions should be up-to-date and accurate.

The Advisory, Conciliation and Arbitration Service (Acas) has published guidance for employers on equal pay on its website.

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Are we witnessing the decline of trusts?

Written by admin on . Posted in Lasting Will & Testaments, Tax, Wealth, Wills & Probate. No Comments on Are we witnessing the decline of trusts?

The number of trusts filing self-assessment tax returns for 2021/22 was 37% lower than for 2003/04. The decline comes as no real surprise given the eroding advantages of using a trust and the recent requirement to register trusts with HMRC.

Interest in possession trusts

Interest in possession trusts have seen the sharpest decline since 2003/04, with their number falling from over 100,000 down to just 44,000.

  • HMRC figures show that the decline in interest in possession trusts is mainly at the lower end of the scale where trust income is less than £10,000.
  • The inheritance tax (IHT) regime for interest in possession trusts from 2006 removed much of their favourable tax treatment. Such trusts are now subject to IHT on a similar basis to discretionary trusts, so, for example, a 20% tax charge can arise on a lifetime gift into an interest in possession trust.

However, interest in possession trusts are still commonly used in wills. Typically, a spouse or partner will be given rights during their lifetime (such as being able to stay in a marital home), with the capital subsequently passing to children – which is particularly important if there are children from a previous relationship. Such arrangements still enjoy a favourable IHT treatment.

Going forward

Trusts are more than ever becoming a specialist method of tax planning, and this trend is only likely to increase over the coming years.

Trust planning is still popular for those with a high net worth. Trusts allow wealth to be passed down the generations, protecting against marital breakdown, bankruptcy and family disputes.

There are reports that a future Labour Government would scrap business relief and agricultural property relief, and such a move would further limit the use of trusts. Trusts holding assets currently qualifying for relief could find themselves facing periodic IHT charges.

HMRC’s latest information on trusts (at October 2023) can be found here.

 

Fraud countermeasure drives R&D tax relief changes

Written by admin on . Posted in Corporation Tax, R&D, Tax. No Comments on Fraud countermeasure drives R&D tax relief changes

The level of fraudulent claims being made for research and development (R&D) tax relief has prompted HMRC to introduce a new procedure: companies must provide detailed information ahead of making their claim.

HMRC figures show that nearly 20% of claims for R&D tax relief are fraudulent, so it is no surprise they are tightening up on the claim process. Non-compliance is a particular problem when it comes to small value claims, with nearly 80% of claims for less than £10,000 being suspect.

The new requirement will mean having to submit an additional information form to HMRC to support a claim for R&D tax relief or for expenditure credit.

This new form is a separate requirement to the claim notification form a company must submit to HMRC in advance of a claim for R&D tax relief. Notification applies for accounting periods beginning on or after 1 April 2023.

Submitting the new form

The additional information form must be sent to HMRC before the company’s corporation tax return is filed. If the tax return is filed without the additional information being provided, HMRC will simply remove the claim for R&D tax relief from the company’s tax return.

  • HMRC has set up an online portal for submitting the additional information form.
  • The new process will allow HMRC quickly to assess the validity of a claim, especially the level of expertise of those involved in preparing the claim.
  • The form requires detailed information on the R&D project, including a breakdown of the costs involved. For SMEs with just one to three projects, a full description of each project is required.

HMRC now require a considerable amount of additional information to be submitted, and this will be a challenge for SMEs. Companies should therefore start preparing for their R&D tax relief claims as far in advance as possible to avoid any last minute surprises.

HMRC guidance about the new requirements 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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Behind the numbers on income tax

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New income tax statistics from HMRC appear to be good news, but the numbers are not what they seem.

Taxpayer’s marginal rate Basic Rate Higher Rate Additional Rate
2020/21 Average tax rate 9.5% 21.8% 38.3%
2023/24 Average tax rate 9.9% 20.8% 38.0%

Source: HMRC.

This table, recently released by HMRC, shows the average income tax rate for the three main categories of taxpayer. For example, in 2020/21, on average, basic rate taxpayers paid 9.5% of their income in tax and in the current tax year are expected to pay a slightly larger share, 9.9%. At first sight, higher rate and additional rate taxpayers seem to be doing better, as their average income tax rate drops.

HMRC offers no real explanation for the difference, other than a statement that says, “Average rates of income tax vary over time depending on the number of overall income tax payers and the number in each marginal rate band, as well as growth in incomes and changes to income tax thresholds and allowances.”

The story behind the changing numbers may be why HMRC is less than fulsome in setting out what has happened:

  • For basic rate taxpayers, the average rate has increased because the personal allowance has only risen by £70 (0.56%) since 2020/21, whereas average weekly earnings increased by 23% between April 2020 and April 2023. So a greater share of income is taxable in 2023/24 than in 2020/21 and the proportionate tax rate rises.
  • The backdrop for higher rate taxpayers is the same, so why the falling average rate? What HMRC forgot to mention is that in 2020/21, the higher rate tax band ended at £150,000, whereas in 2023/24 it stops at £125,140. Many higher rate taxpayers towards the top of the band three years ago have now migrated into the additional rate band. The overall result is the lower average rate for higher rate taxpayers.
  • The picture for additional rate taxpayers is almost a mirror image of the higher rate scenario. The near £25,000 lower starting point for additional rate in 2023/24 than 2020/21 means there are just about double the number of additional rate taxpayers in 2023/24 than in 2020/21. That extra, lower income population in the additional rate band drags down the average rate.

All of which should make you check what tax band you fall into for 2023/24 and seek professional advice if you have questions or concerns about how the changing rates might affect you.

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