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Student loan rule changes from 2023

Written by admin on . 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.

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Sick pay rebate returns to help relieve pressure on businesses

Written by admin on . Posted in Employment Tax, PAYE, Sick Pay, Tax. No Comments on Sick pay rebate returns to help relieve pressure on businesses

The Statutory Sick Pay Rebate Scheme (SSPRS), which ended on 30 September 2021, was reintroduced from 21 December 2021, with employers able to make retrospective claims from mid-January. The scheme’s return is in response to heightened levels of staff sickness due to the Covid-19 Omicron variant.

Statutory sick pay is not normally recoverable, but the SSPRS means that small and medium-sized businesses can reclaim SSP paid to employees affected by Covid-19.

What is covered?

The SSPRS only covers Covid-related absences (someone who has symptoms, is self-isolating or is shielding) for up to two weeks of SSP for each employee. The rate of SSP is currently £96.35 a week.

The two-week limit has, however, been reset, so an employer can make a fresh claim of up to two weeks regardless of whether a claim was made under the previous scheme. More than one claim can be made for an employee, subject to the two-week maximum.

There are no details indicating when the SSPRS will end, although the government will keep the scheme under review.

Qualifying employers

The most important condition is that the SSPRS is only available to employers with fewer than 250 employees. This test must be met on 30 November 2021. The employer must also:

  • Be UK based;
  • Have a PAYE payroll system that started on or before 30 November 2021; and
  • Have already paid the employee’s Covid-related sick pay.

To make a claim, an employer will need the Government Gateway login used when they registered for PAYE Online.

Record-keeping

Employers must retain records of any SSP they have claimed back under the SSPRS for three years from the date repayment is received.

The records should include the reason an employee said they were off work due to Covid-19.  Employees are now able to temporarily self-certify absences for 28 days, rather than the usual first seven days only.

Further guidance and the starting point for making a claim under the SSPRS can be found here.

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Freeports up and running

Written by admin on . Posted in Capital Gains Tax, National Insurance Contributions, Stamp Duty, Tax. No Comments on Freeports up and running

The first eight Freeport designated tax sites have now opened in Teesside, Humber and Thames. Freeports and their tax sites benefit from various incentives and tax breaks, but it remains uncertain whether they will provide the promised boost to the UK economy.

The question to what extent economic activity will simply be moved from one place to another just so businesses can benefit from the incentives and tax breaks offered by Freeports and their tax sites. These designated tax sites are relatively small areas within each Freeport. There are currently two tax sites in the Humber Freeport, and three each in Teesside and Thames.

Freeport advantages

Outside of the tax sites, the main advantage of operating within a Freeport is being able to bring in imports with simplified customs documentation and delayed payment of tariffs; particularly relevant if goods are manufactured using the imports, and then exported.

The government has recently published guidance regarding when goods can be moved into, or stored in, a Freeport.

Tax incentives

Some of the tax breaks are not as beneficial as they might first appear. The tax breaks include:

  • National Insurance Contributions (NICs): Relief will be available from April 2022 for new hires working at least 60% of the time at a single tax site. There is a 0% rate of employer NICs, but only on annual earnings up to £25,000.
  • Capital allowances: For new plant and machinery used primarily in a tax site, a 100% deduction is given. This is only worthwhile if either the 130% super-deduction or the 100% annual investment allowance is not available.
  • Structures and buildings allowance: Qualifying buildings situated within a tax site can be written off over ten years rather the usual 33⅓-year period. For example, the annual write-down for a warehouse that costs £1,200,000 will be £120,000, compared to £36,000 if the warehouse was situated elsewhere.
  • Stamp duty land tax (SDLT): Full relief is given when buying land and buildings situated within a tax site. The land and buildings must be used for a qualifying commercial purpose, with residential property excluded. Continuing with the above example, if the warehouse and land cost £1,600,000, then SDLT of £69,500 will be saved.

Maps of the current Freeport locations and their designated tax sites can be found here.

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Universal Credit eligibility expands to higher rate taxpayers

Written by admin on . Posted in COVID-19, Income Tax, self-assessment, Self-Employed, Tax. No Comments on Universal Credit eligibility expands to higher rate taxpayers

Autumn Budget reforms have created a surprising clash of benefits and income tax.

The Covid-19 pandemic was the first time many people utilised Universal Credit (UC) for the first time – between February and May 2020, the number of households claiming UC rose by 1.7 million to 4.2 million. In March 2020, the UC standard allowance was temporarily increased by the equivalent of £1,000 a year, but in October 2021, that extra payment came to an end. In its place, the Budget contained announcements of two UC improvements that are now in effect:

  • All working elements were increased by £500 a year, meaning that an extra £500 of net income can be earned before any clawback of UC started; and
  • The rate of clawback was reduced from 63% to 55%. As a result, if an extra £100 of net income is received and this leads to a reduction in UC payments, the loss of UC will be £55 rather than the previous £63.

So what?

The Institute for Fiscal Studies (IFS) has looked at this question and produced a surprising answer. The lower taper rate, applying to a higher starting point, now means that it is possible for higher rate taxpayers to be eligible for UC, a situation that once only applied in Scotland, where the higher rate threshold is £6,608 lower than in the rest of the UK.

One example the IFS gave is that a single earner couple with two children and monthly rent of £750 could have earnings of up to £58,900 a year in 2020/21 before losing all their UC entitlement – £9,600 more than before the Budget announcement. Not only is that ceiling well into the higher rate tax band, it is also above the £50,000 level at which the notorious High Income Child Benefit Tax Charge begins to take effect.

There are many assumptions underlying that IFS calculation, not the least of which is that the couple are not disqualified from any UC entitlement by having savings of above £16,000. In practice, the IFS calculates that 26% of all families will be entitled to UC, a proportion that rises to 84% for lone parents.

The interaction of the tapering of UC, higher rate tax and child benefit tax is complex. If you think you might be caught by that trio, make sure you understand the ramifications – you might find an extra £100 of gross earnings are worth less than £10 net.

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Cryptoassets tax confusion

Written by admin on . Posted in Capital Gains Tax, Cryptocurrency, Income Tax, Tax, Wealth. No Comments on Cryptoassets tax confusion

HMRC is sending letters to taxpayers who they believe hold cryptoassets, advising them of the potential capital gains tax (CGT) implications and linking to relevant guidance. Many taxpayers will be unaware that simply exchanging one type of token for another is a disposal for CGT purposes.

It is estimated that more than two million people in the UK hold cryptoassets. Although certain transactions will be taxed as income, most are subject to CGT.

HMRC is particularly concerned that people wrongly believe their crypto transactions to be tax free. The buying and selling of crypto assets is not considered to be the same as gambling.

What is a disposal?

There is a CGT disposal if you:

  • Sell tokens (even if the proceeds are not withdrawn from the exchange);
  • Exchange one type of token for a different type of token;
  • Use tokens to pay for goods or services; or
  • Make a gift of your tokens to another person (unless it’s to your spouse or civil partner).

There is no disposal if, for example, you simply move tokens between different wallets.

CGT treatment

For CGT purposes, tokens are treated similarly to shares, so each type of token is pooled.

If tokens are exchanged, an appropriate exchange rate must be established in order to convert the transaction to pound sterling. With more than a few transactions, things can easily become complicated. Software is available to help work out your tax bill.

Example

An investor purchases a new token using some of their Ether tokens. The new token increases in value, so the investor converts the new token back to Ether. Both transactions are disposals, so CGT will be due if the £12,300 annual exemption is exceeded. There may be no funds to pay this bill, but any further sale of Ether to realise cash will be another disposal, meaning more tax.

The guidance highlighted in HMRC’s letters, which was set out three years ago, can be found here.

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Treasury sets aside CGT and IHT change agendas

Written by admin on . Posted in Capital Gains Tax, Inheritance Tax, Lasting Will & Testaments, Tax, Wealth, Wills & Probate. No Comments on Treasury sets aside CGT and IHT change agendas

Tax and Administration Maintenance (TAM) Day is a new phenomenon brought in by the Treasury to try and move away from the traditional all-in-one Budget. Following the first ‘Tax Day’ in March, the end of November saw another round of announcements.

The government set out steps to modernise and simplify the UK tax system, but of more interest is the response to the Office of Tax Simplification’s (OTS) reviews into inheritance tax (IHT) and capital gains tax (CGT).

Inheritance tax

The review into IHT had made various recommendations, particularly regarding exemptions and reliefs as these can be quite complicated. Given that the nil rate band and the residence nil rate band are frozen until 2025/26, the government has decided not to proceed with any IHT changes for the time being, although the door has been left open for changes in the future.

Reduced IHT reporting requirements from 1 January 2022 have already been announced, and the latest confirmation of the status quo will be welcomed by anyone who has recently undertaken IHT planning.

Capital gains tax

Wide ranging and more radical OTS suggestions on CGT, such as aligning the rate of CGT with income tax rates and significantly reducing the amount of the annual exemption, have been put on hold for now.

The time limit for reporting and paying CGT in respect of residential property disposals has already been extended from 30 days to 60 days. Other measures that the government intends to go ahead with include:

  • Integrating the different ways of reporting and paying CGT into a single customer account;
  • Extending the no gain, no loss window on separation and divorce; and
  • Relaxing the rollover relief conditions where land and buildings are acquired under a compulsory purchase order.

Although less definite than the above, the government will also review principal residence relief nominations and the rules for enterprise investment schemes; however, any changes are expected to be merely procedural in nature.

Details of the government’s response to both of the OTS’s reviews can be found here.

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CGT reporting and payment deadline extended

Written by admin on . Posted in Budget, Capital Gains Tax, Property, self-assessment, Tax. No Comments on CGT reporting and payment deadline extended

I’ve taken a few calls recently, from a number of clients, on CGT on disposal of UK residential property, and although information on this is already in the public domain, here’s a brief summary in case anyone else (non-tax professionals that is) needs clarification on the new regime.

For disposals of UK residential property completed on or after 27 October 2021, the reporting and capital gains tax (CGT) payment deadline has been extended from 30 days after completion to 60 days. The previous 30-day time limit has proved to be quite challenging for taxpayers.

For UK residents, the government has clarified that where a gain is made on the disposal of a mixed-use property, the 60-day time limit only applies to the residential element.

Non-residents

The new deadline also applies to non-UK residents who have to report and pay CGT on the disposal of any type of UK property, whether it is residential or commercial.

Non-UK residents have faced particular problems because a Government Gateway login is required in order to set up a CGT on UK property account. Activation codes are sent by post, so they are often received outside the 30-day time limit. The alternative means having to complete a paper reporting form. The extra 30 days to report and pay should help but setting up a Government Gateway could still be problematic for those living overseas.

Ongoing issues

One of the biggest ongoing issues is that taxpayers are simply not aware of the reporting and CGT payment requirement when they make a property disposal.

  • It seems that solicitors and estate agents are not mentioning the requirements.
  • Accountants are often not informed until the tax return submission comes round. This could be up to 22 months after the completion date.

There is also a problem for self-assessment taxpayers who find they have overpaid CGT via their property account. In theory, the refund should be included within the self-assessment calculation, but this is not happening. It might be possible to obtain a CGT refund by amending the original property return, but otherwise it means having to phone HMRC.

If you believe you are affected, please get in touch with us as soon as possible so we can help you process your requirements. The start point for reporting and paying CGT on UK property 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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HMRC: Upper Tribunal deems child benefit discovery assessments invalid

Written by admin on . Posted in Benefits, High Income Child Benefit Charge, self-assessment, Tax. No Comments on HMRC: Upper Tribunal deems child benefit discovery assessments invalid

A discovery assessment can be made by HMRC where income, which should have been assessed, has not been assessed for tax purposes. A recent decision in an Upper Tribunal case, however, found that neither child benefit, nor the related charge, is defined as income, thereby restricting HMRC’s use of discovery assessments to collect underpaid tax.

The high income child benefit charge (HICBC) applies to anyone who receives child benefit when their income, or their partner’s income, exceeds £50,000. Many have been caught out thinking the charge doesn’t apply to them or because they are unaware of their partner’s finances.

Individuals who pay tax under PAYE may never have needed to fill in a tax return. However, they are required to do so just to report the HICBC.

The decision

Jason Wilkes owed around £4,200 in unpaid taxes as a result of being subject to the HICBC for the tax years 2014/15 to 2016/17. Crucial to the decision was that Wilkes had not filed returns for these years or been issued with a notice to file.

HMRC raised discovery assessments to collect the tax due. However, since no income as such was ‘discovered’, the assessments raised were invalid.

Refunds all round?

The answer, sadly, is no. Discovery assessments are valid if tax returns have been submitted but the HICBC omitted; there is then ‘income’. This will be the case for many taxpayers.

It seems unfair that those complying with the law are at a disadvantage to those who have not. However, this is down to HMRC relying on discovery assessments rather than issuing a notice to file tax returns.

If you have been required to pay the HICBC for prior years then check to see if you fit the refund criteria: tax returns not filed, with discovery assessments used to collect the tax due.

Details of the high income child benefit charge can be found here. Let me know if you’d like to know more – or require assistance in this space.

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MTD income tax pilot

Written by admin on . Posted in Income Tax, Making Tax Digital, MTD, Tax. No Comments on MTD income tax pilot

The pilot scheme for Making Tax Digital (MTD) for income tax is now open for self-employed workers and landlords. The scheme becomes mandatory for accounting periods commencing on or after 6 April 2023, so those who join now will get ahead of the game.

The first phase of MTD for income tax will be mandatory if your taxable turnover from self-employment or income from property is above £10,000. If you want to be one of the early adopters in the pilot scheme, there are various conditions that you will need to meet.

Who can join?

You can only join if you are a sole trader with income from just one business, a landlord renting out UK property, or both. If you need to report income from other sources, such as employment, pensions, or capital gains, then you cannot currently join. The other conditions should not be a problem for most:

  • UK resident;
  • registered for self assessment, and
  • up to date with tax returns and payments.

Your accountant can sign you up if you make a request.

Digital records

To join the pilot, you will need to use software that is compatible with MTD for income tax. Be warned that only five fully compatible products covering both self-employment and property are currently listed by HMRC, although this includes two with free versions.

You’ll need to keep digital records of all your business income and expenses, starting from the beginning of the accounting period you sign up for, and send updates to HMRC. At the end of the period, you will submit a final declaration instead of a self-assessment tax return.

If you’re already using software to keep records, you should almost certainly wait for your provider to update their product to be compatible with MTD for income tax rather than switching providers just to join the pilot scheme. HMRC’s list of software compatible with MTD for income tax can be found here.

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