A summary of the changes announced to increase funding for the NHS and social care budgets from April 2022.

NIC changes

  • From April 2022, employees, employers and the self-employed will see increases in their Class 1 (employers and employees) and Class 4 (the self-employed and business partners) contributions of 1.25%.
  • From April 2023, assuming that HMRC can adapt their system in time, this increase will be renamed the Health and Social Care Levy and will be shown as a separate deduction on payslips and self-assessment statements.
  • From April 2023, the new Levy will also be payable by individuals who continue to work above the State Pension Age. Presently, pensioners who fall into this category pay no NIC deductions.
  • Class 2 and Class 3 NIC deductions will not be affected by these changes.
  • Most employers will not pay the 1.25% increase in their Class 1 contributions for 2022-23 or the new Levy from April 2023, as both will be covered by the present employment allowance (£4,000 in 2021-22). It is estimated that 70 per cent of the money raised from businesses will come from the largest one per cent of businesses – those with at least 250 employees.

Dividend tax changes

Director/shareholders should note that a similar 1.25% hike in the rates of tax they pay on dividends will also apply from April 2022.

From April 2022, the dividend tax increases will apply as follows:

  • Basic rate taxpayers will see an increase from the present 7.5% to 8.75%.
  • Higher rate taxpayers will see an increase from 32.5% to 33.75%.
  • Additional rate taxpayers will see an increase from 38.1% to 39.35%.

This change will apply UK-wide. It will be confirmed as part of the next Budget and legislated for in the next Finance Bill.

The present £2,000 tax-free dividend allowance will continue, and due to the £2,000 tax-free dividend allowance and the personal allowance, around 60 per cent of individuals with dividend income outside of ISAs are not expected to pay any dividend tax or be affected by this change in 2022-23.

The change will affect director/shareholders who have adopted a high dividend, low salary approach to reduce their NIC footprint.

Need more information?

Please call us on 01242 370298 if you need more information regarding these changes.

 

If you are still claiming support via the Furlough Scheme, what are your options when the scheme ends 30 September 2021?

The Coronavirus Job Retention Scheme (CJRS), commonly referred to as the furlough scheme, has proved to be the most effective government support for employers struggling to keep their teams together during the current, unprecedented COVID disruption.

Unfortunately, we are now entering the final quarter for claims as the furlough scheme is closing 30 September 2021.

How have you been affected by COVID disruption?

There are two extreme positions:

  1. Your business has been severely affected by recent events and with no continuing financial support from the furlough scheme you will need to consider redundancies.
  2. The markets have been kinder to you, and you will be able to maintain your present workforce with no changes.

And there will be businesses that sit between these bookends.

Planning for changes

If your business has been adversely affected by recent events and you cannot see how you can survive financially beyond 30 September without shedding staff, before you make any decisions, consider your options.

For example, what are your projections for the next year in respect of:

  • Sales
  • What staff do you need to meet these sales forecasts?
  • Direct costs
  • Other overheads
  • Loan repayments
  • Capital investments

Without considering all these issues you may make the wrong decisions.

We can help

Let us help you prepare a business forecast for at least the next year. This will enable you to try out different options and decide which is the strongest candidate to take your business forward as we start to emerge from – what is hopefully – the worst of COVID lockdown disruption.

Pick up the phone and call us on 01242 370298. Making informed decisions will be your best choice to surviving the coming year and minimising any reduction in your present workforce.

Determine COVID effect on profits for 2020-21 and if lower than previous year reduce tax payment due 31 July 2021.

Many of us have been personally impacted by the COVID outbreak, financially and some health-wise. This alert is being sent to all our clients that submit a self-assessment tax return and are due to make a second payment on account for the tax year 2020-21 on or before 31 July 2021. You may have an opportunity to reduce how much you need to pay.

How have you been affected financially by COVID disruption?

The self-assessment tax payment you are due to make 31 July 2021 is presently based on the profits/income you earned during 2019-20. As we all know, COVID disruption started early 2020. Accordingly, many of us have seen a reduction in taxable income in the following tax year 2020-21.

In which case, could you have payments on account rebased on what has happened in 2020-21 rather than the previous tax year? The answer, of course, is yes you can.

Let’s complete your tax return sooner this year

The most effective way to rebase your 2020-21 tax payments on actual data is to complete and file the 2020-21 tax return before 31 July. In this way we can apply – as part of the tax return submission process – to reduce payments on account due 31 July 2021.

But what if you can’t file your tax return before 31 July 2021

If you can produce a realistic estimate of your income for 2020-21, we can lodge a formal request to HMRC to reduce your tax payments for 2020-21 without actually filing your tax return. The downside of this process is that if your subsequent tax return shows higher income levels than the estimate, then interest charges may be applied by HMRC.

What about the first payment on account for 2020-21 made 31 January 2021?

If your taxable income for 2020-21 is lower than that for 2019-20, then any payment on account you may have made in January 2021 my have been too much. By rebasing your income on actual earnings for 2020-21, and if applicable, applying for both payments on account due January and July 2021 to be reduced, any overpayment made in January will automatically be included in the recalculated payment due 31 July. In some cases, this may result in a tax refund.

What to do next

If you have suffered a reduction in income – for 2020-21 compared to 2019-20 – call us now on 01242 370298 or email us office@wfrancisandco.co.uk so we can get organised. There is no point in paying over hard-won cash reserves to HMRC if it is unnecessary.

This applies to any person taxed as a self-employed trader during 2020-21 – it includes non-incorporated property businesses (buy-to-let owners for example).

Did you make a loss or suffer reduced profits during 2020-21?

If you are self-employed and suffered a loss or reduction in profits taxable during the 2020-21 tax year, we need your co-operation to access your accounting records as soon as possible.

The trading year applicable will be the year ending 31 March 2021 (5 April 2021) or if your trading year is not the end of March, then the records for the year ending between April 2020 and March 2021, for example, 31 December 2020.

Why we are making this request

There are two reasons for making this request:

  1. If your taxable, self-employed earnings are less for the tax year 2020-21 – as compared to 2019-20 – we may be able to file an election with the tax office to have any self-assessment tax payments due 31 July 2021 reduced or possibly eliminated. We may also be able to recover some or all of any payment on account you made 31 January 2021.
  2. If you actually made a tax loss during 2020-21, we may be able to carry the tax loss back and recover tax paid in earlier years.

 What we need from you

If you keep manual records, perhaps on a spreadsheet, let us have the information you usually send as soon as you can. The year we need to cover is to 31 March 2021 or the trading year that ends during the tax year 2020-21.

If your accounts are kept on a computer, and we have access to the data, we will just need your confirmation that all transactions are completed for the relevant year.

If your records are computerized and we do not have access to the data, please send us copies of the reports we usually receive from you.

Support grants received during 2020-21

Do not forget that any support grants received during the last year will be taxable. For example, payments received under the Self-Employed Income Support Scheme.

We can help

Please call if you feel that this applies to your circumstances, but you are unsure what information we require, or if you need clarification of the information we need.

We look forward to hearing from you.

 

Since April 2020, all UK residential properties disposed of by UK resident taxpayers – that create a taxable gain for Capital Gains Tax (CGT) purposes – will have to be reported to HMRC within 30-days of the disposal. Any CGT payable will have to be paid over to HMRC in the same 30-day window. Generally, this will include sales of second homes and buy-to-let property.

What if I sell a property and don’t make a taxable profit?

The new 30-day disclosure deadline only applies, in practice, to property disposals that create a taxable gain. For example, if you sell a buy-to-let property and make a loss on sale you will not have to make a return within the 30-day window.

Does this mean I have to submit a tax return every time I sell a property?

Effectively, yes it does, although restricted to details of any property disposal that creates a chargeable gain. Penalties may apply if you file outside the 30-day window.

How do I work out how much tax is payable?

As part of the 30-day submission to HMRC, you are required to estimate the amount of CGT payable based on your present understanding of the factors that affect this liability. As your other earnings will determine if the CGT you pay is at 18% or 28% – or a mix of the two – estimating these other earnings and getting the number crunching right will be no mean feat.

During the 30-day window you will need to: prepare a formal computation and a calculation of the CGT due, and submit both to HMRC, and pay any CGT this computation reveals.

At the end of tax year during which you made the disposal you will also need to include the computation again as part of your actual return. This annual confirmation of the gain may result in an over or under payment of tax as the annual return will be based on actual data and not the estimated data used to comply with the 30-day rule.

We can help. Read the section that follows.

Advise us in advance if you intend to sell a chargeable property

  1. Prior to the completion date, advise us which property is to be sold and the estimated selling price and sales costs.
  2. We will immediately draw together the data we have about the property and confirm with you that this is correct. This will not only include the purchase price, but also improvements made since you bought the property.
  3. We will use this information to prepare a draft computation (based on our prior knowledge of your tax affairs) and advise you of the possible CGT payable 30-days after the sale completes.
  4. When the sale does complete, we can then adjust the numbers for any final changes in the sale particulars and agree the computation with you.
  5. Once agreed, we can file the CGT computation with HMRC and advise you when and where you should pay any tax due.

To meet these relatively new reporting regulations, we will need to move quickly to meet the 30-day deadline and would request that you contact us immediately if you are planning to sell.

You will be contacted by HMRC – here’s why…

If you commenced self-employment after 5 April 2019

If you started your self-employment after 5 April 2019, you were initially denied support under the Self-Employed Income Support Scheme (SEISS) and the first three quarterly pay outs to 31 January 2021.

Thanks to a change in the recent Budget, you may be eligible – for the first time – to grants that will be made available for the quarter end 30 April 2021 and a final period to 30 September 2021.

 HMRC are adding a further security check

To counter fraudulent use of the SEISS scheme, HMRC have decided to contact taxpayers who became self-employed during 2019-20, and who submitted a self-assessment return for that period.

What will the letter say?

The letter will tell you to expect a telephone call on the number provided on your tax return. If our contact details were added to your return, HMRC will ask us to pass on your contact number.

On this occasion we cannot deal directly with HMRC and they will need to speak with you to obtain proof of identity and evidence of trade in the form of bank statements.

Why a letter and then a phone call?

Here’s what HMRC said:

We are aware of increased scam activity related to HMRC’s coronavirus support schemes. The purpose of the letter is to explain to you that this is a genuine call, and to give customers details on how to recognise it as such.

Worried about HMRC calling you?

HMRC’s reason for this added layer of security seems to be to exclude fraudsters from making claims. but if you have any concerns regarding this process, please call us on 01242 370298.

 

Nearly 1.8m late filers miss tax return deadline late-filing-300x169

More than 10.7m taxpayers filed their tax returns by 31 January. Yet nearly 15% didn’t make the deadline. This is almost twice the amount reported last year.

On the day after the self assessment deadline, HMRC had received 10,743,387 returns (which includes expected returns, unsolicited returns and late registrations). Another 1.8m are still outstanding.

The majority of the tax returns (95.6%) were submitted online, which inches ahead of the 93% of returns filed this way in 2020.

However, HMRC noted that due to the unusual filing patterns this year, the final figure for 31 January may end up lower, as the 392,000 unsolicited returns/late registrations are an estimate based on returns received by early January.

Late filers up on last year

Although the filing rates were on track at the start of the month, the remaining tax returns are up on the 958,296 late filers this time last year. After HMRC’s decision to waive late filing penalty, the 1,790,368 taxpayers who still need to file will not incur an immediate £100 fine as long as they submit their tax return online by 28 February.

HMRC will also not charge late filing penalties for SA700s and SA970s received in February, which can only be filed by paper; and SA800s and SA900s.

While these late filers have some breathing space on the penalty, interest will still be chargeable on any tax not paid by the 31 January due date. HMRC is encouraging these taxpayers to pay an estimated amount as soon as possible to minimise any interest.

A 5% late payment penalty will be charged if tax remains outstanding, and a payment plan has not been set up, before 3 March 2021.

Karl Khan, HMRC’s interim director general for customer services, reiterated that HMRC will not send anyone a late filing penalty as long as they meet the 28 February due date: “We know that many individuals and small businesses are finding it harder to pay this year, due to the pandemic. Anyone who can’t afford to pay their tax bill in full can set up a payment plan, once they’ve filed their return, to spread their tax bill into monthly instalments.”

Last week HMRC’s chief executive Jim Harra waived late penalties after recognising the “immense pressure that many people are facing in these unprecedented times”.

HMRC - Changes to late filing penalty for 2019/20 Self Assessment returns hmrc-300x157

 

HMRC has announced that Self Assessment customers will not receive a penalty for filing their 2019/20 tax return late, as long as they file online by 28‌‌ ‌February. We are still encouraging customers who have not yet filed to do so by 31‌‌ ‌January, if possible.

Customers still need to pay their Self Assessment tax bill by 31‌‌ ‌January. Interest will be charged from 1‌‌ ‌February on any outstanding liabilities. Customers can pay online, or through their bank, or by post before they file.

If any customer cannot afford to pay by 31‌‌ ‌January, they may be able to set up an affordable plan and pay in monthly instalments. But they will need to file their 2019/20 tax return before setting up a time to pay arrangement.

More information is available on GOV.UK.

 

Have you filed your tax return yet? Tax-time-300x180

HMRC are urging everyone to file their tax return before the deadline of 31 January 2021. They expect 12.1 million returns to be filed this year and 55% have already been submitted, however there are roughly 5.4 million yet to be done!

Once it is completed, you will know how much tax to pay and HMRC can also help set up payment plans to help spread the cost of the liabilities, up to the value of £30,000. HMRC have said that they are ready to offer support to those who are yet to file their returns or are worried about paying their tax bill, but you must act now so they can help before the deadline.

If you need any assistance with submitting your return, please get in touch on 01242 370298 or email office@wfrancisandco.co.uk