News

In his first fiscal statement since taking office, Chancellor Kwasi Kwarteng used today’s ‘mini-Budget’ to deliver a package of more than 30 measures he said would tackle high energy bills, drive down inflation and cut taxes to drive growth.

After yesterday’s indication from the Bank of England that the country may already be in recession, the Chancellor focused his messaging on ‘trickle-down’ economic measures that he said will “drive the country’s economic growth while maintaining responsible public finances.”

There were a few surprises too — not least the repeal of IR35 from 6 April 2023, which means contract workers will once again be responsible for determining their tax and National Insurance contributions.

The Chancellor also announced the closure of the Office of Tax Simplification, the independent body responsible for helping to make the UK tax system simpler and easier to interact with for taxpayers.

On the OTS, Kwasi Kwarteng said: “I’m hugely grateful to the Office of Tax Simplification for everything they have achieved since 2010. But instead of a single arm’s length body which is separate from the Treasury and HMRC, we need to embed tax simplification into the heart of government.”

The reversal of National Insurance increases was announced in advance, along with increases to dividend tax rates. The Levy was expected to raise approximately £13bn a year, ring-fenced for health and social care spending but the Chancellor said that funding will be maintained.

A cut in the basic rate of income tax to 19p in April 2023, a year earlier than planned, was also announced in a bid to demonstrate support for households, as many struggle with increases in the cost of living. This was coupled with a doubling of the SDLT threshold to £250,000, with the first-time buyers’ threshold raised from £300,000 to £425,000, all effective from today.

Other key announcements were:

  • Cancellation of the planned increase in corporation tax — it remains at 19%
  • A single higher rate of income tax of 40%, abolishing the 45p rate for those who earn over £150,000 from April 2023
  • Planned beer, wine, cider, and spirits duty rate increases cancelled
  • The cap on bankers’ bonuses removed
  • Sales tax-free shopping for overseas visitors
  • Proposed changes to allow pension funds to invest more widely
  • A proposal to automatically sunset EU regulations by December 2023.
  • The additional rate for savings, dividends and default rates will also be removed from April 2023, and this change will apply UK-wide.

The Chancellor also confirmed the creation of low-tax Investment Zones across 38 local and combined authorities in England – an extension of the 2021 freeports policy – as a means of ‘levelling up’ economic growth. He also talked of liberalising planning rules and new legislation to speed up the delivery of around 100 major infrastructure projects across the UK.

Kwasi Kwarteng said: “Growth is not as high as it needs to be, which has made it harder to pay for public services, requiring taxes to rise. This cycle of stagnation has led to the tax burden being forecast to reach the highest levels since the late 1940s.”

Inflation likely to peak at 11%

On Thursday, with the announcement of a further 0.5% interest rate rise to 2.25%, the Bank’s Monetary Policy Committee (MPC) said it expected the UK economy would shrink by 0.1% in this third quarter of the year, after it contracted by 0.1% in the second quarter.

Having previously forecast that inflation would reach 13% in October, the MPC also said that the government’s move to subsidise domestic bills through the Energy Price Guarantee meant inflation would now likely to peak at just under 11%.

If you need to send a tax return for the 2021/22 tax year and have not sent one previously, you will need to register for Self-Assessment. This may be the case if you started a new business as a self-employed trader or as a partner in a partnership in 2021/22. You can register online.

Key dates

The deadline for registering for Self-Assessment for 2021/22 is 5 October 2022. You will need to file your return online by 31 January 2023. You can file a paper return if you wish, but you must do this by the earlier date of 31 October 2022. If you have an underpayment of £3,000 or less that you would prefer to be collected through you PAYE code, you must file your return by 30 December 2022.

This note explains what you need to do to register for Self-Assessment.

Register if you are self-employed

If you are self-employed and need to send a tax return for 2021/22 and have not sent one before you will need to register for both Self-Assessment and Class 2 National Insurance contributions. It is important that you do this by 5 October 2022, as you may be fined if you miss this deadline.

If you only have once source of income from self-employment and your turnover is £1,000 or less, you will benefit from the trading allowance and do not need to register. If, however, your income from self-employment is more than £1,000, you must complete a return and report it to HMRC.

Register online

If you already have a business account with HMRC, you will be able to register for Self-Assessment through your business account. To do this, you simply need to sign into your business account using your Government ID and password. You will then be able to add Self-Assessment to the list of services that you can use.

If you do not have a business tax account or a Government Gateway ID and password, you will need to set one up. Guidance on how to set up a Government Gateway account can be found on the Gov.uk website at https://www.gov.uk/government/publications/access-our-services-using-government-gateway/use-a-government-gateway-account. You can add a business account to your Government Gateway account.

Once you have registered for Self-Assessment you will receive a letter within 10 days containing your 10-digit Unique Taxpayer Reference (UTR).

You will also receive a letter before the filing deadline reminding you to file your return.

Filed a return previously?

If you did not file a tax return for 2020/21 but you have filed one online in the past, you will need to re-register online for Self-Assessment and Class 2 National Insurance. You can do this by completing form CWF1 online. You will need to sign in at https://www.access.service.gov.uk/login/signin/creds and will need your 10-digit UTR.

Previously filed a paper return?

If you have previously filed a paper return but want to file online, you can sign up for Self-Assessment through your business account. If you do not already have a business account or a Government Gateway account, you will need to set these up first.

Partner in a partnership?

If you are a partner in a partnership, you will also need to register for Self-Assessment by 5 October 2022 if you need to file a 2021/22 tax return.

If you need help with any of the issues raised above please call us on 01242 370298.

Clarification of government support to UK businesses suffering from eye-watering increases in their energy bills, have been announced 21 September 2022. Details of the support proposed are set out below.

Key features

The Government will provide a discount on wholesale gas and electricity prices for all non-domestic customers (including all UK businesses, the voluntary sector like charities and the public sector such as schools and hospitals) whose current gas and electricity prices have been significantly inflated in light of global energy prices. This support will be equivalent to the Energy Price Guarantee put in place for households.

It will apply to fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts. It will apply to energy usage from 1 October 2022 to 31 March 2023, running for an initial six-month period for all non-domestic energy users. The savings will be first seen in October bills, which are typically received in November.

As with the Energy Price Guarantee for households, customers do not need to take action or apply to the scheme to access the support. Support (in the form of a p/kWh discount) will automatically be applied to bills.

To administer support, the Government has set a Supported Wholesale Price – expected to be £211 per MWh for electricity and £75 per MWh for gas, less than half the wholesale prices anticipated this winter – which is a discounted price per unit of gas and electricity. This is equivalent to the wholesale element of the Energy Price Guarantee for households. It includes the removal of green levies paid by non-domestic customers who receive support under the scheme.

The level of price reduction for each business will vary depending on their contract type and circumstances:

  • Non-domestic customers on existing fixed price contracts will be eligible for support as long as the contract was agreed on or after 1 April 2022. Provided that the wholesale element of the price the customer is paying is above the Government Supported Price, their per unit energy costs will automatically be reduced by the relevant p/kWh for the duration of the Scheme. Customers entering new fixed price contracts after 1 October will receive support on the same basis.
  • Those on default, deemed or variable tariffs will receive a per-unit discount on energy costs, up to a maximum of the difference between the Supported Price and the average expected wholesale price over the period of the Scheme. The amount of this Maximum Discount is likely to be around £405/MWh for electricity and £115/MWh for gas, subject to wholesale market developments. Non-domestic customers on default or variable tariffs will therefore pay reduced bills, but these will still change over time and may still be subject to price increases. This is why the Government is working with suppliers to ensure all their customers in England, Scotland and Wales are given the opportunity to switch to a fixed contract/tariff for the duration of the scheme if they wish, underpinned by the Government’s Energy Bill Relief Scheme support.
  • For businesses on flexible purchase contracts, typically some of the largest energy-using businesses, the level of reduction offered will be calculated by suppliers according to the specifics of that company’s contract and will also be subject to the Maximum Discount.

A parallel scheme, based on the same criteria and offering comparable support, but recognising the different market fundamentals, will be established in Northern Ireland.

If you are not connected to either the gas or electricity grid, equivalent support will also be provided for non-domestic consumers who use heating oil or alternative fuels instead of gas. Further detail on this will be announced shortly.

Steps to take – for affected businesses

Any government support will automatically be discounted on your electricity and gas bills. No action/claim needs to be made.

Unfortunately, even with this support, energy hungry business sectors will still need to accommodate significant price increases compared to those charged a year ago.

Now is the time to revisit your financial planning to see how profitability is affected based on energy costs at the new supported rates.

A Personal Tax Account is an online account with HMRC which is essentially a ‘one-stop shop’ for your personal tax needs. You can use the account to manage your tax affairs and to undertake a number of tasks, such as filing your self-assessment tax return and checking whether you owe any tax. The account can be accessed online. There is also an app.

This update explains how to set up, access and use your account.

What can you use a Personal tax Account for?

You can use your Personal Tax Account to check your records and manage the details that HMRC hold about you. You can also use the account to do the following:

  • view a personal tax return;
  • find your National Insurance number;
  • tell HMRC about a change of name or address;
  • check your tax code;
  • check how much tax you owe;
  • view your annual summary;
  • claim a tax refund;
  • check the income that you received from work in the previous five tax years;
  • check how much income tax you paid in the previous five years;
  • check your state pension forecast;
  • check and manage your tax credits;
  • track any forms that you submitted online;
  • check or update your marriage allowance; and
  • update HMRC about any benefits-in-kind that you receive through work, such as a change of company car.

How to set up an account

If you do not already have one, you will need to set up an account online. You can do this at https://www.gov.uk/personal-tax-account. If you have a Government Gateway account, you can sign in using your Government Gateway user ID and password. You will have a Government Gateway account already if you have used an HMRC online service previously. If you are self-employed, you will have created a Government Gateway account when you registered as self-employed. Don’t worry if you have forgotten your user ID and/or password as you will be able to trigger reminders.

If you do not yet have a Government Gateway account, you can register for one with HMRC. This will take around ten minutes. You can set up an online account at https://www.gov.uk/log-in-register-hmrc-online-services. You will need to enter your personal email address; a 12-digit authorisation code will be sent to the email address provided. You will need to enter this code, then enter your full name and set up a password and a recovery word. You will then be issued with a Government Gateway ID (which you should note down). You can then add further security and decide where you want your access code to be sent, such as by text to your phone. Once the access code has been entered, you will need to confirm your full name, National Insurance number and date of birth, and also prove your identity, either from your passport or driving licence or by answering multiple choice questions. The account will then be ready to use.

Accessing your Account

Once your account has been set up, you will be able to sign in using your Government Gateway ID and password. You will also need the access code sent to your phone or by email (depending on the option chosen). You can also access your personal tax account by using the dedicated app, which you can download from either the App Store (for iOS) or the Google Play Store (for Android).

In response to the various concerns voiced with regard to the present cost of living crisis, the Chancellor, Rishi Sunak, announced a raft of support measures in Parliament 26 May 2022. This update summarises the grants and other financial support packages provided to counter these concerns.

Energy Bills Support Scheme doubled to a one-off £400

Households will get £400 of support with their energy bills through an expansion of the Energy Bills Support Scheme.

  • As well as doubling the £200 of support announced earlier this year, the full £400 payment will now be made as a grant, which will not be recovered through higher bills in future years. This is a sensible and welcome change.
  • Energy suppliers will deliver this support to households with a domestic electricity meter over six months from October. Direct debit and credit customers will have the money credited to their account, while customers with pre-payment meters will have the money applied to their meter or paid via a voucher.
  • This support will apply directly for households in England, Scotland, and Wales. It is GB-wide and equivalent support will also be delivered to people in Northern Ireland.
  • This support is in addition to the £150 Council Tax rebate for households in England in Council Tax bands A-D, which was announced in February, and which millions of households have already received.

A £650 one-off cost of living payment for those on means tested benefits

More than eight million households on means tested benefits will receive a payment of £650 this year, made in two instalments. This includes all households receiving the following benefits:

  • Universal Credit, Income-based Jobseekers Allowance, Income-related Employment and Support Allowance, Income Support, Working Tax Credit, Child Tax Credit, Pension Credit.
  • DWP will make the payment in two lump sums – the first from July, the second in the autumn. Payments from HMRC for those on tax credits only will follow shortly after each to avoid duplicate payments.
  • Claimants will need to be in receipt of one of these benefits, or have begun a claim which is later successful, as of 25th May 2022 to be eligible for the first of the two instalments. HMRC and DWP will provide further guidance, and the government will set out the eligibility date for the second instalment, in due course.
  • This payment will be tax-free, will not count towards the benefit cap, and will not have any impact on existing benefit awards.
  • The government will make these payments directly to households across the UK.
  • Legislation will be introduced shortly to allow payments to be made to this timetable.

A one-off £300 Pensioner Cost of Living Payment

Pensioner households will receive an extra £300 this year to help them cover the rising cost of energy this winter. This additional one-off payment will go to the over eight million pensioner households across the UK who receive the Winter Fuel Payment and will be paid on top of any other one-off support a pensioner household is entitled to, for example where they are on pension credit or receive disability benefits. Eligible households currently receive between £200 – £300, so the payment will represent at least double the support for this winter.

  • The Winter Fuel Payment (including the extra Pensioner Cost of Living Payment) is not taxable and does not affect eligibility for other benefits.
  • All pensioner households will get the one-off Pensioner Cost of Living Payment as a top-up to their annual Winter Fuel Payment in November/December. For most pensioner households, this will be paid by direct debit.
  • People will be eligible for this payment if they are over State Pension age (aged sixty-six or above) between 19 – 25 September 2022. There are certain circumstances where an individual above State Pension age does not qualify for the Winter Fuel Payment
  • The government will make these payments directly to households across the UK.

£150 Disability Cost of Living Payment

Around six million people across the UK who receive the following disability benefits will receive a one-off payment of £150 in September: Disability Living Allowance, Personal Independence Payment, Attendance Allowance, Scottish Disability Benefits, Armed Forces Independence Payment, Constant Attendance Allowance, War Pension Mobility Supplement.

  • We know people with disabilities may face a wide range of additional costs, such as specialist equipment, specialist food, and increased transport costs, and this payment will help with these costs as they are likely to have increased. Claimants must be in receipt of, or have begun an eventually successful claim for, one of these benefits as of 25th May 2022 to be eligible for this additional payment.
  • For the many disability benefit recipients who receive means tested benefits, this £150 will come on top of the £650 they will receive separately.
  • These payments will be exempt from tax, will not count towards the benefit cap, and will not have any impact on existing benefit awards.
  • The government will make these payments directly to eligible people across the UK.

£500m increase and extension to the Household Support Fund

To support people who need additional help, the Government is providing an extra £500 million of local support, via the Household Support Fund, which will be extended from this October to March 2023.

  • The Household Support Fund helps those in most need with payments towards the rising cost of food, energy, and water bills.
  • The government will issue additional guidance to Local Authorities to ensure support is targeted towards those most in need of support, including those not eligible for the Cost-of-Living Payments set out on 26 May 2022.
  • This brings the total amount provided through the Household Support Fund to £1.5 billion since October 2021.
  • The Household Support Fund is administered by local councils in England and further information will be available directly from them. Individual councils will determine eligibility.
  • The Barnett formula provides a share of this funding to the devolved administrations in Scotland, Wales, and Northern Ireland so they can decide how to provide support.

Funding

In total, it is estimated that the cost of these measures will be £15bn. The Chancellor announced a 25% Energy Profits Levy payable by the oil and gas industry, to be followed by a similar – but undisclosed – levy on electricity generation sector, when the details are agreed later this year. £5bn will be raised by this Levy in the first year. It is not clear how the remaining £10bn will be funded.

The impact of the levy is uncertain as it was also announced that the oil and gas industries are to be given a new 80% Investment Allowance. This means that for every £1 committed to qualifying investments will result in a 91p tax saving.

 

 

Tax year-end is fast approaching.

Below are some planning opportunities to consider in advance of the 5th April tax year-end.

1. ISAs

The annual subscription limit is £20,000 for adult ISAs, £9,000 for Junior ISAs.

You can hold, and contribute to, both cash and stocks and shares ISAs in the same year, albeit the annual subscription limit applies in aggregate, not per ISA.

ISAs are highly tax efficient, with any subsequent income and capital gains completely tax-free.

Note, those that are eligible might consider directing up to £4,000 of the £20,000 subscription limit towards a Lifetime ISA, in order to benefit from a 25% government bonus. Funds can subsequently be put towards a first property purchase, or towards retirement (accessible without penalty from age 60).

2. Pension contributions

Generally speaking, pensions offer the most tax efficient form of saving/investment:

  • Pension contributions qualify for tax relief at your marginal rate of income tax. That means a £1,000 contribution would cost a basic-rate taxpayer £800, a higher-rate taxpayer £600 and an additional-rate taxpayer £550.
  • Tax-free income and gains within the pension,
  • You are able to draw up to 25% funds tax-free (subject to available Lifetime Allowance) from Minimum Pension Age, currently 55, but set to increase to 57 from 2028, and
  • The funds sit outside your estate for inheritance tax purposes, therefore now playing a key role in estate planning.

Also note, pension contribution has the effect of reducing your taxable income, which may have a knock-on effect on the taxation of any dividend income or capital gains (e.g. ensuring these are taxed only at the basic rate of tax rather than higher). Similarly, it can be used to reclaim Personal Allowance (potential 60% tax relief) or reduce a High Income Child Benefit Charge.

But how much can you contribute?

Generally, this is the lower of:

  • ‘Relevant earnings’ (generally, income from employment or self-employed profits, albeit rental income from a furnished holiday letting is also included here),
  • Available annual allowance, including carry forward from the previous three tax years,
  • Subject to a minimum of £3,600 (gross) per year.

The annual allowance is £40,000 per person per tax year. However, this is tapered at a rate of £1 for every £2 that adjusted income (generally, salary plus employer pension contributions) exceeds £240,000, down to a minimum £4,000 (where adjusted income exceeds £312,000).

Annual allowance calculations can be complicated, particularly where there is some defined benefit pension accrual involved too. If you need any help here, please let us know.

3. Crystallise some capital gains

Taxable capital gains are taxed at 10% to the extent they fall within an investor’s basic-rate tax band (18% for residential property), or 20% above (28% for residential property).

However, investors have an available ‘annual exempt amount’ of £12,300 each tax year. That is, you can realise taxable gains up to £12,300 without incurring any capital gains tax (CGT).

It’s therefore ‘good planning’ to utilise this each and every year, even where you don’t require any capital from an investment portfolio, to prevent, or at least reduce, the build-up of CGT over time.

For example, say an investor has shares in a fund that have risen from £100,000 to £150,000, an unrealised gain of £50,000.

They could sell approx. 24.6% their holding, thereby crystallising a gain of £12,300, in order to mitigate the build-up of a potential CGT charge over time.

They could then immediately buy the same shares back in a different account (e.g. ISA, so-called ‘bed-and-ISA’), or different name (e.g. ‘bed-and-spouse’). Alternatively, they could buy the same shares back in the same account once 30 days have passed, or simply buy something different altogether.

4. VCTs

Each tax year, you can invest up to £200,000 in VCTs.

These represent collective investments in portfolios of small, high growth, typically tech-focussed, and typically non-listed, companies. They mainly operate in areas such as e-commerce, health-tech, ‘deep-tech’, software, data analytics, renewables, autonomous driving, e-mobility, wearable technology, gaming, etc. And dare I say it, the ‘metaverse’…

These aren’t for everyone, but for some, they represent a viable investment option, certainly for a portion of investable assets.

This is particularly true for those ‘locked out’ of pension contribution due to earnings (see ‘tapered annual allowance’ above), or simply looking to diversify a wider investment portfolio.

And VCTs offer significant tax benefits:

  • 30% tax relief on initial investment (as long as shares are held for 5 years, otherwise it’s clawed back),
  • Tax-free dividends (the main sources of return, upon sale of underlying investee companies),
  • Tax-free gains.

Note, tax relief is only available on subscription to new shares – most VCTs raise funds each year, typically between December and April. The current ‘VCT season’ has seen strong demand for new offers, but there are still some decent ones open.

5. Gifting

Finally, for those looking to mitigate a potential inheritance tax charge on their estate, it’s important to make use of available ‘gifting exemptions’. The three most common are:

  • The £3,000 annual exemption (including any unused exemption from the previous tax year),
  • The £250 small gifts exemption – a person can make as many outright gifts of up to £250 per person per tax year as they wish, as long as the recipient does not also receive part of the donor’s £3,000 annual exemptions.
  • The ‘normal expenditure out of income’ exemption. Any gift is exempt from IHT as long as i) it is regular in nature, ii) it is made out of income (not capital) and iii) it does not impact the donor’s standard of living (i.e. it is made out of surplus income).

If you would like more information on any of the above, please call us on 01242 370298.

Spring Statement 2022 - A summary of the changes announced on 23 March 2022 skynews-rishi-sunak-spring-statement_5715388-300x169

 

Caught between a rock and a hard place the Chancellor, Rishi Sunak, presented his Spring Statement which updated parliament on the current state of the economy as published by the Office for Budgetary Responsibility (OBS).

It also included a number of tax and NIC changes.

Ordinarily, the OBS report would be the sole focus of his report, but international events have conspired to force his hand to support beleaguered families in the UK as they struggle with the unprecedented rise in energy, motoring and other costs.

This summary sets the more significant changes he announced.

The economic backdrop

With inflation due to rise above 8% this year there is every likelihood that disposable income (purchasing power) will drop. This will place severe financial burdens on those at the bottom end of the income scale, particularly benefit claimants and pensioners.

There have been larger than expected tax revenues this year which gives the Chancellor some elbow room to assist with rising household costs and without having to resort to additional government borrowing. The remainder of this summary sets out the main support initiatives announced.

National Insurance

The 1.25 percentage points increase to fund health and social care will still apply from April 2022.

However, from 6 July 2022, the threshold at which employees start to pay National Insurance is to be increased from £190 a week to £242 a week. This means that earnings up to £12,570 – in a full tax year – will suffer no income tax or Class 1 National Insurance deductions. Payroll operators will no doubt be receiving confirmation from their payroll software suppliers when the appropriate changes have been made to accommodate these July changes. This change will be welcomed by those on low incomes and is a sensible harmonisation of thresholds for income tax and National Insurance.

The Employment Allowance is being increased by £1,000 to £5,000 from April 2022.

Class 2 NIC payable by the self-employed is being reduced for low earners. – From April 2022, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay Class 2 NICs. Over the year as a whole, the Lower Profits Limit (the threshold below which self-employed people do not pay National Insurance) is equivalent to an annualised threshold of £9,880 between April to June 2022, and £12,570 from July 2022. This change represents a tax cut for around 500,000 self-employed people worth up to £165 per year.

Household support

To help households with the cost of essentials such as food, clothing and utilities, the government is providing an additional £500 million for the Household Support Fund from April, on top of the £500 million already provided since October 2021, bringing total funding to £1 billion. In England, Local Authorities are best placed to help those in their areas who need it most and will receive an additional £421 million, whilst the devolved administrations will receive an additional £79 million in funding through the Barnett formula.

Individuals in need of support should enquire at their local authority to see if they qualify for benefits under this measure.

VAT relief for energy saving materials (ESMs)

The government will reverse a Court of Justice of the European Union ruling that restricted the application of VAT relief on the installation of ESMs. The government will also increase the relief by introducing a time-limited VAT zero rate for the installation of ESMs.

This change will apply from 1 April 2022 to 31 March 2027 and will ensure that a family installing roof-top solar panels could save £1,000 VAT on the installation and then annual savings on their energy bills.

The Northern Ireland Executive will receive a Barnett share of the value of this relief until it can be introduced UK-wide.

Green reliefs for business rates

During the Autumn Budget 2021 the government announced the introduction of targeted business rate exemptions from 1 April 2023 until 31 March 2035 for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill, to support the decarbonisation of non-domestic buildings. The government is bringing forward the implementation of these measures and is announcing that they will now take effect from April 2022.

Motoring fuel costs

As expected, the duty on petrol and diesel will be reduced by 5p per litre from 6pm, 23 March 2022. This is a UK-wide reduction in costs for hard-pressed motorists. The cut is temporary. It will apply for 12-months.

Future changes to the tax system

One of the Chancellor’s more popular announcements was his intention to reduce the basic rate of income tax from 20% to 19%. However, this will not be considered until April 2024 and only if the government finances allow. As income tax rates in Scotland are set by the Scottish government, this reduction may or may not apply.

The Chancellor also promised to consider future changes, from April 2023, to tax reliefs that promote R&D, business investment and the raising of capital. Accordingly, before the Autumn Budget 2022, the Treasury will be consulting on possible changes to the relevant allowances and reliefs.

Need more information?

If you need more information regarding any of the issues raised in this summary, please call us on 01242 370298.

How the October 2021 budget may affect your business or personal finances

The Chancellor, Rishi Sunak, presented his Autumn 2021 Budget and Spending Review on 27 October 2021.

Before taking any action based on the contents of this update, please contact us to discuss what the Budget announcements will mean for you and that consider your unique business or personal financial circumstances.

Impact on your personal taxes or finances

Income tax rates and allowances for 2022/23

As announced at the March 2021 Budget, the personal allowance will remain at its 2021/22 level of £12,570 for 2022/23, with the allowance being reduced by £1 for every £2 by which income exceeds £100,000. This means that if your income is more than £125,140 you will not receive a personal allowance for 2022/23. You may wish to consider making pension contributions or gift aid donations to preserve your personal allowance and avoid paying tax at the high marginal rate of 60% that applies on income between £100,000 and £125,140.

The rates of income tax remain unchanged, with the basic rate staying at 20%, the higher rate at 40% and the additional rate at 45%. The basic rate band remains at £37,700. The additional rate of 45% will continue to apply to taxable income more than £150,000.

The freezing of the thresholds may mean that if your income keeps pace with inflation, you may move into a higher tax band and pay tax at a higher marginal rate.

The married couple’s allowance, available where at least one spouse or civil partner was born before 6 April 1935, is increased to £9,415. The income limit, above which the allowance is reduced by £1 for every £2 by which income exceeds the limit until the minimum amount of the allowance is reached, is set at £31,400. The minimum amount of the married couple’s allowance increases to £3,640 for 2022/23.

The rates and thresholds applying in Scotland to the non-savings non-dividend income of Scottish taxpayers will be announced in the Scottish Budget on 9 December.

National Insurance increases

As part of the Government’s plan for health and social care funding, the rate of Class 1 and Class 4 National Insurance contributions are increased by 1.25% for 2022/23 only. This means that the main primary rate payable by employees will be 13.25% and the additional primary rate will be 3.25%, while the main rate of Class 4 contributions payable by the self-employed will be 9.25% and the additional Class 4 rate will be 3.25%. The rates payable by employers (secondary Class 1, Class 1A and Class 1B) are also increased by 1.25% for 2022/23, to 15.05%. The rates will revert to their 2021/22 levels from 6 April 2023 when the new Health and Social Care Levy comes into effect.

The upper earnings limit for primary Class 1 purposes (and the associated upper secondary thresholds) and the upper profits limit for Class 4 remain frozen at £967 per week (£4,189 per month, £50,270 per year) for 2022/23. The other thresholds are increased in line with inflation. As a result, the lower earnings limit increases to £123 per week, the primary threshold increases to £190 per week and the secondary threshold increases to £175 per week. A new secondary threshold for Freeport employees of £481 per week applies from 6 April 2022.

The increases in the National Insurance rates and changes to the thresholds will affect your take home pay. If you operate your business through a personal or family company, they will also impact on your profit extraction strategy.

We can help you determine your optimal salary level for 2022/23 and re-examine your remuneration strategy based on this and other budget changes.

The rate of Class 2 National Insurance, payable by the self-employed, is increased to £3.15 per week for 2022/23 and the small profits threshold rises to £6,725. The rate of voluntary Class 3 National Insurance contributions rises to £15.85 per week for 2022/23.

Health and Social Care Levy

A new levy, the Health and Social Care Levy, will apply from 6 April 2023. The funds raised for the levy will be ring fenced to meet health and adult social care costs. Payment of the levy is linked to earnings on which a qualifying National Insurance contribution is payable. This is a Class 1 (employee’s and employer’s) contribution, a Class 1A contribution, a Class 1B contribution and a Class 4 contribution. The levy is payable at the rate of 1.25% on the earnings on which a National Insurance contribution would be due.

However, unlike National Insurance contributions, an individual’s liability to pay the Health and Social Care Levy does not come to an end when the individual reaches state pension age.

Associated changes mean that from October 2023, a cap is introduced on the amount that an eligible person will have to contribute to the costs of personal care over their lifetime. This is to be set at £86,000.

We can advise on the impact of the Levy and what the costs cap will mean for you.

Dividend tax increases

As part of the funding plan for health and social care, dividend tax rates are similarly increased by 1.25% from 6 April 2022.

Anyone who operates their business through a personal or family company and extracts profits in the form of a small salary plus dividends will typically pay little or no National Insurance. As the Health and Social Care Levy is linked to National Insurance contributions, where this low salary strategy is adopted, they will either not pay the levy or pay it at a low rate. To address this and to ensure those operating through a personal or family company contribute towards health and social care costs, dividend tax rates are increased by the amount of the levy.

From 6 April 2022, the ordinary dividend tax rate will be 8.75% (currently 7.5%), the upper dividend tax rate will be 33.75% (currently 32.5%) and the higher dividend tax rate will be 39.35% (currently 38.1%).

The increase in the dividend tax rates will also impact on your profit extraction strategy. As the increase does not come into effect until 6 April 2022, it may be useful to review your dividend policy for 2021/22 to decide whether it is worth taking more dividends in 2021/22 to take advantage of the current, lower, rates. Whether this is beneficial will depend on your personal circumstances. We can help you decide.

The increases in the dividend tax rates will also affect you if you receive dividends from investments in shares.

Increase in the minimum pension age

The normal minimum pension age (NMPA) is the age at which most pension savers can access their pensions without incurring an unauthorised pension tax charge (unless they take their pension earlier due to ill-health). Registered pension schemes cannot normally pay benefits to members until they reach the NMPA (except in the case of ill-health).

The NMPA is to increase from 55 to 57 from 6 April 2028.

The change will affect you if you were born on or after 6 April 1973. If affected, you will need to wait until age 57 to access pension benefits without suffering an unauthorised payments charge (unless the scheme has a protected pension age). This will need to be considered in your ongoing retirement planning.

If you were co-ordinating your business exit planning with your 55th birthday, this will also need to be rescheduled.

Contact us to discuss what this change may mean for you.

Longer payment and reporting window for residential capital gains

If you sell a property that has not been your main residence throughout the period that you have owned it, for example, an investment property or a second home, you will have to pay capital gains tax if the chargeable gain exceeds your available annual exempt amount. The tax is payable at the residential rates of 18% where income and gains fall within the basic rate limit and at 28% once this has been used up.

The time limit for reporting residential capital gains and making a payment on account of the tax due is increased from 30 days to 60 days from Budget Day (27 October 2021).

If you have recently disposed of a residential property which has not been your main home throughout, we can help you.

Impact on your business taxes or finance

Extension of the AIA temporary limit

The Annual Investment Allowance (AIA) is a capital allowance that allows unincorporated businesses and companies to claim a deduction of 100% of the qualifying expenditure up to the amount of the annual limit. The AIA limit was temporarily increased from its permanent level of £200,000 to £1 million on 1 January 2019. Following an extension of one year, it was due to return to its permanent level of £200,000 from 1 January 2022.

However, the Chancellor has announced a further extension of the temporary limit, and the AIA will remain at £1 million until 31 March 2023. This removes the pressure to undertake capital expenditure by 31 December 2021 to benefit from higher limit.

Super-deductions

Companies can also benefit from a super-deduction of 130% of the amount of any expenditure that would otherwise qualify for main rate writing down allowances at 18% where the expenditure is incurred between 1 April 2021 and 31 March 2023. This is a better option for companies than the AIA.

Companies can also benefit from a 50% first-year allowance for expenditure within the same window that would otherwise qualify for a special rate writing down allowance of 6%. The AIA will trump the first-year allowance, but once the AIA limit has been used, it could be worthwhile claiming a first-year allowance.

We can help you plan your capital expenditure to optimise your capital allowances claims.

Business rates

Changes were announced in respect of business rates.

The business rates multipliers are frozen for a second year until 31 March 2023. The small business multiplier is set at 49.9p and the standard multiplier at 51.2p. Different rates apply in London and in Wales. The freezing of the multipliers will mean that your business rates will not increase in 2022/23.

Eligible retail, hospitality and leisure properties will benefit from a 50% relief in their business rates for 2022/23, subject to a cap of £110,000 per business.

A relief is also being introduced for improvements to business properties which will delay the start date of higher business rates triggered by the improvements for 12 months. The Government are to consult on how to implement the relief, which will take effect from 2023 and will be reviewed in 2028. If you are planning improvements to your business premises, this may benefit you.

From 1 April 2023 until 31 March 2035, a targeted business rates exemption will apply for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief will be available for eligible heat networks. This is to support the decarbonisation of non-domestic buildings.

From 2023, business rate revaluations will take place every three years rather than every five years.

Transitional relief for small and medium-sized businesses is extended for one year, which will restrict bill increases to 15% for small properties (i.e., those with a rateable value of up to £20,000 or up to £28,000 in Greater London), and to 25% for medium properties (i.e., those with a rateable value of up to £100,000).

Recovery loan scheme

The recovery loan scheme, which was due to end on 31 December 2021, has been extended by six months and will now run until 30 June 2022. If you need funding to help you recover from the impact of the pandemic, speak to us to see if this will be the right type of funding for you.

Freeport sites announced

Freeport tax sites benefit from a range of tax incentives to encourage businesses to operate from a Freeport Tax Site. The first tax sites will be in sited in Humber, Teesside, and Thames. If you are planning to start a new business or relocate to any of these sites, we can explain the tax advantages that may be available to you.

Making Tax Digital

The next key date in the Making Tax Digital (MTD) calendar is 1 April 2022. VAT registered business with turnover below the VAT registration threshold of £85,000, who have not joined MTD for VAT voluntarily, will be required to join from the start of their first VAT accounting period which begins on or after 1 April 2022. If you fall into this category, we can help you get ready for this change which will involve maintaining suitable digital records and submit digital VAT returns in an appropriate format.

As previously announced, the start date for MTD for Income Tax Self-Assessment (ITSA) has been put back by one year. It will now apply to sole traders and landlords with income of more than £10,000 from 6 April 2024. This will involve the submission of quarterly digital reports, and an end of period statement and final declaration.

However, MTD for ITSA will not apply to general partnerships (i.e., those without corporate partners) until 6 April 2025. A later, as yet unspecified start date applies to other partnerships (i.e., those with corporate partners or LLPS). It is therefore possible to push MTD ITSA further into the future by entering into a qualifying partnership arrangement.

We can help you understand what MTD for ITSA means for you, and when you will need to comply.

Basis period reform

To pave the way for the introduction of MTD for ITSA, the basis period rules are to be reformed for self-employed traders.

Currently, the profits that are assessed for a tax year are those for the accounting period ending in that tax year. For example, if you prepare accounts to 31 December, the profits for the year to 31 December 2021 are assessed in 2021/22.

However, this is all to change and the profits that will be assessed in the tax year will be those for the tax year (i.e., profits from 6 April to 5 April or, where preferred, 1 April to 31 March). As with MTD for ITSA, these reforms have been delayed by one year. A tax year basis period will apply from 6 April 2024, with 2023/24 being a transitional year.

If you do not currently prepare accounts to 31 March (or 5 April), you may want to consider changing your accounting date. We can explain how the rules will work, and how the transitional year changes will affect you.

If you have any questions regarding the budget then email us office@wfrancisandco.co.uk or call us on 01242 370298.

5% VAT on hospitality trades is increased to 12.5% VAT-rate-increase-October-2021

Since July 2020, the rate of VAT that has applied to many services supplied by hospitality trades was reduced from 20% to just 5%. This reduction was extended to 30 September 2021.

From 1 October 2021 to 31 March 2022, the 5% rate will be replaced by a 12.5% rate.

Affected VAT registered traders will need to update their VAT software to account for this rate change.

The 12.5% rate is a new VAT rate. For the first time we have four rates of VAT; 0%, 5%, 12.5% and 20%.

From 1 April 2022, it is assumed that rates for the hospitality sector will return to 20%.

However, during these turbulent times, we can take nothing for granted.

Please call us on 01242 370298 if you need advice on the above matter.

What you can write off against tax for replacement of domestic items in your rented properties

We are often asked to clarify what can be claimed if domestic items in your rented property are replaced.

The following notes are a short summary of GOV.UK published material regarding the Replacement of Domestic Items Relief (RDIR).

When you cannot claim

You cannot claim this relief if:

  • The replaced items are in a property classified as a Furnished Holiday Let for tax purposes.
  • You use the Rent-a-Room Scheme.
  • The purchase is the initial cost of a domestic item(s) for a dwelling house. Planning note: if you are purchasing a rental property with domestic items included, make sure that the contract itemises and values these items as this will then constitute the initial cost.

When you can claim

As the name implies, you can claim when a domestic item in your rented properties is replaced, subject to the above exclusions, and the item is for the exclusive use of your tenants and the old items are no longer available to tenants.

What are domestic items?

The examples quoted by HMRC are:

  • movable furniture for example beds, free-standing wardrobes,
  • furnishings for example curtains, linens, carpets, floor coverings,
  • household appliances for example televisions, fridges, freezers,
  • kitchenware for example crockery, cutlery.

What if the replacement is an improvement?

For example, if a new sofa costs £400 but a sofa bed costs £550, you can only claim the £400 as a deduction and no relief is available for the £150.

What if you sell the replaced item?

The amount of your claim would be the cost of the replacement plus the cost of acquiring or disposing of the old item, less any amount received on disposal of the old item.

The claim would also need to exclude any improvement cost, see above.

Please call us on 01242 370298 if you need advice regarding the tax position of a specific purchase.

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