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Author: Femi Ogunshakin

A new breed of digital nomad

Written by Femi Ogunshakin on . Posted in Income Tax, Self Assessment, Self-Employed, Tax. No Comments on A new breed of digital nomad

The pandemic has freed many workers from the confines of the office, leading to the emergence of a new breed of digital nomad – people who can take their laptop, jump on a plane and set up a remote ‘office’ somewhere exotic.

Some countries have responded with schemes to assist long-term workcations. For example, with the Barbados Welcome Stamp, digital nomads can stay in Barbados for up to 12 months with no tax implications – the fee is $2,000 for an individual. But before packing your bags there are some practicalities that cannot be overlooked.

The self-employed should not have any insurmountable problems, but employees will need to consult with their employer to see if they are going to be supportive of a move away, potentially to a different time zone.

UK property

There might not be much of a problem if currently renting in the UK, but home ownership comes with more issues. Simply leaving a home empty – even if affordable – could be in breach of the mortgage agreement and may invalidate household insurance. Property rental is a solution but means meeting serious requirements; a good letting agency should be able to advise. Some remedial work may be necessary, such as the installation of fire alarms.

You should definitely retain your UK bank account, but also look at online options for holding currency and transferring funds overseas.

Tax status

It’s all very well having tax-exempt status where you are based, but it is of limited benefit if you remain subject to UK tax. It is important to remember that UK residence status is determined separately for each tax year. The rules can be quite complicated, but you can be classed as non-resident if you:

  • Spend fewer than 16 days in the UK during a tax year. Unfortunately, it’s probably too late now to meet this requirement for the current year;
  • Work full-time overseas, whether self-employed or employed – and you are allowed to visit the UK for up to 90 days each tax year; or
  • Balance your visits and ties to the UK. For example, if you just make use of a UK home, UK visits will need to be restricted to no more than 90 days.

A good starting point for establishing residence status is HMRC’s guidance on the statutory residence test. This can be found here.

Photo by Peggy Anke on Unsplash

Student loan rule changes from 2023

Written by Femi Ogunshakin 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.

Photo by Brooke Cagle on Unsplash

Can the child benefit charge be fixed?

Written by Femi Ogunshakin on . Posted in Employment Tax, High Income Child Benefit Charge, Income Tax, Self Assessment. No Comments on Can the child benefit charge be fixed?

A critical review of how the government taxes child benefits has raised a major question mark over HMRC’s approach to collecting payments.

Child benefit tax, or the High-Income Child Benefit Charge (HICBC) to use its legal name, is a case study in how not to introduce and operate a tax. It was designed as a quick fix to political pressure for the withdrawal of child benefit from high earners during a period of austerity.

When the HICBC was introduced in January 2013 – not even the start of a tax year – broadly speaking, it applied if either parent had ‘adjusted net income’ of over £50,000. At the time, the higher rate income tax threshold throughout the UK was £42,475, meaning the ‘high income’ label had some meaning. The threshold has remained at £50,000 ever since, with the result that, outside Scotland, it has now been overtaken by the higher rate threshold (£50,270 in 2022/23). A corollary is that the proportion of families affected has increased over the period from one in eight to one in five, according to the Institute for Fiscal Studies.

In a recent review, the OTS has been highly critical of HICBC and the convoluted way in which HMRC collects the tax. The OTS notes that in 2019/20, HMRC opened over 125,000 compliance checks on ‘customers’ who it suspected had not paid the correct amount of HICBC. The OTS report also noted that HMRC had written to 94,000 potentially affected people in 2020/21, many of whom could face shock tax bills in the near future.

The HICBC is structured as a tax charge equal to 1% of child benefit received for each £100 of income above the £50,000 threshold. So, for example, if you have:

  • two children and are entitled to child benefit of £36.25 a week (£1,865 a year); and
  • your ‘adjusted net income’ is £54,000; then
  • you face a tax charge of £754 (£1,865 @ 40%).

At £60,000 or more of income, the tax charge matches the child benefit, making it sensible to opt for non-payment of the benefit. However, you or your partner should still register for child benefit because it gives entitlement to national insurance credits.

In some circumstances, it is possible to use tax planning to limit or even sidestep the HICBC completely, but given the charges’ complexities, doing so requires professional advice.

The next step for Making Tax Digital

Written by Femi Ogunshakin on . Posted in Making Tax Digital, MTD. No Comments on The next step for Making Tax Digital

Making Tax Digital (MTD) for VAT has been in place for three years, but this first phase excluded voluntarily registered businesses beneath the registration threshold. From 1 April 2022, all VAT-registered businesses must implement MTD regardless of turnover.

The vast majority of businesses registered voluntarily under the scheme will have done so because they can recover input VAT without suffering any, or much, in the way of output VAT   – typically where customers are VAT registered or sales are zero-rated. Most new entrants will therefore not be using the flat rate scheme and will have to keep full digital records.

There are limited exceptions from MTD, but voluntarily registered businesses can simply deregister if the amount of VAT recovered doesn’t warrant the time and/or cost involved with MTD compliance.

Signing up

Those businesses now coming into the scope of MTD must use it for their first VAT return starting on or after 1 April 2022. There could therefore be quite a delay if submitting returns annually. For example, with an annual accounting period to 31 December, MTD will not need to be used until the year beginning 1 January 2023.

Businesses need to sign up for MTD, but this should be done only after the final non-MTD return has been submitted. If paying by direct debit, sign up needs to be at least a week before the first MTD return is due.

Software

Compatible software has to be in place for the start of the first MTD VAT return period. The easiest option will be if records are currently kept on a spreadsheet. Free bridging software can then be used to pick up relevant details and submit VAT returns to HMRC. Bridging software is necessary because any transfer of data must be done using a digital link; cutting and pasting is not a digital link.

Even if full VAT record-keeping software is required, there are some free versions available.

Smaller businesses will invariably be wary of change, but MTD should improve accuracy. HMRC figures show that for 2019/20, a reduction in errors brought in some £195 million in extra VAT revenue.

Details of MTD software that has been through HMRC’s recognition process can be found here.

 

NICs boost for the self-employed

Written by Femi Ogunshakin on . Posted in National Insurance Contributions, Self Assessment, Self-Employed. No Comments on NICs boost for the self-employed

Prior to the March Spring Statement, most self-employed individuals were facing increased national insurance contribution (NIC) bills this year. However, those with profits up to and just over £28,000 will now see a fall in the amount they pay compared to last year. What’s more, low earners can benefit from deemed contributions.

Class 4 NICs

The introduction of the 1.25% health and social care levy from 6 April put up the rates of profit-related class 4 NICs to 10.25% and 3.25%. However, the rate increase has been mitigated by a substantial uplift to the starting threshold. It was going to be set at £9,880 but will now be £11,908 across the 2022/23 tax year. For 2023/24, the threshold will be fully aligned with the income tax personal allowance of £12,570.

Although the freezing of the upper threshold at £50,270 is pushing more people into higher rate income tax, it is actually beneficial for NIC purposes. Extra profits are subject to NICs at 3.25% instead of 10.25%.

Class 2 NICs

The threshold at which fixed-rate class 2 NICs become payable was due to increase from £6,515 to £6,725. However, this threshold has also now been set at £11,908, and will be aligned with the personal allowance for 2023/24.

The £6,725 threshold has not, however, been discarded. In a big change for class 2 NICs, self-employed people with profits between £6,725 and £11,908 for 2022/23 are deemed to have made contributions without actually having to pay them. They will therefore continue to build up their contribution record. This is particularly important for State pension purposes where 35 qualifying years are required to obtain the maximum.

The deemed contribution threshold might mean a useful tax planning opportunity. For example, if profits for 2022/23 are set to be £12,000, spending £200 on, say, a new telephone before the year end will avoid the cost of class 2 NICs, and also save some income tax and class 4 NICs.

Overall impact

The table shows the overall impact of the Spring Statement changes at different profit levels:

Profit 2021/22 2022/23 (Original) 2022/23 (Now)
£10,000 £197 £176 Nil
£15,000 £647 £689 £481
£20,000 £1,097 £1,201 £923
£30,000 £1,997 £2,226 £2,018

The Spring Statement factsheet explaining the changes can be found here.

Protecting the normal minimum pension age

Written by Femi Ogunshakin on . Posted in Pensioners, Pensions. No Comments on Protecting the normal minimum pension age

The normal minimum pension age (NMPA) will increase from 55 to 57 on 6 April 2028, although a protected pension age regime will be introduced. This will allow those who meet the rules to take benefits based on their existing normal minimum pension age.

Protected pension age

Protection will apply to members of registered pension schemes who before 4 November 2021 had the right to take their pension entitlement earlier than 57.

  • There will be no need to apply to HMRC for protected pension age.
  • The regime will apply to all types of UK-registered pension scheme.
  • A person with protected pension age will be able to take benefits in stages without losing protection.
  • Moving jobs, a change of pension scheme, making a transfer to a new scheme or taking benefits could all have an impact on the NMPA that will apply.

The age was previously increased from 50 to 55 in 2010, and anyone who has protected pension age from that transition will see no change when the threshold increases to 57.

No protected pension age

The impact of the higher NMPA will depend on when a person was born:

Born before 7 April 1971 Will be 57 by 6 April 2028, so not affected by the change.
Born between 7 April 1971 and 5 April 1973 Will be 55 by 5 April 2028, so not affected if pension benefits fully taken by then. However, if a person still has benefits to take at 6 April 2028, they will have to wait until 57 before the remaining benefits can be taken.
Born on or after 6 April 1973 Will not be 55 by 5 April 2028, so will have an NMPA of 57.

The new protected pension age regime is wide-ranging and complex, providing both opportunities and risks. Professional advice is therefore essential.

HMRC’s policy paper on increasing normal minimum pension age can be found here.

Photo by Alan Billyeald on Unsplash

 

 

What is a ‘reasonable excuse’ for tax penalties?

Written by Femi Ogunshakin on . Posted in Capital Gains Tax, COVID-19, Income Tax, Self Assessment, Self-Employed. No Comments on What is a ‘reasonable excuse’ for tax penalties?

Having a reasonable excuse can be a get-out-of-jail-free card if you are charged a tax penalty. However, there is no statutory definition of the term, and what might constitute a reasonable excuse for one person may not for another. With more individuals and businesses incurring tax penalties due to Covid-related disruptions, HMRC has recently updated its guidance.

The use of a reasonable excuse only removes the penalty – it does not absolve the taxpayer from the tax or any late-payment interest.

Covid-related disruptions

HMRC will usually accept the use of a reasonable excuse for a return or late payment because of the impact of Covid-19. As is always the case with reasonable excuse, the excuse must have existed on or before the date on which the obligation should have been met.

It is also essential that the failure to meet the conditions is rectified without unreasonable delay once the reasonable excuse ends.

For example, if a business is late submitting its quarterly VAT return because the person responsible had to isolate – this should be accepted as reasonable excuse provided the return is submitted as soon as possible after the person returns to work.

What doesn’t count

HMRC’s updated guidance provides some examples of what will not usually amount to a reasonable excuse:

  • Pressure of work;
  • Lack of information; and
  • Lack of a reminder from HMRC.

Lack of funds and reliance on a third party also do not normally count, although there are exceptions. For example, the First-Tier Tribunal held that a taxpayer had a reasonable excuse for the late payment of a capital gains tax liability because the sale proceeds had not been received.

Illness

Illness and domestic problems do not count as valid excuses unless very serious. HMRC expects suitable arrangements to be put in place if a person knows in advance that they will be in hospital or convalescing.

Similarly, the illness of a partner or a close relative will only be accepted as an excuse if the situation took up a great deal of time and resources.

HMRC guidance on what to do if you disagree with a tax decision – including reasonable excuse – can be found here.

Photo by Towfiqu barbhuiya on Unsplash

Keeping it in the family – tax saving salary strategies

Written by Femi Ogunshakin on . Posted in Employment Tax, Income Tax, Law, PAYE, Self-Employed. No Comments on Keeping it in the family – tax saving salary strategies

An easy way to reduce a business’s tax bill – and also increase the amount of funds withdrawn from the business – is to put a family member on the payroll. Of course, the salary must be for genuine work (emphasis on this point!!), with any tax saving dependent on the overall tax position.

Such salary arrangements are most beneficial if they are in place from the start of a tax year, so right now is a good time to be looking at 2022/23.

When does this work?

Paying a salary to a spouse, partner or child at university makes sense if the recipient is not using their personal allowance. A tax-free salary can be paid, with the business or company receiving a corresponding deduction in calculating their trading profit. For a sole trader, the saving could be as high as 63.25% if caught in the personal allowance tax trap.

However, there will also be a saving if the recipient is using their personal allowance but has a lower marginal tax rate than their self-employed spouse, partner or parent. With a company, there is currently no advantage to taking a salary in this situation, but there will be from April 2023 when higher corporate tax rates come into effect.

One important point to remember is that the salary must actually be paid out for the work, so it should be payrolled and transferred into the family member’s personal bank account.

How much to pay?

There are two main restrictions:

  • The amount of salary must be commensurate with the work done; HMRC will refuse a tax deduction if no work or little work is undertaken. Work will obviously depend on the recipient’s skill set, but bookkeeping, payroll, marketing, or website maintenance might be options; and

 

  • Keeping the national insurance contribution (NIC) cost to a minimum. With employee and employer NICs set to be 13.25% and 15.05% respectively from April, these can easily wipe out any tax saving. An annual salary for 2022/23 of between £6,396 and £9,880 will mean no employee NICs and will also give the recipient a year’s contribution towards the State pension. Paying up to the annual personal allowance of £12,570 can work if employer NICs are covered by the employment allowance.

HMRC’s approach to allowing a deduction for salary paid to dependents and close relatives can be found here.

A caveat to anyone interested in this article’s content: do make sure you seek professional advice before embarking on this strategy, as getting it wrong could have severe consequences for you and/or your business.

Photo by Daniel K Cheung on Unsplash

The patchwork effect of rising inflation

Written by Femi Ogunshakin on . Posted in Insights. No Comments on The patchwork effect of rising inflation

2021 ended with inflation sitting at 5.4%, but it may not have felt like that to you. 

You may have caught the food campaigner Jack Monroe on TV and radio interviews recently highlighting how the uneven effects of inflation on the most basic foodstuffs can have a disproportionate effect on lower income groups. Her intervention has prompted the ONS to look beyond the average in more detail at ‘individual inflation rates’.

Annual CPI inflation in the UK for 2021 was 5.4%, a sharp increase from a year earlier, when it was just 0.6%. The jump, which took the inflation measure to its highest level in almost 30 years, was by no means unique to the UK. Across 2021, in the US, inflation rose from 1.4% to 7.0% while in the Eurozone the change was from –0.3% to +5.0%.

Sectors

Whether inflation felt like 5.4% to you is another matter. The hierarchy chart above shows how the dozen price categories that make up the CPI contributed to that headline inflation figure. The standout sector, accounting for nearly a third of overall inflation, was transport. Drill down into that and you will find three sub-sectors with annual inflation exceeding 25%: fuel and lubricants; second-hand cars and air flights. If you did not buy a second-hand car and did not fly in 2021 – as many people did not – then two of those three passed you by.

The second largest inflation driver was what might be described as the home sector – housing, water, electricity, gas and other fuels. It was those last three that were the main problem, with household fuel bills rising by 22.7%. If you were lucky enough to have a fixed-term contract for your utilities – and your supplier survived 2021 – then again, the change recorded by the CPI statisticians would have been irrelevant to you. On the other hand, if your bargain fixed-term deal (or its supplier) ended in 2021, then your utility bills might have risen much more than implied by the CPI.

Each to their own

The lesson to learn from all this data is that inflation as measured by the CPI is unlikely to be the inflation that you experience. Your mix of spending probably does not match the CPI ‘shopping basket’ and will change over your lifetime. For example, in retirement, expenditure on commuting will generally disappear but outlays on recreation activities may well increase.

Your financial planning should always take account of inflation. The unexpected jump in 2021 could mean that it needs to be reviewed – either based on the CPI or your personal circumstances.

Source: Office for National Statistics.

Business rates loophole on second homes closing

Written by Femi Ogunshakin on . Posted in Business Rates. No Comments on Business rates loophole on second homes closing

Owners of holiday lets and second homes in England have been able to avoid council tax by registering their properties as businesses. However, from April 2023, small business rates relief will only be available if a property is let out for a minimum of 70 days a year. If you let out a second home, you may want to start planning now.

In the vast majority of cases, registering a property as a business has meant that small business rates relief is available, meaning no business rates are payable. Business registration has been possible for properties available to let for 140 days or more in a year, even if little or no realistic effort is made to attract lettings.

Changes from 1 April 2023

To benefit from business rates after next April, owners will have to:

  • Prove that a property is available as self-catering accommodation for 140 days a year, with this test met for the coming year and also the previous year; and
  • Actually rent out the property as self-catering accommodation for a minimum of 70 days a year.

It will be necessary for property owners to provide evidence, such as the website or brochure used to advertise the property, letting details and receipts.

Wales already applies similar criteria, with Scotland making changes from April 2022.

For the purpose of accounting for those 70 days, both council and business rates look at the property’s status at the end of a day. For example, if a property is let from Friday evening to Sunday morning, it is treated as let for two days using the occupancy for the Friday and Saturday nights.

New lets

There are no special rules being introduced for newly available lets, so a new let will be liable to council tax until the property has been available for 140 days and actually rented out for 70 days. Business rates will not be available until both criteria are met, subject to the property being advertised as self-catering accommodation for 140 days in the coming year.

The government’s press release on closing the tax loophole on second homes can be found here.

Photo by Grant Durr on Unsplash

Focus on tax year-end planning

Written by Femi Ogunshakin on . Posted in Benefits, Capital Gains Tax, Inheritance Tax, Pensions. No Comments on Focus on tax year-end planning

With Christmas and New Year behind us, tax year-end planning should now be on your radar.

The 2021/22 tax year will end on Tuesday 5 April. This year there is no Spring Budget and Easter arrives on 15 April, so no obstacles stand in the way of year-end tax planning. Nevertheless, the sooner you start the better, as some decisions cannot be made quickly. There are some key areas to consider.

Pensions

Making pension contributions is one of the few ways that you can receive full income tax relief and reduce your taxable income. The second benefit matters in a world where your level of taxable income can determine whether you suffer the High Income Child Benefit tax charge or retain entitlement to a full personal allowance. The end of the tax year is a good time to assess how much you can contribute as you should have a good idea of your income for the year.

Inheritance tax

Now that we know the Chancellor does not have any plans for major reform of inheritance tax (IHT), there is a stable framework on which to plan. As ever, first on the list to consider is use of your annual exemptions, such as the £3,000 annual gifts exemption. With the nil rate bands currently frozen until April 2026, it is more important than ever not to let these go to waste.

Capital gains tax

As with IHT, the Chancellor has recently clarified his plans for capital gains tax (CGT). The annual exemption, which currently allows you to realise CGT-free gains of up to £12,300 each tax year, will not be slashed, nor will the tax rates be raised to income tax levels. That has simplified the year-end planning process, as there is now no point in realising gains above your annual exemption in case there would be more tax to pay in the near future.

If you think your personal finances could benefit from year-end planning, do not wait until the last moment to seek advice from a professional. Calculations will often need data that can take time to collect, particularly on the pensions front.

Photo by Visual Stories || Micheile on Unsplash

Sick pay rebate returns to help relieve pressure on businesses

Written by Femi Ogunshakin 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.

Photo by David Mao on Unsplash

Debt evading directors face new Insolvency Service powers

Written by Femi Ogunshakin on . Posted in Company Director, Director Disqualification, Insolvency. No Comments on Debt evading directors face new Insolvency Service powers

Directors who abuse the company dissolution process in order to evade debts, including the repayment of government-backed Covid-19 business loans, will be subject to stronger powers given to the Insolvency Service.

These new powers were included in the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act enacted on 15 December last year. Previously, the Insolvency Service could only investigate directors of companies entering insolvency but can now also look at directors of dissolved companies.

Phoenixism

Complaints regarding dissolved companies often relate to new companies that have taken over the business of the dissolved company. The new company will invariably have the same directors, take over assets – such as vehicles – but with creditors left unpaid. In some cases, this happens multiple times.

Sanctions

If misconduct is found, a director of a dissolved company can be disqualified as a company director for up to 15 years. In more serious cases, the director could be prosecuted.

It is also possible for a court order to be made requiring a former director of a dissolved company, who has been disqualified, to pay compensation to creditors who have lost out due to their fraudulent behaviour. This aspect applies retrospectively, so former directors can be held liable to creditors despite the fraudulent conduct taking place prior to the Act’s commencement.

Business rates

Along with the changes aimed at former directors, the Act has a business rates aspect. The Act makes it clear that Covid-related changes cannot be used as grounds for a business rates appeal on the basis of “material change of circumstances”.

Businesses that have seen their operations severely curtailed as a result of Covid-19 restrictions will likely be disapproving of this response; they are expected to keep paying business rates on the basis of rateable values set in a different world before the current Coronavirus pandemic.

The only consolation is the £1.5 billion provided for business rates relief to sectors that have suffered the most economically but are not eligible for existing support.

The government’s original press release for the Bill and more detailed information can be found here.

Photo by Laura Davidson on Unsplash

Don’t forget to include Covid-19 payments on self-assessment returns

Written by Femi Ogunshakin on . Posted in COVID-19, Income Tax, Self Assessment. No Comments on Don’t forget to include Covid-19 payments on self-assessment returns

With the 2021 self-assessment tax return deadline on 31 January, HMRC has been busy reminding taxpayers to declare any Covid-19 grant payments they might have received. This is the first year they need to be included.

Most self-employed taxpayers will have received Self-Employment Income Support Scheme (SEISS) grants during the Covid-19 pandemic, and now must include the following related grants and payments in their tax returns:

  • Business support grants (from local authorities or devolved administrations);
  • Furlough payments;
  • Eat Out to Help Out;
  • Coronavirus statutory sick pay (SSP) rebates; and
  • Test and trace/self-isolation payments.

All grants are taxable.

Reporting

There is a separate entry on the self-assessment tax return to report SEISS grants. All other grants and payments should be shown in the “any other business income” box.

The tax-return process is a bit more complicated for partnerships; other grants and payments go on to the partnership tax return, with each partner’s respective SEISS grants included on their personal returns.

If you have already submitted your 2021 tax return and omitted any Covid-19 grants or payments, then amend the return as soon as possible.

Which SEISS grants?

The first three SEISS grants should be included in your tax return, with the fourth and fifth grants not due to be reported until next year. The payment windows for these three grants were:

Grant Payment window
First 13 May to 13 July 2020
Second 17 August to 19 October 2020
Third 29 November 2020 to 29 January 2021

If you cannot pay

If you are unable to pay your self-assessment tax bill in full by 31 January, you can use HMRC’s self-serve time to pay facility. This online payment plan lets a taxpayer create a bespoke monthly payment plan based on how much tax is owed and the length of time needed to pay.

The facility can only be used if the tax owed does not exceed £30,000, the 2021 tax return has already been filed, you are within 60 days of the 31 January payment deadline and the debt will be paid off within 12 months.

On owing tax that does not exceed £30,000, HMRC recently outlined that taxpayers will no longer be liable for late penalties if bills are paid in full, or set up a Time to Pay arrangement, by 1 April. In the same announcement, HMRC said taxpayers who cannot file their return by the 31 January deadline will not receive a late filing penalty if they file online by 28 February.

You will need to call the self-assessment helpline should you owe more than £30,000 or need longer to pay.

HMRC guidance on reporting Covid-19 grants and payments can be found here.

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New Covid-19 business support package

Written by Femi Ogunshakin on . Posted in Business Rates, COVID-19. No Comments on New Covid-19 business support package

A new support package has been announced to assist businesses impacted by the Covid-19 Omicron variant. Applications are open to the end of February, but many have said the measures don’t go far enough given the extensive losses suffered in the hospitality and leisure sectors over the festive period.

Although no businesses were legally required to close when the move to Plan B was announced in December, the use of face masks was extended, Covid-19 passes required for some venues and people encouraged to work from home. Combined with advice to limit socialising, these measures led to dramatic falls in the number of people going to pubs, restaurants and shows.

Business grants

Around 200,000 businesses in the hospitality and leisure sectors in England, such as restaurants, hotels and pubs, are eligible for one-off grants of up to £6,000 on a per-property basis. Businesses must be solvent to qualify. The amount of grant is dependent on the property’s rateable value.

 

Rateable value Amount of grant
Up to £15,000 £2,700
£15,001 to £51,000 £4,000
Over £51,000 £6,000

The scheme will close for applications on 28 February, with payments made by 31 March at the latest.

Grants may well be paid automatically, but you should keep an eye on your local authority’s website just in case you need to register to apply. The Chancellor has so far refused to bring back any form of furlough, and – based on previous experience – grants may not be paid to businesses for several weeks.

Extra funding has been made available to the devolved administrations so they can provide similar support.

Some £100 million of discretionary funding has also been provided for English local authorities to support other businesses, such as those who supply the hospitality and leisure sectors, so keep checking your local authority’s website to see what may be on offer as some may allocate funding on a first-come-first-served basis. Additional funding is available to support theatres, museums and orchestras.

Guidance on the new local authority business grants can be found here.

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Student loans – normal debt rules do not apply

Written by Femi Ogunshakin on . Posted in Insights, Student Loans. No Comments on Student loans – normal debt rules do not apply

The issue of student loans weighs heavily on students and their families, and even political parties – remember the Lib Dems? But the name itself has created misunderstanding about how they operate and the best way to manage them.

A recent article published by MoneySavingExpert.com debunks some of these common myths. Because normal debt rules don’t apply, a student loan should usually be taken instead of self-funding fees, and it is generally not worth trying to pay a loan off early.

This approach to student debt is, of course, the complete opposite to the approach towards normal debt, such as borrowing to buy furniture. The misconceptions surrounding student debt are because the amount borrowed to pay fees and living costs are largely irrelevant; what is important is how much has to be paid back. Also, in regard to student loans:

  • There are no debt collectors;
  • There are no entries on credit files; and
  • The impact on mortgage affordability checks is not the amount of debt but just the value of the repayments.

Repayment

English and Welsh students don’t make any repayments until annual income exceeds £27,295, with repayment at the rate of 9% on the excess. So only those with reasonably well-paid jobs pay back the debt. After 30 years, any remaining debt is wiped out.

Anyone nearing retirement is in a very appealing position if they take out a student loan to study for a degree. Unless they will have substantial pension income, they will never have to repay.

Do not self-fund

Given the way student loans are repaid, self-funding university costs can be a bad idea. Self-funding means 100% of the costs are paid, but someone who earns less than £27,295 will effectively get their degree for free.

Even worse is where parents borrow to avoid taking out a student loan – it is much better to help out children later in life with a mortgage deposit.

Early repayment

Although it is usually a good idea to repay debt as quickly as possible, this may be a bad decision when it comes to a student loan.

Overpaying a student loan each month is pointless if that person will not fully repay the loan within 30 years. Even someone with a good income may not make full repayment given the relatively high rate of interest that can be charged.

Guidance on repaying student loans can be found here.

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Freeports up and running

Written by Femi Ogunshakin 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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Temporary changes to sickness absence rules…………

Written by Femi Ogunshakin on . Posted in COVID-19, Employment Law. No Comments on Temporary changes to sickness absence rules…………

The government has introduced temporary sickness absence rules, effective 10 December 2021 until January 26th 2022.

The new rules provide an exemption the provision of proof of sickness until 28 days of being off work. Guidance for employees, employers and line managers.

The new rules are introduced to provide relief from GPs having to provide fit notes during the period so they can concentrate on working on the Covid booster programme.

For further information on this, click here

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Universal Credit eligibility expands to higher rate taxpayers

Written by Femi Ogunshakin 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 Femi Ogunshakin 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 Femi Ogunshakin 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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Import VAT confusion continues

Written by Femi Ogunshakin on . Posted in VAT. No Comments on Import VAT confusion continues

The system of postponed VAT accounting for import VAT has been up and running since the start of the year, but there is still a lot of confusion. You may be experiencing some of these common problems.

Monthly statements

Some importers have had difficulty accessing their monthly import VAT statements. The trick is to start from the link here, rather than trying to directly log on via your Government Gateway.

Remember that import VAT statements are only available online for six months from the date of publication, so they should be downloaded and stored securely.

No feedback

Despite importing goods, you might not have paid any import VAT or received any paperwork. What has most likely occurred is the freight agent has defaulted to postponed VAT accounting without asking you. As a matter of urgency, you therefore need to enrol for the customs declaration service given the six-month statement availability. You can then declare, and normally reclaim, the import VAT on your VAT returns.

No import VAT shown

The lack of a VAT figure on an invoice for imported goods can be confusing, and different freight agents may well adopt different approaches.

Import VAT will generally be dealt with by VAT return entries under postponed VAT accounting, as explained above. However, the freight agent may have paid the VAT to release the goods, and you will then receive a form C79 from HMRC. This document is used to reclaim the VAT paid.

Form C79 not received

If you have not received a form C79 from HMRC, it may be because:

  • The form is sent by post, so it might have got lost; or
  • The freight agent may have defaulted to postponed VAT accounting without telling you.

Accounting software

Finally, there is also the common problem of accounting for the import VAT. The correct VAT coding will be particularly important for partially exempt businesses because they may not be able to recover all of the VAT. If in doubt, the best advice is to get help from your software provider; each accounting package may well have a different approach to dealing with import VAT.

You can check when it is possible to use postponed VAT accounting here and of course we’re here to help.

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CGT reporting and payment deadline extended

Written by Femi Ogunshakin 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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The Autumn Budget – taxed and spent

Written by Femi Ogunshakin on . Posted in Budget. No Comments on The Autumn Budget – taxed and spent

After already increasing taxes by £42 billion a year in 2021, the main focus of Chancellor Rishi Sunak’s Autumn Budget was on spending.

The first Autumn Budget in three years – and Mr Sunak’s third in less than 20 months – featured no significant increases in tax. The task of raising extra revenue had already been dealt with earlier in the year, with a range of measures, including allowance freezes and increased corporation tax.

The Budget’s main highlights on the personal front were:

  • There were no changes to inheritance tax and only one technical administrative change to capital gains tax. Both capital taxes had been the subject of extensive reports from the Office for Tax Simplification, so the Chancellor may have abandoned ideas of reform for the short term.
  • A change to pension tax relief was announced, but not the one some had feared. It involved a potential increase in relief for low earners from 2024/25.
  • The increases to National Insurance Contributions and dividend tax, announced alongside the NHS/Social Care package in September, were confirmed and will start to take effect from April 2022.
  • The income tax personal allowance and higher rate threshold (outside Scotland) were left frozen, despite higher inflation effectively making the freeze a greater tax increase.
  • The main ISA contribution limit was frozen at the £20,000 level originally set in April 2017.
  • The increase to the new and old state pension will be in line with inflation to September 2021 (3.1%) rather than the Triple Lock, saving the Treasury (and costing current and future pensioners) over £5 billion a year.

Although the Chancellor said in his speech, “My goal is to reduce taxes”, this will not happen next year. It is not too early to start thinking how you might start cutting tax through year-end tax planning.

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Positive news for business rates from the Chancellor

Written by Femi Ogunshakin on . Posted in Budget, Business Rates. No Comments on Positive news for business rates from the Chancellor

The Autumn Budget announcements included a series of measures to alleviate the burden of business rates in England. For 2022/23, 50% relief will be available for eligible retail, hospitality and leisure properties, and the business rates multipliers will again be frozen.

2022/23 measures

The business rates multipliers for the current year have already been frozen at 2020/21 levels, and this measure will continue until 31 March 2023, keeping the multipliers at 49.9p (small business) and 51.2p (standard).

Many businesses already pay no business rates due to small business rates relief, and retail, hospitality and leisure properties currently benefit from a 66% discount. For 2022/23, retail, hospitality and leisure properties not qualifying for small business rates relief will receive a 50% business rates discount, subject to a cash cap of £110,000 for each business.

Eligibility for the 2022/23 50% discount will not be as wide as the current 66% discount, although detailed guidance has not yet been published.

Longer term

The Budget announcements are a far cry from the hoped-for radical reform of business rates, although a raft of other measures effective from 2023 will help over the longer term. These include:

  • Revaluations to take place every three years starting from the next revaluation in 2023 (recently, the interval has been longer than the scheduled five years);
  • A 100% improvement relief will provide relief for 12 months from any additional rates charge where improvements increase a property’s rateable value. Most plant and machinery has no impact on rateable value, but the new relief will help, for example, if CCTV is installed or bike sheds added.
  • For green investments, an exemption from higher rates bills will apply where, for example, rooftop solar panels or electric charging points are installed. A 100% relief will also be provided for eligible low-carbon heat networks.

Details of current business rates relief for properties in England can be found here.

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Apprenticeship levy transfers simplified in England

Written by Femi Ogunshakin on . Posted in Employment Tax, National Insurance Contributions. No Comments on Apprenticeship levy transfers simplified in England

Larger employers can transfer up to 25% of their annual apprenticeship levy pot to support other, smaller, employers to take on apprentices in England. While there is nothing new about this, what is new is an online service where funds can be pledged by larger employers.

Apprenticeship levy funds are lost if not used within 24 months, so transferring surplus funds is obviously more rewarding than losing them.

Pledging

With the new service, the pledging employer simply uses their apprenticeship service account to create a transfer pledge. This will specify the amount of funds available for the current financial year. They can then choose four optional criteria to reflect priorities for transferring funding. These are:

  • Location;
  • Sector;
  • Type of job role; and
  • Apprenticeship qualification level.

It is entirely up to the pledging company whether to accept or reject an application.

At the time of writing, there were 45 funding pledges listed on the new online service, ranging from £1,618 up to a maximum of £342,263 – some without any criteria.

Apprenticeships

The benefit for smaller and medium-sized employers receiving a transfer of funds might not be as beneficial as it appears, because, for up to ten new apprenticeship starts each year, the employer only pays for 5% of the apprenticeship fees (and nothing if they have less than 50 employees). However, a transfer will remove the 5% cost, and the full cost if the ten-apprenticeship limit is exceeded.

Although any employer can receive a transfer, they will need to set up an apprenticeship service account.

  • The transfer can only be used to cover apprenticeship training costs up to a funding band limit. Transfers cannot be used to cover, for example, wages or travel costs.
  • Transfers can only be used for new apprenticeship starts, although this could be an existing employee.

One notable benefit is that funding will run for the full duration of the apprenticeship and cover 100% of relevant costs.

The current list of funding opportunities can be found here.

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New tipping rules to come into force within months

Written by Femi Ogunshakin on . Posted in Employment Tax, Income Tax. No Comments on New tipping rules to come into force within months

Five years after carrying out a consultation, the government is going to make it illegal for employers to withhold tips from workers. The change to legislation, due to take effect over the next 12 months, is not just for staff in restaurants, hotels and bars, but also anyone employed in industries such as hairdressing, casinos and private car hire.

With some 80% of tipping now occurring by card, the change is considered urgent. Cash tips to workers are already protected, but for card tips, an employer can either choose to keep tips or pass them on to staff. This new change to legislation will bring consistent treatment regardless of how a tip is paid.

Legislation

The legislation will mean that employers will have to:

  • Pass on all discretionary card tips to workers without any deductions. Employers have typically made deductions to cover card processing costs, payroll, staff food and drink, recruitment and training.
  • Distribute tips fairly and transparently, have a written policy on tips, and record how tips have been dealt with.

Workers will have the right to make a request for information relating to an employer’s tipping record, enabling them to bring an employment tribunal claim for compensation if the rules have not been followed.

Tronc scheme

A tronc is a separate organised pay arrangement used to distribute tips, gratuities and service charges. The troncmaster runs the related payroll and reports information to HMRC.

A tronc scheme run by an independent troncmaster will be the most effective way for many employers to comply with the new requirements.

A tronc, if run independently, will meet the fair and transparent requirement, and workers can have a say in how tips are shared, which should help improve staff motivation. Another benefit is that tips shared from a tronc are free of NICs, but this is not the case where the employer decides how tips are shared out.

HMRC’s guide to how tips are taxed can be found here.

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Are your young adults missing out on their Child Trust Fund?

Written by Femi Ogunshakin 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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IHT receipts reach £6 billion record

Written by Femi Ogunshakin on . Posted in Inheritance Tax, Lasting Will & Testaments. No Comments on IHT receipts reach £6 billion record

The amount of inheritance tax (IHT) collected by HMRC over the past year reached a record £6 billion, some £1 billion more than the previous 12 months. This increase comes as no surprise given booming property values and frozen nil rate tax bands. It seems the tax is no longer the preserve of the super-rich.

The IHT nil rate band has not been uprated for 12 years and is set to remain at £325,000 for another four. For a reasonably well-off couple, the loss of indexing means around an additional £200,000 of assets being subject to tax. The residence nil rate band (RNRB) is also fixed, at £175,000, until 2026.

Property

Although the nil rate bands total £1 million for a couple, the average value of a terraced house in London, for example, is now over £700,000. Unfortunately, there may be little scope for any IHT planning if the value of your estate comes mainly from your property. However, it is important to have an up-to-date will, and to make the best use of reliefs and exemptions – especially the RNRB.

You might wish to take out life assurance if you want your heirs to hold on to your home, rather than being forced to sell to fund IHT. The policy should be written in trust and increase in line with property values.

Planning

Any IHT planning will depend on your age, assets and how much you can afford to gift without impacting your lifestyle. Professional advice is always recommended, but there are some important considerations:

  • Pensions: There are various possibilities, but, for example, you could fund pension contributions for your children or grandchildren. The recipient can benefit from tax relief, and your estate is reduced over time without the need for a large capital gift.
  • Business property relief: Riskier, and there is no guarantee of future exemption, but you might consider ISAs that are invested in the AIM market. The ISAs will escape IHT after being held for two years.

HMRC’s basic guide to how IHT works, including details of various exemptions, can be found here.

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Maxing Tax Digital delayed until 2024

Written by Femi Ogunshakin on . Posted in Income Tax, Making Tax Digital, MTD. No Comments on Maxing Tax Digital delayed until 2024

In recognition of the challenges to many businesses due to the pandemic, the government has delayed the introduction of Making Tax Digital (MTD) for income tax self-assessment (ITSA) by a further year.

MTD will not be mandatory for self-employed individuals and landlords until accounting periods commencing on or after 6 April 2024. The start date for general partnerships (those with only individuals as partners) will now be from April 2025, with the date for other types of partnerships still to be confirmed. The planned April 2026 commencement date for MTD for corporation tax now also seems uncertain.

Knock-on effect

The one-year delay means that:

  • The reform of the basis period rules for unincorporated businesses has been pushed back until at least April 2024, with the transition year no earlier than 2023 – so yet another change that now appears less certain than previously.
  • The new penalties for late payments and late submissions will now no longer apply to the self-employed and landlords (mandated to use MTD for ITSA) until April 2024, with other ITSA taxpayers included a year later.

No change

Although the delay will be welcomed by the majority of businesses, a delay is all it is. There is no change to the entry point (taxable turnover from self-employment and/or income from property over £10,000), nor to the requirement to keep digital records and provide quarterly returns using third-party software to HMRC.

HMRC has estimated the average transitional cost of becoming digital as £330, with an annual cost of £35 per business, although that assumes no new hardware will be required.

The delay will mean that more software packages are available before MTD for ITSA comes in, and there will be more opportunity to join the pilot scheme. If you are self-employed or a landlord, you should make the most of the extra time to ensure your business is ready come April 2024.

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