Author: Femi Ogunshakin

Capital gains tax receipts

Written by Femi Ogunshakin on 17 October 2024. Posted in Budget, Capital Gains Tax. No Comments on Capital gains tax receipts

Raising tax rates is a traditional government strategy to increase tax receipts for HMRC, but this may not be the case for capital gains tax (CGT). This is because taxpayers generally have more control over when gains are realised.

The upcoming Budget at the end of October is widely expected to see a hike in CGT rates. However, recently published data from HMRC suggests that the 4% higher rate reduction from 6 April 2024 (28% down to 24%) on residential property disposals may have helped to increase tax receipts as landlords could be taking a good opportunity to sell up.

For the five months to 31 August 2024, CGT receipts increased by nearly 10% compared to the year before.

Take care to plan ahead

Compared to landlords, those with an investment portfolio have more opportunity for CGT planning since they have considerable flexibility over the timing of disposals. However, there is now somewhat less scope for basic CGT planning with the annual exempt amount cut to just £3,000:

With an investment portfolio, disposals can be spread over several years to make use of multiple annual exempt amounts and basic rate tax bands. Couples can also make use of the annual exempt amounts and basic rate tax bands of a spouse or civil partner. Such strategies should be used with care, however, as this type of planning will unravel if CGT rates increase in the future.
Making personal pension contributions in the same year as a disposal will increase the basic rate tax band.
More sophisticated investors might consider investing in a seed enterprise investment scheme. With 50% income tax relief and CGT exemption on 50% of a reinvested gain, a landlord could currently benefit from total tax relief of 64%. This relief will increase in line with any future uplift of CGT rates. These investments are high risk and advice should be taken before engaging in them.

Longer term, those with a large investment portfolio might be able to avoid any tax liability if they retire overseas. This option does not work for landlords because UK property remains subject to CGT regardless of the owner’s residence status.

HMRC’s guide to capital gains tax (what you pay it on, rates and allowances) can be found here.

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Unclaimed child trust funds

Written by Femi Ogunshakin on 17 October 2024. Posted in High Income Child Benefit Charge, Wealth. No Comments on Unclaimed child trust funds

With around 670,000 child trust fund (CTF) accounts sitting unclaimed by Generation Z adults aged between 18 and 22, HMRC is concerned.

CTFs were opened for every child born between 1 September 2002 and 2 January 2011, with each account started off with a £250 voucher (£500 for low-income families). A similar amount was added for any child who turned seven by 31 July 2010. That means all CTFs hold some money; in fact, each unclaimed account has an average of £2,200.

Given that nearly 30% of CTFs were set up without any parental involvement, it’s no surprise so many account holders are unaware of a CTF’s existence.

Tracing a CTF

A CTF will be held by a bank, building society or other savings provider. The number of providers has shrunk, with some merging and others exiting the market, meaning many CTFs will now have a different provider to when the account was set up. There are two free tracing options for anyone who does not know their CFT provider:

HMRC’s tool; or
The approved tool from The Share Foundation.

Only a few details are required for either tool, although anyone searching for a CTF provider will need the account holder’s National Insurance number and date of birth.

HMRC are advising account holders to avoid the use of third-party agents who offer to search for missing CTFs. They will always charge for this service, even as much as 25% of the value of the account.

Fund options

Funds remain in the CTF account until the holder reaches 18, with no one else having access. At age 18, the account holder can either:

Withdraw the funds; or
Transfer the money to an individual savings account (ISA).

If the funds are not immediately required, there are currently some attractive interest rates on offer for two- or three-year fixed rate cash ISAs. ISA charges will normally be lower than those for a CTF, with higher rates of interest available. HMRC’s guide to child trust funds can be found here.

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Tips and troncs – what does it mean for your business?

Written by Femi Ogunshakin on 12 October 2024. Posted in Employment Tax, National Insurance Contributions, PAYE. No Comments on Tips and troncs – what does it mean for your business?

Since July, it has been illegal for employers to withhold tips from staff. The payment of tips will probably result in a national insurance contribution (NIC) cost for both employer and employees, but this extra cost can be circumvented if a tronc arrangement is used to distribute tips.

The new legislation applies mainly to those operating in the hospitality sector, and covers all tips, gratuities and service charges. It also brings the law into line with modern payment practices as it covers tips left via card payment.

NICs

Tips paid to employees are subject to both income tax and employee NICs. The NIC cost is at a rate of 8% where tips – when added to normal earnings – fall between £1,048 and £4,189 monthly. Employers pay NICs once a monthly threshold of £758 is reached, although their liability is normally reduced by the annual £5,000 employment allowance.

For example, if a restaurant pays out £25,000 worth of tips, the employer will probably be facing an additional NIC cost of nearly £3,500. The cost for the staff could be up to £2,000. This is where a tronc arrangement comes into play.

Troncs

A tronc is an arrangement used to distribute tips. It is run by a troncmaster.

Provided it is the troncmaster who decides how tips are to be distributed among staff, there are no employee or employer NICs on amounts paid out. It is still possible, however, for the tips to be included on the employer’s payroll.

The troncmaster will typically be a member of staff, although larger businesses might prefer to use the services of a specialist provider. There is no problem if the employer makes the decision on who to appoint as troncmaster; what is important is that the employer plays no part, directly or indirectly, in the allocation of tips.

HMRC’s detailed guidance on tips, gratuities, service charges and troncs can be found here.

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Will increased capital gains tax (CGT) mean less tax gets paid?

Written by Femi Ogunshakin on 5 October 2024. Posted in Budget, Capital Gains Tax, Wealth. No Comments on Will increased capital gains tax (CGT) mean less tax gets paid?

Capital gains tax: a minority sport?

The Labour Party’s 2024 manifesto said, ‘We will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.’ The absence of any comment on CGT meant that Rachel Reeves received persistent questions during the election campaign about a possible increase. Unsurprisingly, there was no definitive answer.

At the beginning of August, HMRC published new data about how much CGT had raised. The figures were for 2022/23, when the annual exemption was £12,300 of gains, as opposed to the current £3,000. Nevertheless, they provide some interesting information about who pays how much:

Only 348,000 people made enough capital gains to pay the tax. That is about 1% of the number of income taxpayers.
The total amount of CGT paid by individuals was £13.63 billion, with trusts accounting for another £0.797 billion.
2,000 taxpayers – less than 1% of all CGT payers (who realised at least £5 million of gains) – paid 41% of all CGT collected from individuals. Another 4,000 taxpayers with gains between £2 million and £5 million paid 16% of the total.
There was more tax paid in the previous two tax years. Between 2021/22 and 2022/23 the Exchequer’s receipts fell by 15%.

That final bullet point deserves an explanation, because it is unusual for tax receipts to fall year-on-year, yet alone for two years. In July 2020, the then chancellor Rishi Sunak, commissioned the now-defunct Office of Tax Simplification (OTS) to review CGT. The move prompted speculation that CGT would be increased, a sentiment that was reinforced when the OTS suggested aligning CGT rates with income tax and sharply reducing the annual exemption. The predictable result was a pre-emptive rush to realise gains, boosting CGT payments.

In the event, Mr Sunak ignored the OTS proposals, although subsequently one of his many successors did take up the idea of cutting the annual exemption. As we wait to see what will be in Rachel Reeves’ Budget on 30 October, the story of CGT receipts may have provided her with an interesting lesson: hints of raising the tax are enough in itself to generate extra revenue.

Source HMRC

Court of Appeal rejects HMRC’s argument for special treatment in winding-up dispute

Written by Femi Ogunshakin on 30 September 2024. Posted in Bankruptcy, HMRC Investigations, Insolvency, Winding Up Petitions. No Comments on Court of Appeal rejects HMRC’s argument for special treatment in winding-up dispute

There’s a new government in Westminster and a “black hole” in the public finances so, HMRC might be forgiven for feeling under pressure to increase its recovery of unpaid taxes. But what is unforgivable is the heavy-handed way it seems to be going about it, particularly when it comes to winding-up petitions.

However, a welcome decision from the Court of Appeal in HMRC and Payroll & Pensions Services (PPS Umbrella Company) Ltd. shows that HMRC isn’t getting it all its own way.

Background

HMRC vs Payroll & Pensions Services (PPS Umbrella Company) Ltd [2023] EWHC 3308 (Ch) (9 Nov 2023) is a difficult and complicated case in which HMRC argued PPS should be wound up because it owes millions in national insurance contributions due to a “labour supply fraud” (i.e. treating workers as self-employed rather than employed).

At the original hearing to decide whether a provisional liquidator should be appointed, the Court also considered whether HMRC should give a cross-undertaking to pay damages to the company, if it turned out the order should not have been made.

While this may have appeared to be an uncontroversial issue, HMRC argued that they should not be required to give the undertaking, because they are “the Inland Revenue”.

But the Court disagreed: “If they are so highly confident of their position as they contend, it may be thought HMRC will have little difficulty in giving that undertaking.”

The High Court decided that an undertaking should be given by HMRC, and that it should be unlimited.

Court of Appeal decision

When the case came before the Court of Appeal in August 2024, it was asked to decide on the key issue of whether HMRC needed to provide a cross-undertaking in damages when applying for the appointment of provisional liquidators without notice?

The Court of Appeal upheld the High Court’s original decision that it should give an undertaking to safeguard directors’ interests if they successfully challenge the winding-up position.

In its reasoning, the Court emphasised:“[T]he importance of the court’s duty to prevent individuals from being wronged by the state…”

What’s the significance of this?

The Courts have a duty to ensure a fair balance between the interests of the parties. Companies and individuals are entitled to protection against unfairness by the State – and this includes HMRC, which is not entitled to behave as if the rules do not apply to it!

Being presented with a winding-up petition by HMRC can feel like a David and Goliath situation for many businesses, especially when HMRC takes a “computer says no” approach to reasoned arguments for compromise. But businesses should not be intimidated; it is in their interests to insist on due process being followed, and the courts have shown they are receptive to taxpayers who argue their case.

We say…

In an ideal world, just like other creditors, HMRC would negotiate with businesses and be prepared to collaborate with insolvency practitioners to ensure survival and the re-payment of debts.

Unfortunately, as many accountants and lawyer will attest, HMRC demonstrates a rigidly inflexible approach, fixated on the technical definition of insolvency to justify provisional liquidation proceedings at the drop of a hat, seemingly with very little consideration of the bigger picture.

Liquidation is an extreme response which can involve dawn raids on business premises and directors’ homes and draconian restrictions. It is a power which should be wielded with care but, it seems that HMRC doesn’t see it that way – in our recent experience it is currently very actively and aggressively pursuing these types of actions.

How can we help?

We have lots of experience and plenty of success stories when it comes to helping our clients negotiate with HMRC. We can advise you on the best steps to protect your business if you are facing insolvency issues, investigations or liquidation or other proceedings by HMRC.

Contact us today for a no obligation chat: 07867 795 439 (Femi) or 07713 564 324 (Jikoa) or contact femi@femiogunshakin.com

Further reading

HMRC v Payroll & Pension Services (PPS Umbrella Company) Limited [2024] EWCA Civ 995 | Pump Court Tax Chambers (pumptax.com)

Umbrella fraud obscures employment status dispute | AccountingWEB

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Student loan threshold frozen

Written by Femi Ogunshakin on 29 September 2024. Posted in Student Loans. No Comments on Student loan threshold frozen

The student loan repayment threshold for England and Wales has been frozen at £25,000 until 2027, to the detriment of many new university students this September.

Increased numbers of UK students are going to university due to good A-level results and fewer international students, which means this freeze will now affect even more people.

Repayment

Repayment starts the April after a graduate has left university. So, with a three-year course, this year’s cohort of students will not start repaying loans until 2028 at the earliest:

Freezing the £25,000 threshold – rather than increasing it in line with inflation or wages – brings graduates into the repayment net earlier than would otherwise be the case.
After 2027, the government may increase the threshold in line with inflation, but this will still mean a few years of fiscal drag.

Under the new repayment rules introduced in 2023, students do not start to repay their student loans until they are earning over £25,000 a year (£2,083 monthly).

Once earnings exceed £25,000, repayment is at the rate of 9% on the excess. Interest is added to the loan from day one, with the potential repayment term running to 40 years.

Self-funding

Wealthier parents will want to know whether they should be self-funding their child’s university fees and living costs, rather than taking out a student loan. However, the decision is far from straightforward given that the normal debt rules do not apply here.

For example, parents might pay the full cost of university education of approximately £60,000, but if their child never earns more than the repayment threshold then self-funding will have been a massive mistake. The problem, of course, is estimating earnings for up to 40 years into the future.

A compromise strategy is to take the full student loan, and then for parents to look at paying the loan off early after graduation. They would only do so if it looks like their child is going to have a high-earning career. However, this is a complex area of pros and cons, depending very much on personal circumstances.

Guidance on repaying student loans can be found here.

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Can you spot a fake HMRC letter?

Written by Femi Ogunshakin on 20 September 2024. Posted in Income Tax. No Comments on Can you spot a fake HMRC letter?

Unfortunately, scam warnings have become a regular occurrence. The latest scam highlighted by HMRC is rather ‘old school’, involving letters posted to companies instead of the more usual digital communication.

The scam letters being sent out are quite convincing. They come with a genuine-looking HMRC letterhead, and purport to come from the ‘Indv and Small Business Compliance’ team.

Targeted companies

The scam focuses on the claim that a targeted company is required to verify their income in order to identify any business not declaring their full income. They then request:

business bank statements for the past 13 months;
the latest set of filed accounts, including information which – for smaller companies – would not be available from Companies House;
VAT returns for the last four quarters; and
for each director, a copy of their passport or driving licence.

Scammers can easily use copies of a director’s passport or driving licence to steal their identity for fraudulent purposes, possibly even accessing the company’s bank account.

The scam letter uses intimidation tactics, threatening an investigation and a potential freeze on business activity if a response is not received.

Spotting the scam

These scam letters use correct technical legislation and avoid obvious spelling and most linguistic mistakes that are usually clear giveaways. Two things to bear in mind when looking out for such frauds:

HMRC does usually request information from companies by letter or via a business tax account, rather than by email. However, HMRC email addresses end @hmrc.gov.uk, while the email address used in these fraudulent letters is: companies-review@hmrc-taxchecks.org.
A legitimate HMRC letter will include the company’s unique tax reference (UTR).

HMRC has published a list of their recent letters to help you confirm if a letter is genuine. The list can be found here.

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Dividend allowance cut doubles taxpayers

Written by Femi Ogunshakin on 17 September 2024. Posted in Benefit-In-Kind, Company Director, Dividends, Self Assessment. No Comments on Dividend allowance cut doubles taxpayers

With the dividend allowance now cut to just £500, the number of taxpayers paying tax on dividend income for 2024/25 is expected to be double what it was three years ago.

Previously set at £2,000, the dividend allowance was reduced to £1,000 for 2023/24, and to £500 from 2024/25 onwards. This reduction has had the biggest impact on basic rate taxpayers. Just under 700,000 basic rate taxpayers paid tax on dividend income for 2022/23, but this number will leap to nearly 1.7 million for the current tax year.

Tax liability

A modest share portfolio of just over £10,000 yielding 5% will now use up the dividend allowance, leaving the investor with a tax liability notifiable to HMRC. Consider this:

Notification requires either contacting the HMRC helpline, asking HMRC to collect tax through a tax coding change (if employed), or completing a self-assessment tax return.
With a basic rate of 8.75% on dividend income, the amount of tax due will often be frustratingly low given the inconvenience involved.

The average amount of tax due from basic rate taxpayers is estimated to be £385 for the current tax year; down from £780 three years ago.

Even worse will be where an investor opts for script dividends. These are still taxable despite no cash being received, so tax will have to be funded from other sources.

At the same time as the dividend allowance has been cut, the level of dividend payouts by companies has generally recovered to pre-Covid levels.

Mitigation

If dividend income exceeds the £500 allowance, some mitigating steps might be possible. The obvious move is to make full use of Independent Savings Account allowances for some current, and all future, share investments. Another approach would be to invest for capital growth rather than dividend income. Making use of the dividend allowance of a spouse, partner or an adult child by spreading a share portfolio across the family is another possibility.

HMRC’s guide to tax on dividends can be found here.

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HMRC launches VAT registration estimator

Written by Femi Ogunshakin on 11 September 2024. Posted in VAT. No Comments on HMRC launches VAT registration estimator

HMRC has launched a new digital tool to help businesses estimate the potential impact of their VAT registration. This will be useful for established business owners and those planning to start a business.

VAT registration

Registration for VAT is required if a business’s taxable turnover (including zero-rated sales) exceeds £90,000 for the previous 12 months or is expected to exceed this threshold in the next 30 days.

For a business that only makes sales to the general public, the cost of VAT registration can be particularly onerous if it is not possible to increase prices to cover the VAT charged while the cost of VAT on sales becomes an additional cost for the business.

However, a business supplying VAT-registered customers may find it beneficial to register voluntarily even though turnover is below £90,000.

Using the estimator

The estimator tool can be used as many times as needed, with HMRC suggesting it will take around 20 minutes to complete on first use. To use the estimator:

Select the time period – in months – for the VAT estimate.
Enter business income for the period, excluding any income from employment.
If any income is exempt from VAT, zero-rated or at a reduced rate, estimate the appropriate proportion in each case.
Enter business costs, including those outside the scope of VAT such as salaries.
Remove the proportion of costs outside the scope of VAT, exempt from VAT, zero-rated or at a reduced rate.
Then a final, but very important question, about how VAT will be accounted for – added to selling prices or absorbed into current prices.

Running the numbers for a VAT-registered business that has gone £10,000 over the registration threshold (standard rated sales of £100,000) with £10,000 in standard rated expenses, and with all sales to the general public, results in the business being £15,000 worse off annually compared to not being VAT registered. Take into account the extra tax and NICs due on the £10,000 of additional income, and it is clear the business would probably have been better off trying to stay within the £90,000 threshold.

HMRC’s VAT registration estimator tool can be found here.

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Unveiling plans for the Renters’ Rights Bill

Written by Femi Ogunshakin on 4 September 2024. Posted in Budget. No Comments on Unveiling plans for the Renters’ Rights Bill

While only briefly mentioned in the King’s Speech, the government has now revealed more details of the Renters’ Rights Bill. The Bill will overhaul the private rented sector in England, with some elements also applicable to Wales.

Labour’s election manifesto promised to immediately banish no-fault evictions, but this hasn’t happened. Instead, no-fault evictions will be abolished under the Bill with no changes likely until autumn 2024 at the earliest.

The government has promised expanded possession grounds for landlords to reclaim property, but this won’t help when repossession involves a lengthy court process. This is likely to mean that the requirement for a rent guarantor will become more widespread.

Changes include:

Tenants will be given the power to challenge a rent increase if it is a means to eviction.
Landlords will not be able to unreasonably refuse a tenant having a pet. This is an important issue for many landlords, because it can subsequently be difficult to relet a property where there has been a pet. Even though landlords will be able to request pet insurance, this is unlikely to be a satisfactory solution.
Landlords will have to fix damp and mould issues within strict time limits – known as ‘Awaab’s Law’. There will be clear legal expectations about the period within which homes must be made safe from serious hazards.
Landlords will not be able to discriminate against tenants who receive benefits or have children.
The practice of rental bidding wars by landlords and letting agents will be stopped, although this practice seems much less prevalent than the government thinks.

Although many of the changes will be unwelcome, Scottish and Welsh landlords have seen more radical measures introduced in favour of tenants. There is also no mention of rent controls.

The government’s background briefing on the Renters’ Rights Bill can be found here starting at page 68.

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Fiscal Drag: Caught in the 60% tax trap?

Written by Femi Ogunshakin on 1 September 2024. Posted in Budget, Employment Tax, Self Assessment. No Comments on Fiscal Drag: Caught in the 60% tax trap?

The number of taxpayers caught in the 60% tax trap has increased by nearly 25% over the past year. More than 500,000 people are now affected by higher tax rates due to their income exceeding £100,000.

The 60% rate applies to income between £100,000 and £125,140. This is the tranche of income which sees the £12,570 personal allowance tapered away.

Fiscal drag

There has been no change in the £100,000 income limit since the withdrawal of the personal allowance was introduced in 2010, a classic case of fiscal drag. Once the personal allowance is fully withdrawn, higher earners pay the additional rate of 45% on income in excess of £125,140. However, the 60% charge still applies to income between £100,000 and £125,140.

The past year has seen a particularly high increase in individuals caught by the 60% tax trap due to inflation driving up salaries. The government is unlikely to fix the problem by reinstating the personal allowance for higher earners – the cost would be prohibitive. However, smoothing the transition is a possibility. For example, tapering the personal allowance by £1 for every £4 (rather than £2) that income exceeds £100,000 would reduce the 60% tax rate to a rate of 50%.

Planning measures

Measures that can be taken to mitigate the 60% tax trap vary from individual to individual:

Pension contributions are particularly attractive if the government is funding 60% of the cost. Be warned, however, that the October Budget might see the tax relief given on pension contributions restricted to a flat rate.
Some income reallocations might be possible between spouses and civil partners, especially if they are in business together.
Make the best use of tax-free investments to turn taxable investment income into non-taxable income.
Be mindful of the timing when cashing in investment bonds or making pension withdrawals.

Employees should consider using a salary sacrifice arrangement for pension contributions or low-emission company cars.

Details of income tax rates and personal allowances for the current tax year can be found on the government website here.

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Opening the books – the government’s spending inheritance…

Written by Femi Ogunshakin on 20 August 2024. Posted in Budget. No Comments on Opening the books – the government’s spending inheritance…

The date of the next Budget has been announced, accompanied by the new Chancellor’s warning about government finances.

Chancellor Rachel Reeves’ first announcement on entering 11 Downing Street was the commissioning of a ‘spending inheritance’ review from the Treasury. Her decision to do so was questioned by the opposition (Conservatives), among others, who argued that the state of public finances had been made clear in the report from the Office of Budget Responsibility (OBR) in March. However, the OBR’s grim outlook was studiously ignored during the election campaign by both main parties, prompting the Institute for Fiscal Studies to complain of “a conspiracy of silence”.

Post-election, the new ministers were told to ‘bring out your dead’ – pull together their departments’ financial problems. The result was a steady flow of dire warnings on prisons, the NHS, universities, and more. This was followed by a welter of gloomy reports from the National Audit Office on 23 July, the publication of which had been delayed by the election.

Finally, on 29 July, Rachel Reeves bundled the bad news inside her Treasury-commissioned review and broke the IFS’s conspiracy of silence. In her words, “There were things that I did not know”, which in total represented a projected overspend of £22 billion in the current financial year. Two immediate actions she announced in response were to:

scrap the winter fuel allowance, other than for those on means-tested benefits; and
abandon the introduction of new capped social care funding rules in England, which had been due to start in October 2025.

Ms Reeves also revealed that her Autumn Budget would be on 30 October, later than had originally been expected. Her July statement made clear that there would be action on tax to fill the £22bn ‘black hole’, but reiterated Labour’s manifesto pledge that there would be no increases in national insurance, the basic, higher, or additional rates of income tax, or VAT. That points to capital gains tax, inheritance tax and tax reliefs as possible revenue-raising targets in the autumn.

If you are considering any financial planning in the near term – perhaps pension contributions of gifts to grandchildren – talk to us about the wisdom (or otherwise) of acting before 30 October.

Full details of the Chancellor’s statement can be found here.

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New tax plans target private schools and social care

Written by Femi Ogunshakin on 9 August 2024. Posted in Budget, VAT, Wealth. No Comments on New tax plans target private schools and social care

In her first detailed tax announcements as Chancellor, Rachel Reeves targeted both those starting off in life and those approaching the end of their lives.

School fees

From 1 January 2025, private school fees will be subject to the standard rate of 20% VAT for the cost of tuition and boarding, if provided. A private school is defined as one that provides full-time education for pupils who are of compulsory school age but under 19 years old. Nurseries will remain exempt.

While the additional cost may be a minor annoyance for parents who can afford to send a child to some of the elite private schools, it may affect others more:

Middle-class parents paying private school fees for two or three children at the average UK cost of £15,000 will see fees increase by around £3,000 per child annually.
Prepaying school fees to avoid the VAT charge will fail as fees invoiced or paid on or after 29 July 2024 (the day of the announcement) for school terms after 1 January 2025 will be subject to VAT.

The exact percentage fee increase will vary between schools. While schools will be able to offset costs through VAT-deductible goods and services, private schools that are charities will no longer qualify for charitable business rates relief.

The government’s technical note explaining how private school fees will be subject to VAT can be found here.

Social care cap

The Chancellor also announced the scrapping of the social care cap, which means those with savings over £23,250 will have to continue to pay the full cost of their care, even if bills run into six figures. The previous government planned to cap care costs at a lifetime limit of £86,000 from October 2025 after long delays to the plans.

The NHS website provides information on self-funding social care here.

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Digital invoicing could prevent invoice fraud

Written by Femi Ogunshakin on 9 August 2024. Posted in Insights. No Comments on Digital invoicing could prevent invoice fraud

Companies without a digital invoice processing system in place are leaving themselves open to invoice fraud. Over the past year, nearly a third of businesses have been targeted.

Fake invoices often appear to be genuine and are easily processed by employees if the amount involved is below a company’s payment threshold.

Types of invoice fraud

Common types of invoice fraud include:

a false invoice for non-existent goods or services;
duplicate invoices; or
alteration of existing invoices, e.g. bank details are changed which could indicate email hacking has taken place.

Fake invoices can be harder to identify if they appear to be from a business that your company has previously dealt with.

The threat of invoice fraud is not always external. Companies also need to be wary of internal threats, which can be much more difficult to identify. Typically, a senior employee will swap the bank details on an invoice to divert payment to their own account. In a recent case involving a member of staff, a public limited company lost £660,000 due to 29 fake invoices in one month.

Invoice fraud is not just a case of suffering financially. It can also harm business relationships, brand reputation and impact staff morale, especially among the team that fell for the fraud.

Prevention

Updating to a digital processing system will mean that invoices are automatically compared with orders and payment information, preventing most types of fraud:

If all suppliers are required to use your digital system, potentially fraudulent traders are prevented from joining the trading network by carefully managing the onboarding process. There is then little scope for fake invoices.
You will also find that the benefits of digital invoicing extend well beyond fraud prevention. For example, invoice due dates will not be missed, the number of errors will be reduced and cash flow forecasting improved.

Updating to a digital system also means supplier invoices will be conveniently stored for easy retrieval in the future.

The British Business Bank’s guide to how to avoid invoice fraud can be found here.

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Sales suppression one-to-many letter

Written by Femi Ogunshakin on 31 July 2024. Posted in HMRC Investigations, Litigation & Dispute Resolution, VAT. No Comments on Sales suppression one-to-many letter

HMRC has launched a campaign of one-to-many letters given its increasing concern surrounding the electronic suppression of sales (ESS). The campaign targets businesses that might have unpaid taxes due to misuse of their till systems.

ESS allows a till system to hide or alter the value of individual transactions, while producing a credible audit trail. For example, only one out of every four sales might be recorded, resulting in lower reported turnover. Lower reported turnover means income tax or corporation tax is underreported, along with VAT.

One-to-many letter

The letter provides an opportunity for a business to get its tax affairs in order by making a voluntary disclosure of underreported sales:

The different penalties that can be charged are explained. These can be reduced if full disclosure is made.
The letter also explains what further action HMRC might take if a business avoids paying any tax it owes.

HMRC’s campaign is expected to run for at least a year. Even if your sales have been correctly reported, you still need to confirm this within 30 days of receiving a one-to-many letter.

Penalties

A new penalty has been introduced, along with the usual penalties for inaccuracies, for being in possession of an ESS tool:

This is defined as software or hardware which allows a business to hide or reduce the value of individual transactions on its electronic sales records. It includes using a till – or modifying a till – to suppress sales.

The initial penalty for possession of an ESS tool can be up to £1,000. A daily penalty of up to £75 a day is then charged if possession or access to the ESS tool continues.

A penalty can be charged for simply being in possession of an ESS tool, regardless of whether the tool is actually used to suppress sales. Possession also includes access to, or even trying to access, an ESS tool.

HMRC’s guidance on ESS can be found here.

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Small businesses top tax gap defaulters

Written by Femi Ogunshakin on 24 July 2024. Posted in HMRC Investigations, Income Tax, Insolvency, PAYE. No Comments on Small businesses top tax gap defaulters

The tax gap increased in 2022/2023, to a record £39.8 billion, with small businesses being blamed for around 60% of uncollected taxes.

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC and, , what is actually paid. Despite the record high receipts in monetary terms, the overall tax gap has fallen in percentage terms. It is now estimated that 4.8% of taxes are unpaid compared with 7.4% back in 2005/06.

Small companies

The worst offenders are small limited companies, with the amount of unpaid corporation tax now standing at £10.9 billion, nearly triple the £3.7 billion of five years ago. This means:

In percentage terms, the tax gap for small companies is a somewhat alarming 32.2%.
Some 45% of small businesses have submitted an incorrect corporation tax return containing an under-declared tax liability.

By comparison, the tax gap for mid-sized companies is 6.7%, and for large companies is 2.9%.

High tax take

Recently released figures also give a stark illustration of how much the tax take has increased:

The theoretical amount of tax liabilities has been growing at around 15% a year, increasing from £640.1 billion for 2020/21 to £823.8 billion in 2022/23.
The theoretical amount has nearly doubled since 2005/06.

Tax receipts as a proportion of GDP over the past 20 years have previously been steady at around 28% but now stand at just over 30%.

Behaviour

The two types of behaviour contributing most to the tax gap are:

failure to take reasonable care; and
criminal actions.

Failure to take reasonable care means not spending the time and effort to make sure reported figures are correct. Directors of limited companies are generally expected to exercise a higher level of reasonable care compared to small sole traders.

If you need help with your tax liabilities, please get in touch.

HMRC’s summary of the latest tax gap figures can be found here.

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Class 4 NIC reductions benefit the self-employed

Written by Femi Ogunshakin on 17 July 2024. Posted in Income Tax, National Insurance Contributions, Self Assessment, Self-Employed. No Comments on Class 4 NIC reductions benefit the self-employed

Self-employed workers will see a substantial reduction in their Class 4 national in announced in the 202surance contributions (NICs) for the current tax year after two percentage cuts were 3 Autumn Statement and 2024 March Budget.

Maximum saving

Class 4 NICs are earnings-related with the main rate paid on profits between £12,570 and £50,270. For 2023/24, the main rate was 9%, but for 2024/25, it is reduced to 6% – representing a maximum saving of £1,131. Add to that:

Self-employed people with profits of £6,725 or more no longer pay £179 of Class 2 NICs with potential savings of £1,310 compared to last year.
A husband-and-wife partnership could benefit to the tune of £2,620.

The additional rate of Class 4 NICs on profits in excess of £50,270 is 2% and this rate is unchanged from 2023/24.

However, there can be less tax saving for business investment for 2024/25. Buying a new laptop for £1,500, for example, would have saved a basic rate taxpayer £435 last year, but the tax saving is now £390.

Lower profits

Those who are self-employed with profits of less than £50,270 will see the following reductions to their total NIC liability:

Profit	2024/25 NICs	Reduction
£15,000	£146	£232
£25,000	£746	£552
£35,000	£1,346	£852
£45,000	£1,946	£1,152

Tax thresholds

NICs cannot, of course, be considered in isolation. The personal allowance and basic rate income tax thresholds remain frozen at 2021 levels with the NIC reductions insufficient to offset fiscal drag.

However, for Class 4 NIC purposes, it has been beneficial to have the main rate threshold frozen at £50,270. If it had been increased to, for example, £60,000, the self-employed would be paying 6% – rather than the 2% additional rate – on a further £9,730 of profits.

A House of Commons explainer on fiscal drag gives a summary of the points here.

The 2024 Budget factsheet explaining the changes can be found here.

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HMRC and Provisional Liquidations via S.234 Insolvency Act 1986

Written by Femi Ogunshakin on 12 July 2024. Posted in HMRC Investigations, Insolvency, PAYE. No Comments on HMRC and Provisional Liquidations via S.234 Insolvency Act 1986

We are seeing a marked increase in HMRC’s use of provisional liquidations particularly where umbrella companies are concerned. Some readers may have an opinion on umbrella companies and may argue that HMRC are on the right track, personally, and in the immortal words of the fictional Francis Urquart: “You might very well think that. I couldn’t possibly comment“. That said, anyone who has been directly involved in working these cases will know how draconian the granting of a provisional liquidation order can be on the directors and by extension, their families.

Such orders include the appointment of a liquidator who quite naturally is charged with preserving the assets of the company, investigating the conduct of the directors and retrieving company assets where there have been dispositions contrary to both company and insolvency law. Clients have had their offices and homes searched; business accounts frozen and limitations imposed on their ability to draw funds from these and in some instances, their personal bank accounts.

There are reasons why the insolvency act provides for a provisional liquidation and no doubt HMRC have genuine reasons for seeking the court’s consent to the grant of such an order. Trust me when I say that judges in these (ex-parte) cases are no walk overs and put up quite strenuous counter arguments to submissions made by HMRC and their counsel but there is no denying that there is usually a public interest argument for the consideration of the taking of the decision to intervene in the company in this manner.

If you’ve read this far then you won’t be surprised to learn that there is a reason for today’s blog on this subject. We have received yet another request from a client in dire need for assistance with their case and as I thrive off unusual and/or complicated cases, I’m more than likely going to say yes to taking their instructions. The thing is; despite the onboarding of colleagues to my team, I am nearing capacity, and besides this, I really could do with the input of a tax lawyer/investigator/specialist with experience in this area and thought I’d reach out to my LinkedIn contacts to see who might be interested in working with me on one of these cases – needless to say this would be on a consultancy basis.

So, sticking with my tv/film references, as Gabrielle Union once said, if you got it: “Bring It” (please!?!). Might be best to call, DM or email me for an initial chat.

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From victory to Budget? Labour’s first 100 days

Written by Femi Ogunshakin on 10 July 2024. Posted in Budget. No Comments on From victory to Budget? Labour’s first 100 days

With a majority of over 200 and a weight of expectations, what happens next for Sir Kier Starmer’s new Labour government?

The importance of the first 100 days of a new government cannot be understated. Within that period the new incumbent has the greatest political capital to take bold actions, as well as the greatest opportunity to lay the blame for ‘inherited’ problems on its predecessor.

Given the timing of the election, Labour’s first 100 days are a little complicated and will look something like this:

17 July This date has been set for the State Opening of Parliament and the King’s Speech. Before then parliament will have gone through the process of electing a Commons Speaker and swearing in the fresh intake of MPs.

The King’s Speech will provide an insight into the new government’s immediate priorities and could reveal the first surprises.

Early August? The House of Commons was due to start its summer recess on 23 July before the election was called, but that would not leave enough time for the debate of the King’s Speech. Unless the summer recess is delayed, the new government won’t have time to get to work on those commitments.

13 September Presuming one of Chancellor Rachel Reeves’s first acts was to give notice to the Office for Budget Responsibility on 5 July to start preparing its Economic and Fiscal Outlook, then – perhaps ominously – Friday 13 September would be the earliest date she could give her Budget. However, speculation is growing that there will be no Budget before October. One reason is 22 September…

22 September The Labour Party conference in Liverpool runs from 22–25 September 2024. Previously parliament has had a three-to-four-week recess to cover the conference season. The new government may reduce the length of this recess, although it is unlikely that Labour MPs will be at Westminster rather than at what is set to be a victory conference.

12 October Counting from 5 July, 12 October will mark the end of Labour’s first 100 days. As suggested, we could still be waiting for Rachel Reeves’ first Budget. At her first speech and press conference at the Treasury on 8 July, she confirmed she will present an interim report to Parliament on the state of the government’s finances, or Labour’s “spending inheritance”, before the recess, with the Budget to come later. She may combine her fiscal premiere with the announcement of the Spending Review as the two are closely related.

There. That’s my musing over and done with. Thoughts?

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HMRC warning on a new wave of scam messages

Written by Femi Ogunshakin on 10 July 2024. Posted in Insights. No Comments on HMRC warning on a new wave of scam messages

HMRC is warning iPhone users about a new wave of scam text messages claiming to be about tax refunds. Unlike most spam texts, these reportedly cannot be blocked by iPhones or reported to the usual Ofcom anti-spam number.

The scam messages are targeted solely at the owners of Apple devices and claim that the recipient is entitled to a tax refund. Scam messages can also be sent through an email, other messaging services or social media. QR codes are also used. Unwary users will end up being directed to a fake link.

HMRC has said that 79,000 fake tax refund scams were reported in the year to January 2024, which is nearly 40% up on the preceding year. Real figures are almost certainly much higher.

Spotting a scam message

What is the advice to worried iPhone users who do not want to be scammed? HMRC point out that they will never contact taxpayers by text message or email in relation to a tax refund. Instead, the taxpayer would receive an official letter. Nor will HMRC ask for personal details or payment information to be disclosed in a text or email.

While scammers may be able to find out your name – for example, if your email address is PeterSmith@gmail.com – they should not have access to your unique tax reference (UTR) or NI number. Warning bells should be ringing if a text or email includes these details.

Tax refund scams

Although the prime time for tax refund scams – February – has passed, taxpayers still need to be on alert the year round:

A scam message will typically link to a fake HMRC website. These fake websites will have been copied from the genuine HMRC website, so can be quite convincing.
The taxpayer will then be asked to enter debit or credit card details.

Tax refund scams are designed to access a taxpayer’s bank account, or to obtain personal details which can then be sold on the web.

HMRC’s guidance on identifying tax scam phone calls, emails and text messages can be found here.

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Welcoming Simon Newsham to the Nexa Law Tax Team

Written by Femi Ogunshakin on 8 July 2024. Posted in Employment Tax, Law, Litigation & Dispute Resolution, Tax, VAT. No Comments on Welcoming Simon Newsham to the Nexa Law Tax Team

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

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

Not anymore though:

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

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

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

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

New carer’s leave in effect

Written by Femi Ogunshakin on 8 July 2024. Posted in Employment Law. No Comments on New carer’s leave in effect

Employers need to be aware that since 6 April 2024, employees are entitled to take a week’s unpaid leave each year if they need to fulfil caring responsibilities for a dependant. An important consideration is when an employer is entitled to postpone a request for carer’s leave.

The basics:

Employees are entitled to carer’s leave from their first day of employment. The provision means:

A dependant can be anyone who relies on the employee for care, not just family members. Dependency could be because of old age, a disability, illness or injury.
One week of unpaid leave can be taken every 12 months, with a week being the length of time normally worked over seven days.
An employee can take a whole week or take the leave in individual days or half days.
The minimum notice period to be given to the employer depends on the number of days leave to be taken.

Apart from more obvious examples, carer’s leave could be used to care for an elderly neighbour when their main carer is unavailable, or to accompany a housebound relative on a day trip.

As an alternative to carer’s leave, an employee might be able to instead take time off for dependants, parental leave or holiday entitlement.

Postponement

A request for carer’s leave cannot be refused, but an employer can ask for it to be taken at a different time if the employee’s absence would cause serious disruption. The request can be postponed for up to one month. Options to consider include:

Could an employee from another team or branch be temporarily reallocated to cover for the employee taking carer’s leave?
Is the employee open to taking a shorter period of carer’s leave, such as a half day rather than a full day, if this overcomes the serious disruption issue?

The Acas guide to carer’s leave can be found here.

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Child benefit charge changes confirmed

Written by Femi Ogunshakin on 1 July 2024. Posted in High Income Child Benefit Charge, Self Assessment. No Comments on Child benefit charge changes confirmed

Taxpayers will benefit from the changes made to the high income child benefit charge thanks to all tax measures from the March 2024 Budget being enacted before parliament was prorogued.

Changes to benefit charge

For 2024/25, the high income child benefit charge (HICBC) does not apply until income exceeds £60,000, a £10,000 increase from the previous threshold of £50,000. This means:

A parent earning £60,000, who would previously have lost all of their child benefit claim, now keeps the entire amount.
The rate of withdrawal is halved, so child benefit is not fully withdrawn until an individual’s income reaches £80,000 (previously £60,000). The charge now removes 2% of child benefit for every £100 of income over £60,000.
Once income reaches £80,000, the charge is 100%. Therefore, the child benefit claim is effectively reduced to nil.

Despite the changes, the HICBC can still mean a high effective marginal rate of tax.

Calculating income

A recently lost appeal to HMRC shows the importance of correctly calculating income for threshold purposes.

The taxpayer’s basic salary did not exceed the former HICBC income threshold of £50,000, but for the seven years under investigation he had overlooked the taxable benefit from having a company car. This was sufficient to take income over £50,000, so the charge was payable.

Taxpayers therefore need to be particularly careful when calculating income:

Savings income is likely to be much higher than previously given increased interest rates. The gross amount is included, ignoring the £500 savings allowance.
Dividend income, including reinvested dividends, has to be included ignoring the £500 dividend allowance.
Income from a lodger within the £7,500 exemption is ignored, as is any income within an individual savings account.

The gross amount of pension contributions and gift aid donations reduce the income figure, providing a useful tax planning opportunity where income is between £60,000 and £80,000.

Don’t forget to extend child benefit claims for 16- to 19-year-olds who continue in approved education or training. This can be done online or using the HMRC app.

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Not in the NIC of time

Written by Femi Ogunshakin on 24 June 2024. Posted in National Insurance Contributions, Pensioners, Pensions, Self Assessment, Self-Employed. No Comments on Not in the NIC of time

A useful new web tool has emerged, a little late in the game, in a joint effort from two government departments.

In early 2023, HMRC and the Department for Work and Pensions (DWP) found they were unable to cope with the volume generated by a 5 April cut-off date that had been set a decade previously. The deadline related to the option to pay backdated National Insurance contributions (NICs) to fill in gaps in contribution records going back to 2006/7, rather than the standard six-year period. Media coverage of the option – often quoting the more extreme examples of benefit – had prompted a surge of last-minute interest, which the departments were unable to manage.

After denying there was a problem, the government finally revealed a band-aid solution in March, pushing the deadline out to 31 July 2023. This solution came unstuck about three months later when, still unable to cope with requests for information, the deadline was extended again to 5 April 2025 – two years after the original cut-off date.

One of the biggest issues causing delays was the difficulty in obtaining details of contribution gaps from the DWP (unavailable online) and then paying HMRC the appropriate amount. Now, at long last, a ‘fully end-to-end digital solution’ has been launched by the DWP and HMRC under the banner Check your State Pension forecast. It is not a complete solution, because it will not work if you are beyond the State pension age (presently 66 years), self-employed or currently living outside the UK with gaps incurred while working abroad. You will also need to have a Personal Tax Account with HMRC to log in (or register for one first with GOV.UK).

If you think you might have missed contributions going back to April 2006, it is well worth taking a few minutes to check your position with the new tool. To fill in one year’s missing contribution (before the 2023/24 tax years) costs £824.20 and could mean an extra £328.64 a year in State pension.

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Uncertainty for landlords

Written by Femi Ogunshakin on 21 June 2024. Posted in Leasehold, Property. No Comments on Uncertainty for landlords

Despite support from the Labour Party, the Renters (Reform) Bill was not enacted before parliament was prorogued ahead of the general election. The Leasehold and Freehold Reform Act made it under the wire, but without the expected cap on ground rents.

Rental reform

The Renters (Reform) Bill would have seen the abolition of the controversial Section 21 notices, which enable landlords to take possession of a property without providing a reason. Tenants and homelessness charities expressed consternation at the failure to enact the provision.

The Bill is likely to return in some form regardless of who wins the election. A Labour government might well abolish Section 21 notices for all tenancies straight away despite the readiness of the county court system to process possession orders.

Leasehold reform

There was no expectation of an immediate reduction of all ground rents to a peppercorn amount, but it was reported a month ago that a compromise would see ground rents initially capped at £250 annually. Although this measure was not included, the new Act may help landlords who own leasehold flats and apartments:

Leaseholders can now obtain a 990-year lease extension; previously, leases for flats and apartments could only be extended by 90 years.
When a lease is extended, future ground rent will effectively be set at zero.

The valuation process is now more favourable to the leaseholder because there is no longer any requirement to pay a marriage value, plus the future value of ground rents in the valuation calculation is restricted. Prior to the new Act, marriage value came into play when a lease had 80 years or less to run. It represented the increased market value of obtaining a longer lease.

Ground rent is not payable on new leases granted from 30 June 2022, so the new measure will help landlords with older leases move to a level playing field.

Furnished holiday lets

The advantageous tax regime for furnished holiday lettings is set to be abolished from April 2025, but the election announcement has introduced uncertainty here as well. The draft legislation has not even been published yet.

HMRC have rejected a suggestion to introduce a brightline test which would have clearly set out the distinction between trading and investment for such properties.

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Election tax stories…………………

Written by Femi Ogunshakin on 13 June 2024. Posted in Income Tax, Pensioners, Pensions, VAT. No Comments on Election tax stories…………………

It’s early days yet, but some pointers on tax have emerged from both the main parties.

Within one week of the surprise firing of the general election starting gun, both the Conservatives and Labour have been promoting their tax plans. We can expect more to emerge in the coming weeks and in the manifestos, which will probably appear during the second week of June.

The Conservatives were first out of the blocks with a new tax proposal – higher personal allowances for pensioners. The driver for this is, ironically, an existing Conservative policy, the freezing of personal allowances until April 2028. At present the new State pension (£221.20 a week – £11,502 a year) is below the personal allowance (£12,570). However, given the State pension rises each year in line with the triple lock, it is destined to overtake the personal allowance in the future. As a result, a pensioner with only State pension would have tax to pay.

Mr Sunak’s solution is ‘triple lock plus’, which would see the personal allowance rise in line with the State pension increases, but only for those who have reached State pension age. The cost would be £2.4 billion a year by 2029/30, which the Conservatives said would be funded by that favourite revenue source of politicians seeking re-election, clamping down on tax avoidance.

Rachel Reeves, the Shadow Chancellor, subsequently said that the Labour party would not copy the personal allowance reform. She already has tax avoidance measures earmarked to replace the revenue she had planned to raise from increased tax on non-domiciled individuals. The non-domiciled option was effectively closed off by Chancellor of the Exchequer Jeremy Hunt’s March 2024 Budget, which had its own (similar) ‘non-dom’ proposals.

The Labour party has also responded to Conservative campaign rhetoric with pledges not to increase income tax, National Insurance, corporation tax or value added tax, removing major revenue-raising options.

Budget plans?

On the subject of Budgets, the Shadow Chancellor was asked whether she would hold an emergency Budget if she entered 11 Downing Street. She replied that there would be no Budget without a report from the Office for Budget Responsibility (OBR) – a sideswipe at the Truss Mini-Budget which lacked any OBR oversight. The OBR requires a minimum of ten weeks’ notice to prepare a report, meaning that there will be no Reeves’ Budget until mid-September, at the earliest. The corollary is that August could be a busy month for tax planning.

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Electric vehicles can boost income with salary sacrifice

Written by Femi Ogunshakin on 13 June 2024. Posted in Employment Tax, National Insurance Contributions, Self Assessment. No Comments on Electric vehicles can boost income with salary sacrifice

It may seem counter-intuitive, but taking a pay cut and opting for a salary sacrifice scheme with an electric car can boost take-home pay thanks to tax and national insurance contribution (NIC) savings.

Salary sacrifice

Despite the recent introduction of the Government’s zero emission vehicle mandate, the number of electric car sales seems to have stalled recently.

Electric cars work well as part of a salary sacrifice scheme because the taxable benefit for employees is low. It is calculated as just 2% of the car’s list price. This percentage is to increase by 1% for each of the next three tax years but will still be a fairly reasonable 5% by 2027/28.

However, it is important to note that while hybrid cars can have the same tax advantage, the electric range for the majority of models is too low to qualify for the 2% rate. The current percentage for most hybrids will be a less attractive 12%.

High marginal tax rates

With tax thresholds frozen, more and more employees are facing higher marginal tax rates. In particular, a rate of 60% applies on income between £100,000 and £125,140 due to the withdrawal of the personal allowance:

For example, an employee earning £125,000 might sacrifice £10,000 of their gross earnings, with the employer then providing an electric car worth £40,000. The employer’s leasing arrangements will typically cover the full costs of running the car.
The employee’s tax and NIC bill will be reduced by £6,200, although they will have to pay tax of £480 on the benefit of having the company car.
However, if the employee had leased the car personally, it would take almost £26,000 of their gross pay to cover similar leasing costs.

From the employer’s perspective, an electric car salary sacrifice arrangement could help boost staff retention, as well as attracting new staff.

A basic guide to salary sacrifice for employers can be found here.

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The importance of a well-drafted will

Written by Femi Ogunshakin on 1 June 2024. Posted in Lasting Will & Testaments, Law, Wills & Probate. No Comments on The importance of a well-drafted will

The risk of relying on homemade wills was highlighted in a recent case where a will was held to be invalid. Even a well-written will must be kept up to date given the possibility of future inheritance tax (IHT) changes.

Invalid will

While there is usually the presumption that the testator will have had knowledge of a will, and will have approved it, a will might be considered as suspicious if:

It is a homemade will;
It is created by a beneficiary;
It contains spelling mistakes;
It represents a radical change from a previous will; or
The relationship between the testator and beneficiary was not close.

In the case of Ingram and Whitfield v Abraham 2023, a homemade will would have seen Joanne Abraham’s estate inherited by her brother – who drafted the will – rather than her children who were previously the beneficiaries. The homemade will, which also misspelt Joanne’s name, was held to be invalid, therefore, her children inherited the estate.

Future IHT changes

Although IHT reliefs have remained largely unchanged since the introduction of the residence nil rate band in 2017, future changes cannot be ruled out – especially with an election on the horizon.

The Institute for Fiscal Studies has recommended that three IHT reliefs are cancelled:

AIM shares: these shares are exempt from IHT, with AIM portfolios – including AIM ISAs – often used to avoid IHT.
Business and agricultural property relief: although full abolishment might be politically difficult, relief could be capped.
Pension pots: funds in money purchase pension schemes can currently be passed on to beneficiaries free of IHT.

The lesson here is to review your will regularly, even if it is well-written, because your circumstances, wealth and IHT rules could change.

The Government’s guide to making a will can be found here.

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Landlord update on Renters Reform Bill

Written by Femi Ogunshakin on 30 May 2024. Posted in Law. No Comments on Landlord update on Renters Reform Bill

The Renters Reform Bill has finally completed its passage through the House of Commons with important concessions made in favour of landlords. Landlords with leasehold property may also benefit from an annual cap of £250 on ground rents.

Concessions: what’s next?

The Bill has taken nearly a year to clear its first hurdle. Next, it must now proceed through the House of Lords. There is a good chance it will become law, although any subsequent changes are likely to benefit tenants rather than landlords if Labour wins the next election.

The main concessions from the original Bill are:

The abolition of Section 21 notices will be delayed for existing tenancies (those which commenced before the Bill comes into force) until the county court system for possession orders is deemed to be functioning properly. Such reforms might take years to complete. A section 21 notice can currently be used by landlords to take possession of a property without providing a reason.
Despite fixed term tenancies being abolished, a tenant will now not be able to end a tenancy during the first six months. This is effectively the same as the existing system.
The introduction of a tenant’s right to keep a pet will also be linked to improvements in the county court system. In future, a landlord will have to accept a request to keep a pet unless there is a reasonable reason for not doing so. Landlords will, however, be able to require pet insurance.

Leasehold property

While plans to abolish leasehold properties has been scaled back, it looks like a compromise will see ground rents capped at £250 annually for the next 20 years. However, this decision has not yet been formally announced. This will be good news for any landlords who own leasehold flats or apartments which have an escalating ground rent.

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Have you overlooked a changed tax status?

Written by Femi Ogunshakin on 19 May 2024. Posted in Employment Tax, Income Tax, Self Assessment, Tax. No Comments on Have you overlooked a changed tax status?

With allowances frozen or cut, you may have underpaid tax for 2023/24.

Your tax position may have changed for the last year without you really noticing. Consider the following:

Tax Year	2021/22	2023/24	2024/25
Personal allowance	£12,570	£12,570	£12,570
Dividend allowance	£2,000	£1,000	£500
Personal savings allowance	£1,000 max*	£1,000 max*	£1,000 max*
Bank of England base rate	Close to 0%	Average 4.5%	5.25% May 2024
New State pension	£9,339	£10,600	£11,502

*£1,000 for basic and nil rate taxpayers, £500 for higher rate taxpayers, and nil for additional rate taxpayers.

Rising income – for example in the form of pensions, dividends or interest – and frozen or reduced allowances are a recipe for creating more taxpayers and higher tax bills. This is becoming increasingly clear as some people are discovering that they became taxpayers in 2023/24 despite their only income being a State pension (new or old, supplemented by the additional State pension). For those affected, HMRC will issue a simple assessment tax bill as the Department of Work & Pensions provides details of payments made.

If you do not already complete a self assessment tax return, it is your duty to inform HMRC of your income if a new tax liability arises because:

Your interest has exceeded your personal savings allowance, and/or:
Dividends breached the dividend allowance.

You can inform HMRC of a change of circumstances through your online personal tax account, if you have one, or by trying to call them (good luck with that!). In most circumstances, you will not have to complete a full self assessment return: you can check whether you have to file at the government website. If you do not tell HMRC about your interest receipts, be aware that building societies and banks (including those located offshore) automatically report information to HMRC.

A similar situation applies to greater payments for capital gains tax where the annual exempt amount has fallen from £12,300 in 2021/12 to £6,000 in 2023/24, and just £3,000 in the current tax year.

Careful planning may help you to sidestep HMRC’s growing slice of your income and gains, but, as ever, expert advice is needed to avoid the traps.

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