Author: Femi Ogunshakin

Daily penalties come in for late self assessment returns

Written by Femi Ogunshakin on 19 May 2024. Posted in MTD, Self Assessment, Self-Employed, Tax. No Comments on Daily penalties come in for late self assessment returns

Around 1.1 million taxpayers who failed to submit the self assessment tax return for 2022/23 on 31 January 2024 now face a £10 daily penalty charge by HMRC.

HMRC has imposed a daily penalty of £10, effective from 1 May 2024, on late submissions. The penalty can run for 90 days, reaching a potential fine of £900 and is charged even if nothing is owed to HMRC, or a tax refund is due. Separate penalties, along with interest at the high rate of 7.75%, are charged for paying tax liabilities late.

What to do?

Submit an online tax return as soon as possible. This will not avoid penalties up to the date of submission but will prevent further fines accumulating.
If there is information missing for 2022/23, submit a provisional return with estimated figures. The return should note which figures are provisional, why accurate figures are not available, and when accurate figures will be provided.
HMRC will cancel penalties already charged if they have asked for a 2022/23 tax return in error. For example, if you have ceased self-employment or no longer rent out property.

HMRC can cancel a tax return within two years of the submission deadline, which means there is time to have a return for 2022/23 cancelled by 5 April 2025.

Reasonable excuse

You can appeal against the daily penalty if you can demonstrate a reasonable excuse, such as prolonged ill-health or bereavement. However, work pressure, lack of information or missing reminders from HMRC are unlikely to be accepted.

The challenge with appealing against the daily penalty is providing HMRC with a credible excuse running from the original filing date (31 January) through to the issue of penalties (from 1 May).

Photo by Roman Melnychuk on Unsplash

Employment Tax: Deductibility of training costs

Written by Femi Ogunshakin on 17 May 2024. Posted in Corporation Tax, Employment Tax, Tax. No Comments on Employment Tax: Deductibility of training costs

HMRC has recently published guidance to provide greater clarity about the tax deductibility of training costs for the self-employed. Apart from updating current skills, costs are also deductible if they provide new skills or knowledge to support the business.

What costs count?

Training costs must relate to the existing business, including:

Keeping pace with technological advances and changes in industry practice; and
Training which is ancillary to a person’s main trade, such as digital skills or bookkeeping.

HMRC has provided various examples, such as a potter who takes courses on e-commerce and website development with the aim of making online sales. Although the courses have nothing to do with pottery, the costs should be deductible as they are helping a move into online selling.

Similarly deductible would be the costs for a writer who takes a course on drawing illustrations with the aim of illustrating his or her own books. Again, the new skills will be used to improve an existing business.

Despite the changes, the training costs deductibility rules for the self-employed are still stricter than they are for employers.

What costs don’t count?

There is no deduction for training costs that allow a person to start a new business or to expand into a new, unrelated, area of business. For example:

A make-up artist takes tattooing courses with the aim of opening their own tattoo studio. The training costs are unrelated to the make-up business, so they are not deductible.
An unemployed person completes a course to become an approved driving instructor. There is no deduction for the training costs as new skills are being acquired that will help the person start a business which does not already exist.

The changes date back to a 2018 consultation, so don’t expect further relaxation of the rules anytime soon.

The full list of examples provided by HMRC can be found on the government website.

Photo by Jason Goodman on Unsplash

Employment Law: Request ﬂexible working rights from day one

Written by Femi Ogunshakin on 17 May 2024. Posted in Employment Law. No Comments on Employment Law: Request ﬂexible working rights from day one

From 6 April, employees now have the right to request flexible working from their first day at work. However, the right is still only to make a request and employers are under no obligation to approve it.

Flexible working is not just limited to working from home. For example, an older employee may request to gradually reduce their hours as they approach retirement, or those with child or elder care responsibilities may request to vary their hours.

What the changes mean:

The changes that have come in from 6 April 2024 include:

Day one request: flexible working can be requested from the first day in a new job (previously 26 weeks employment was required);
Two requests: flexible working requests can be made twice within a 12-month period (previously it was one request a year);
Two-month decision: employers must decide whether or not to approve a request within two months of receiving a request (previously three months); and
No employee statement: employees are no longer required to state the impact of their flexible working request upon the business (previously this was a difficult requirement for new employees).

Unless the employer agrees with the request for flexible working, they must consult with the employee before making a decision. The meeting can be used to explore alternatives or variations to the original request, and maybe consider whether there should be an initial trial period to see how the new arrangements pan out.

Rejecting a request

No changes have been made to the reasons that employers can give to turn down a flexible working request, although a valid business reason is required. Some of those reasons could be, for example:

unacceptable additional costs due to a request;
it’s not possible to re-organise work among other employees;
detrimental impact on performance while working from home; or
insufficient work to accommodate a change in an employee’s working pattern.

The latest Acas code of practice on requests for flexible working can be found on their website: https://www.acas.org.uk/acas-code-of-practice-on-flexible-working-requests/html

Photo by Avi Richards on Unsplash

The end of multiple dwellings relief

Written by Femi Ogunshakin on 1 May 2024. Posted in SDLT, Stamp Duty. No Comments on The end of multiple dwellings relief

From 1 June 2024, the abolition of multiple dwellings relief under stamp duty land tax (SDLT) will stop disputes about what qualifies as a separate dwelling (e.g. a granny annex). However, the scrapped tax will impact English and Northern Irish buyers who purchase two or more properties in a single, or linked, transaction.

At the moment, multiple dwellings relief reduces the overall SDLT rate when buying two or more properties in a single, or linked, transaction. The buyer pays SDLT based on the average price of each dwelling and benefits from two or more lower SDLT bands.

Relief abolished

The government has abolished the relief due to questionable claims, particularly relating to granny annexes. Unfortunately, genuine claims will now lose their relief, for example, buyers of a country home with a cottage in the grounds, or a town house with a self-contained basement flat. From 1 June, the amount of SDLT payable on a property costing £750,000 containing a qualifying annexe will double from £12,500 to £25,000.

Many buyers have been contacted by companies offering to help them claim back SDLT for a commission, but these refunds are often based on questionable entitlement to multiple dwellings relief.

While the removal of multiple dwellings relief will not affect the majority of properties, you should be aware that:

Relief is still available for a contract that was entered into on or before 6 March 2024, regardless of when completion takes place.
Otherwise, relief will only be available if a purchase is completed (or substantially performed) before 1 June 2024.

Six or more properties

Where six or more properties are purchased in the same transaction, non-residential SDLT rates can be applied. This means a maximum rate of 5% compared to a top residential rate of 12%; or 15% for a buy-to-let purchase. In the absence of multiple dwellings relief in future, buyers using this option will have to take care to structure such transactions to ensure all properties come under a single contract.

You can find out more about HMRC’s guide to SDLT on the government website.

Photo by Breno Assis on Unsplash

Thoughts for buy-to-let owners selling up

Written by Femi Ogunshakin on 23 April 2024. Posted in Capital Gains Tax, Income Tax, Landlord, Leasehold, Self Assessment. No Comments on Thoughts for buy-to-let owners selling up

While the higher rate of capital gains tax (CGT) on residential property disposals has dropped by 4%, from 28% to 24%, from 6 April 2024, the vast majority of landlords who sell up are facing a higher CGT bill when compared to two years ago.

Buy-to-let landlords may be selling because of the implications of the Renters Reform Bill, while furnished holiday homeowners will see their advantageous tax benefits removed from April 2025.

Higher CGT bills

Landlords will generally be worse off despite the 4% rate cut, because it generally doesn’t compensate for the recent reduction of the annual exempt amount from £12,300 to £3,000.

Basic rate taxpaying sellers: will be worse off as the lower rate for gains falling within the basic rate tax band is unchanged at 18%.
Higher/additional rate taxpaying sellers: with a gain of less than £68,000, will be worse off; such as newer landlords who have benefited from less price growth and northern landlords where property values are generally lower.

Only higher and additional rate taxpayers with a gain in excess of £68,000 will find themselves better off.

Already sold up

Landlords who have already sold their property and face a CGT liability at the previous higher rate of 28% could consider a risky strategy of potentially benefiting from the 4% rate reduction – by deferring the gain through an enterprise investment scheme (EIS). The gain will come back into charge when the EIS investment is realised.

There are two main risks associated with this plan:

EIS investment risk: some or all of the investment could be lost; and
CGT rate change: the rate of CGT could go up again by the time the gain comes back into charge.

While not worth it solely for the rate reduction, this is a useful bonus if considering an EIS investment for the 30% income tax relief.

HMRC’s guide to tax when you sell property can be found on the government website.

Photo by Tierra Mallorca on Unsplash

The onward march of the higher rate taxpayer

Written by Femi Ogunshakin on 23 April 2024. Posted in Company Director, Employment Tax, Income Tax, Self Assessment, Self-Employed. No Comments on The onward march of the higher rate taxpayer

New calculations issued alongside the Spring Budget show just how higher rate taxpaying status is becoming ever more common.

The Office for Budget Responsibility (OBR) received plenty of attention leading up to the Budget. It was widely portrayed in the media as the body that placed constraints on the Chancellor’s tax-cutting options ahead of the coming election.

That portrayal of the OBR’s powers is an over-simplification. While the OBR does calculate whether the Chancellor can meet his fiscal rules, it neither sets those rules nor, crucially, the assumptions underlying the calculations. For example, in projecting how much tax revenue the government will receive from 2025/26 onwards, the OBR is obliged to follow the Treasury’s assumption that the ‘temporary’ 5p cut in fuel duty will be scrapped and duty itself will rise in line with the Retail Price Index (RPI) inflation. Nobody, least of all the OBR, believes this will happen. Fuel duty rates last rose in 2010.

Despite these limitations, or perhaps because of them, the OBR has paid increasing attention to the impact of planned tax changes (or lack thereof), highlighting facts that the Chancellor might prefer not to discuss.

A good example, which the OBR has regularly highlighted in its reports, is the consequences of freezing the personal allowance and higher rate income tax threshold until April 2028. The impact of this freeze on the population of higher rate taxpayers is demonstrated in the graph below. By 2028/29, the OBR estimates that there will be 7.3 million falling into this category, 2.7 million (59%) more than if indexation had applied to the higher rate threshold.

That is not the entire story – the near-£25,000 cut to the additional rate threshold in 2023, followed by an indeterminate freeze, will result in 0.6 million more additional rate taxpayers. Overall, the OBR estimates that about two in nine income taxpayers will be paying more than the basic rate by 2028/29.

Source: OBR EFO March 2024

Buy-to-let owners selling up

Written by Femi Ogunshakin on 9 April 2024. Posted in Capital Gains Tax, Self Assessment. No Comments on Buy-to-let owners selling up

Buy-to-let landlords may be selling because of the implications of the Renters Reform Bill, while furnished holiday homeowners will see their advantageous tax benefits removed from April 2025.

Higher CGT bills

Landlords will generally be worse off despite the 4% rate cut, because it generally doesn’t compensate for the recent reduction of the annual exempt amount from £12,300 to £3,000.

Basic rate taxpaying sellers: will be worse off as the lower rate for gains falling within the basic rate tax band is unchanged at 18%.
Higher/additional rate taxpaying sellers: with a gain of less than £68,000, will be worse off; such as newer landlords who have benefited from less price growth and northern landlords where property values are generally lower.

Only higher and additional rate taxpayers with a gain in excess of £68,000 will find themselves better off.

Already sold up

There are two main risks associated with this plan:

EIS investment risk: some or all of the investment could be lost; and
CGT rate change: the rate of CGT could go up again by the time the gain comes back into charge.

While not worth it solely for the rate reduction, this is a useful bonus if considering an EIS investment for the 30% income tax relief.

HMRC’s guide to tax when you sell property can be found on the government website.

Photo by George Pagan III on Unsplash

How much does retirement cost?

Written by Femi Ogunshakin on 8 April 2024. Posted in Pensioners, Pensions, Retirement. No Comments on How much does retirement cost?

New research has put some surprising numbers on the income needed in retirement.

Each year since 2019, the Pensions and Lifetime Savings Association (PLSA) has set about answering the question of how much retirement costs for couples and single retirees. It considers three different Retirement Living Standards, which are summarised as:

Minimum: covers all your needs with some disposable income.
Moderate: more financial security and flexibility.
Comfortable: more financial freedom and some luxuries.

To give a more granular idea of what the different standards imply, these are how two sub-categories break down for food and drink, holidays and leisure:

MINIMUM

MODERATE

COMFORTABLE

Food and drink

· Around £95 a week on groceries.

· £50 a month per couple on food outside of the home.

· £30 a month per couple on takeaways.

· Around £100 a week on groceries.

· £60 a week per couple on food outside of the home.

· £20 a week per couple on takeaways.

· £100 a month to take others out for a monthly meal.

· Around £130 a week on food.

· £80 a week per couple on food outside of the home.

· £30 a week per couple on takeaways.

· £100 a month to take others out for a monthly meal.

Holidays and leisure

· A week-long UK holiday.

· Basic TV and broadband plus a streaming service.

· A fortnight three-star,
all-inclusive holiday in the Mediterranean and a long weekend break in
the UK.

· Basic TV and broadband plus two streaming services.

· A fortnight
four-star holiday in the Mediterranean with spending money and three long weekend breaks in
the UK.

· Extensive bundled broadband
and TV subscription.

For the first time since 2019, the Moderate and Comfortable standards have been ‘rebased’ to allow for changed spending patterns. For example, out went two cars for the Comfortable standard and in came much higher spending on clothes in the Moderate standard. The rebasing means the gap between the 2023- and 2022-income requirements reflects more than just inflation – leading to the 34% jump for the Moderate single income requirement.

The bottom-line costs shown in the graph below are net (after-tax) income requirements and take no account of any rental expenditure. As a reminder, from April 2024 the new State pension will be £11,502 a year.

Source and credit to: Pensions and Lifetime Savings Association

The increasing cost of incorporating a company

Written by Femi Ogunshakin on 2 April 2024. Posted in Company Director, Company Insolvency, Corporation Tax, Director Disqualification. No Comments on The increasing cost of incorporating a company

Perhaps not as widely known as the much publicised changes to company law is the fact that due to an increase in charges levied by Companies House, fees associated with incorporating and maintaining a company will rise from 1 May 2024.

Companies House has explained that fees are set on a cost recovery basis – meaning that the increases are intended to solely cover the cost of the services they deliver without making a profit.

Incorporation

Currently, the cost of registering a company with Companies House ranges from £10 to £40, depending on the channel used ie postal or online application. with fees increasing across-the-board from registration to exit, The increase in costs will include the following fees:

Online registration for a business or limited liability partnership: this is normally completed within 24 hours at the cost of £12. However, online registration fees will rise to £50, an uplift of 300%.
Same-day incorporation: the fee for this service is going up from £30 to £78.
Voluntary striking off: When a company is no longer required, voluntary striking off will now incur a fee of £33; it is currently £8.
Overseas entities: the largest increases apply to overseas entities who need to register with Companies House. The registration fee goes up from £100 to £234, with the removal fee increasing to £706 from £400.

Many people set up a new company through a company formation agent. Their most basic offerings only add a small margin to the Companies House charge. This means the fees charged by agents are going to see similar increases come 1 May.

Confirmation statements

Every company, including dormant companies, must file a confirmation statement at least once a year. The cost is currently £13 and rising to £34. This fee, at least, covers a 12-month period. It’s paid with the first filing during the period with no further charge for any subsequent filings during the same period.

For a full list of Companies House’s current fees visit the government website and for an update on price increases.

Photo by Mika Baumeister on Unsplash

HMRC ramps up its checks and investigations

Written by Femi Ogunshakin on 29 March 2024. Posted in Company Director, HMRC Investigations, Inheritance Tax. No Comments on HMRC ramps up its checks and investigations

There’s no respite for HMRC with inheritance tax (IHT) accounts, undeclared dividend income and gains from share disposals to scrutinise.

HMRC is currently busy with several ongoing checks. They are looking at IHT accounts, targeting undeclared dividend income, and making sure any gains from share disposals have been correctly declared.

Inheritance tax accounts

The complexities of IHT can catch out even seasoned observers and there are many pitfalls, including:

Business property: 100% relief from IHT may be available, so it is important to make sure claims are correct. It is worth noting that relief may not be available if a business has a large amount of cash or assets held as investments.
Valuations: HMRC might contest valuations submitted in respect of unquoted shares, property or jointly owned assets. To avoid problems, obtain formal IHT valuations from experts.
Payment deadline: IHT on an estate must be paid within six months after the end of the month in which death occurred; this is a much tighter deadline than for most other major taxes.

Dividend income

HMRC is writing to company owners who may have undeclared dividend income. Its approach is to compare a company’s reported profits with the movement in reserves. Where a difference is identified, this could be an indication of dividends being paid to shareholders.

Anyone receiving a letter should contact HMRC within 30 days of its receipt, even if there is no dividend income to declare, or risk facing a compliance check.

Share disposals

Letters are also being sent to taxpayers who have disposed of shares but are suspected of omitting the details from their tax returns.

HMRC has looked for discrepancies by checking the information it has on share disposals against details declared on self-assessment tax returns. Anyone receiving a letter will have 60 days to amend their return.

If no capital gains tax is due on the disposal identified by HMRC, the taxpayer needs to explain why in writing.

HMRC’s guide to valuing an estate for IHT purposes can be found here.

Photo by Sander Sammy on Unsplash

Spring Budget: a pre-election balancing act

Written by Femi Ogunshakin on 29 March 2024. Posted in Budget. No Comments on Spring Budget: a pre-election balancing act

What was almost certainly the last Budget before the election was a serving of the widely expected, sprinkled with a handful of small surprises.

The Chancellor of the Exchequer, Jeremy Hunt, delivered the Spring Budget 2024 on 6 March. As anticipated, it was a typical pre-election event focused on tax relief measures – including further national insurance contributions (NICs) cuts – and the promise of a new savings bond from National Savings.

With little fiscal wriggle room, Mr Hunt was unable to give away as much as some of his backbenchers may have wanted, yet managed to hit some political targets, including co-opting Labour’s flagship scrapping of non-domicile rules.

Key announcements

The main headlines and changes to grapple with are:

High income child benefit charge (HICBC): This unpopular tax charge will undergo a two-stage reform. Firstly, in 2024/25, the income threshold rises in 2024/25 with a £10,000 increase from £50,000 to £60,000 with a halving of the rate of charge. As a result, the full 100% HICBC charge will apply once individual income exceeds £80,000. Secondly, by April 2026, the income threshold will be switched from an individual basis to a household basis.
National insurance contributions (NICs): From 6 April 2024, the main rates of employee (class 1) and self-employed (class 4) NICs will be cut by two percentage points to 8% and 6% respectively, doubling down on the cuts announced in last November’s Autumn Statement. The maximum annual saving is £754.
Residential property: In 2024/25, the maximum capital gains tax rate on residential property gains will fall to 24%. The lowered rate may encourage more buy-to-let investors to sell up rather than pay higher mortgage rates at the end of their fixed-rate deals. It may have a similar impact on holiday cottage owners, as the favourable tax rules for furnished holiday lets will be scrapped from April 2025.
UK ISA: The Chancellor issued a consultation paper on a new ‘UK ISA’. This will have a contribution limit of £5,000 – in addition to the existing overall £20,000 ISA limit (unchanged since 2017/18). However, investments will have to be primarily in the UK, probably both shares and bonds. There was no specific timeline on the proposal.

These Budget changes may affect you personally or your business. For more information on any aspect of the implications of the Budget, please contact us.

How to navigate the £500 trust income exemption

Written by Femi Ogunshakin on 19 March 2024. Posted in Insights. No Comments on How to navigate the £500 trust income exemption

The introduction of a £500 income exemption from 6 April 2024 will impact many trusts. It comes with various complications, especially as income within the £500 exemption will still be taxable in the hands of beneficiaries.

The exemption is on an all-or-nothing basis. A trust with an income of £501 will find the whole amount is taxable; not just the excess over £500. A further complication is that, in some circumstances, the £500 exemption is shared between trusts created by the same person.

When the £500 exemption was first proposed, it appeared relatively generous for savings income given the bank rate was 0.75%. However, it does not appear as beneficial now that the current bank rate sits at 5.25%.

Interest in possession (IIP) trusts

IIP trusts pay income tax at 20%, except for dividend income which is taxed at 8.75%. The £500 exemption will mean that smaller IIP trusts no longer have to file returns or pay tax, but this income will now be received gross by beneficiaries without any associated tax credit.

This is good news for non-tax paying beneficiaries as they will no longer need to make repayment claims. However, basic rate taxpayers will now have to account for tax on trust income, a liability previously met by the tax credit.

There will be no change for either the trust or the beneficiaries where trust income exceeds £500.

Discretionary trusts

Discretionary trusts pay tax at 45%, except for dividend income which is at 39.35% – the same rates paid by an additional rate individual taxpayer. Previously, there was a £1,000 standard rate band on which lower rates applied.

The £500 income exemption has replaced the standard rate band.

The complication for discretionary trusts is that any distributions to beneficiaries carry a 45% tax credit, even if the exemption applies. Therefore, the trust will still have to pay sufficient tax to cover the tax credit, which can mean complex calculations.

The beneficiaries of discretionary trusts will not see any change to their tax treatment given that trust income will continue to have a 45% tax credit attached.

Photo by Ronda Dorsey on Unsplash

Spring Budget: a pre-election balancing act

Written by Femi Ogunshakin on 19 March 2024. Posted in Budget. No Comments on Spring Budget: a pre-election balancing act

What was almost certainly the last Budget before the election was a serving of the widely expected, sprinkled with a handful of small surprises.

Key announcements

The main headlines and changes to grapple with are:

High income child benefit charge (HICBC): This unpopular tax charge will undergo a two-stage reform. Firstly, in 2024/25, the income threshold rises in 2024/25 with a £10,000 increase from £50,000 to £60,000 with a halving of the rate of charge. As a result, the full 100% HICBC charge will apply once individual income exceeds £80,000. Secondly, by April 2026, the income threshold will be switched from an individual basis to a household basis.
National insurance contributions (NICs): From 6 April 2024, the main rates of employee (class 1) and self-employed (class 4) NICs will be cut by two percentage points to 8% and 6% respectively, doubling down on the cuts announced in last November’s Autumn Statement. The maximum annual saving is £754.
Residential property: In 2024/25, the maximum capital gains tax rate on residential property gains will fall to 24%. The lowered rate may encourage more buy-to-let investors to sell up rather than pay higher mortgage rates at the end of their fixed-rate deals. It may have a similar impact on holiday cottage owners, as the favourable tax rules for furnished holiday lets will be scrapped from April 2025.
UK ISA: The Chancellor issued a consultation paper on a new ‘UK ISA’. This will have a contribution limit of £5,000 – in addition to the existing overall £20,000 ISA limit (unchanged since 2017/18). However, investments will have to be primarily in the UK, probably both shares and bonds. There was no specific timeline on the proposal.

These Budget changes may affect you personally or your business. For more information on any aspect of the implications of the Budget, please contact us.

Photo by Diane Helentjaris on Unsplash

Moving to Scotland – the cost in tax

Written by Femi Ogunshakin on 7 March 2024. Posted in Insights. No Comments on Moving to Scotland – the cost in tax

There are many benefits to moving to Scotland for work or retirement, especially the stunning scenery. However, anyone contemplating a move should consider the tax cost of relocating from elsewhere in the UK.

The Scottish Parliament has set income tax rates and bands since April 2017, with the result that most Scottish taxpayers have generally faced a higher tax burden than other UK taxpayers. This cost is set to get even wider from April 2024.

Tax rates

The main difference between Scottish tax rates and those applicable to the rest of the UK is going to be Scotland’s new advanced rate of 45% which, from April 2024, will apply on income between £75,000 and £125,140. This is 5% higher than is payable on equivalent income in other parts of the UK.

Given that the personal allowance is tapered away where income is between £100,000 and £125,140, this will mean a marginal rate of 67.5% on this band of income: it is 60% in other parts of the UK. Once income hits £125,140, the Scottish top rate is 48% compared to the rest of the UK’s 45% additional rate.

Comparison

The Scottish tax system generally hits harder at the higher end of the pay scale. Someone moving to Scotland after April with an income of £40,000 will see their annual tax bill go up by just over £110. However, it is nearly £3,350 more with an income of £100,000, and almost £6,000 where income is £150,000.

At the lower end of the scale, a pensioner moving to Scotland with an income of, say, £25,000, will actually see a modest reduction in their tax liability.

Scottish taxpayers

Having one home in Scotland and living there will make you a Scottish taxpayer, but also if:

You have two or more homes – whether owned, rented or lived in for free – and the main home is in Scotland; or
You spend more time in Scotland compared to the rest of the UK.

A person’s main home is usually where the majority of time is spent, although this is not always the case.

The government has published a guide to income tax in Scotland on its website.

Photo by jim Divine on Unsplash

Another lesson learned in equal pay

Written by Femi Ogunshakin on 1 March 2024. Posted in Employment Law, Equal Pay, PAYE, Tax. No Comments on Another lesson learned in equal pay

Having already paid out over £1 billion in equal pay claims, and now facing claims for further millions, Birmingham City Council’s financial crisis is a stark reminder of why it is so important to get equal pay right.

All employers will undoubtably know the basic principle that men and women must receive equal pay for doing equal work. However, it is possible for employers to be caught out by some complications of the rules:

Associated employers: equal pay applies across associated employers. This is not about overall control, but also where one organisation sets the pay and benefits for both entities.
Pay: equality extends to payment for holidays, overtime, redundancy, sickness and performance. Entitlement to benefits, such as company cars, must also be on an equal basis, along with pension funding and entitlement.
Terms and conditions: the whole employment package needs to be equal – not only salaries. For example, working hours and annual leave allowance must be equivalent.
Right to equal pay: it does not matter whether employees are full-time or part-time when considering equal pay; apprentices and agency workers are also included.

Equal work

Where equal pay rules become less black and white is in the arena of equal work. This is where Birmingham City Council came unstuck. The original dispute in 2012 arose because bonuses given to staff in traditionally male-dominated roles discriminated against female workers working in roles such as cleaners, teaching assistants and catering staff.

Comparisons are not necessarily on an exact like-for-like basis. It might be that the level of skill, responsibility and effort needed to do work are equivalent, or work might simply be of equal value, even if the roles seem different, such as comparing warehouse and clerical jobs.

Differences in pay

Although differences in pay terms and conditions are permitted, this must have nothing to do with gender identity. For example, someone in a similar role could be paid more if they are better qualified or are employed in a location where recruitment is difficult.

One way for employers to avoid equal pay disputes is to be transparent in regard to pay and grading systems. Job descriptions should be up-to-date and accurate.

The Advisory, Conciliation and Arbitration Service (Acas) has published guidance for employers on equal pay on its website.

Photo by That’s Her Business on Unsplash

Companies House reform brings tougher company checks

Written by Femi Ogunshakin on 28 February 2024. Posted in Insights. No Comments on Companies House reform brings tougher company checks

Companies House is introducing wide-ranging reforms – subject to new legislation being in place – from 4 March 2024. Directors need to get ready for the first tranche of measures.

The reforms are being introduced with the aim of clamping down on financial crime and improving corporate transparency and form part of the recently enacted Economic Crime and Corporate Transparency (ECCT) Act. The changes will particularly impact when incorporating a new company, but existing companies are also affected.

Registered office

The use of a PO box as a registered office will no longer be permitted. A registered office must be an address where the receipt of documents can be recorded by an acknowledgement of delivery. This means that a third-party agent’s address should still be suitable.

Directors should make sure that any existing company using a PO box as a registered address has made a change by 4 March 2024. This can be done online at the Companies House website.

Any company without an appropriate registered office address risks being struck off the Companies House register.

Email address

When a company is incorporated from 4 March 2024, it will be a requirement to provide a registered email address for Companies House. The same email address can be used for more than one company:

Existing companies will need to provide an email address when they next file a confirmation statement.
Companies House will use the email address for communications about the company.
A company’s email address will not be published on the public register.

It will be possible to update an email address in the same way as a company’s registered office address online at the Companies House website.

Lawful purpose

In future, the subscribers (shareholders) will need to confirm they are forming a new company for a lawful purpose.

For existing companies, confirmation statements filed from 4 March 2024 will include a declaration that a company’s future activities will be lawful. Companies House may take action if it receives information that a company is not operating lawfully.

Other changes are in the pipeline, in particular, mandatory identity checks for company officers will be introduced later in 2024. Details of the changes being introduced by The ECCT Act can be found on the government website.

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HMRC, eBay and second-hand news

Written by Femi Ogunshakin on 21 February 2024. Posted in HMRC Investigations, Income Tax, Self Assessment. No Comments on HMRC, eBay and second-hand news

The media storm surrounding HMRC taxing eBay and other online sellers from the start of 2024 was, in fact, itself counterfeit goods.

A crop of stories across social and traditional media swirled across the start of the new year about HMRC cracking down on ‘side hustle’ tax from 1 January, leaving sellers using sites like eBay and Vinted feeling uncertain. Coming after an early December announcement that HMRC had effectively closed its main self-assessment helpline until 1 February 2024, the story only fuelled the outrage directed at the Revenue.

Except that it was not fresh news or, even, news at all. There was no new ‘side hustle’ tax. HMRC was starting the first year in which digital platforms, such as eBay, would be required to automatically report details of sellers who in a calendar year:

Had sales of at least €2,000 (about £1,725 at current exchange rates); or
Made at least 30 sales.

Further, this was not a UK-led law as revealed by the denominating currency. The initiative started with a set of model rules published in July 2020 by the Organisation for Economic Co-operation and Development (OECD), of which the UK is a member, aimed at reducing tax avoidance via digital platforms. The first reports from platforms will not be sent to HMRC until January 2025 and will cover only the current year.

Contrary to fears raised online earlier this year, neither HMRC nor the OECD have any interest in the sale of personal items no longer required, whether clothing or mobile phones. The new reporting requirements are for people who are trading ie buying and selling goods with the aim of making a profit, something that has always been taxable.

It is worth bearing in mind that there is also a little-known trading allowance, which exempts from tax £1,000 of trading income (before expenses) in a tax year. A similar £1,000 allowance applies to property income (also before expenses), which matters here because Airbnb falls within the scope of the reporting regime.

There are a couple of lessons to learn from this saga of the ‘side hustle’ tax. The first is that tax is rarely simple and media information – especially social media – can be misinformation. The second is that HMRC’s ability to gain insight into your sources of income is ever-expanding.

You have been warned…………..

The government has published information on who may be affected by the advent of reporting rules for digital platforms,

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Increased income – the double-edged sword

Written by Femi Ogunshakin on 15 February 2024. Posted in Benefits, Employment Tax, High Income Child Benefit Charge, Income Tax. No Comments on Increased income – the double-edged sword

With tax bands and other thresholds frozen, taxpayers should be aware of the implications of their income increasing. Increased income can mean more than facing a higher tax bill.

Higher rate taxpayers need to look at which allowances, reliefs or benefits are no longer claimable and those which are now worth claiming.

Lost reliefs

Marriage allowance – this is not available once the recipient spouse/civil partner becomes a higher rate taxpayer. The person who made the claim (the lower income spouse/civil partner) should now cancel it on their Government Gateway. However, one way to retain the allowance is for the recipient to make sufficient pension contributions so that their net income remains within the £50,270 basic rate threshold.
Child benefit – this starts to be clawed back once income hits £50,000 and is completely lost if income reaches £60,000. Within this band, each £1,000 of extra income represents a 10% loss of child benefit. The claw back is by way of a tax charge, with details declared on a self-assessment tax return. Again, pension contributions can reduce the level of income.
Childcare – if income exceeds a £100,000 threshold, tax-free childcare will no longer be available. Full free hour entitlement will also cease. Both must therefore be cancelled, with the tax-free childcare entitlement amended on the claimant’s Government Gateway. Pension contributions can, once again, help to remain below the threshold.

Using pension contributions

Pension contributions are more attractive once relief is at a higher rate than just the 20% basic rate. Contributions make even more sense if entitlement to marriage allowance, child benefit or childcare is preserved. Given that the personal allowance starts to be tapered away at the same point that tax-free childcare is lost, the overall cost of pension contributions where income just exceeds £100,000 can be negligible.

Tax trap

Aside from the increased rate of tax when income crosses a threshold, the savings allowance is cut in half to £500 for higher rate taxpayers. This is lost altogether once income reaches £125,140. Tax on savings can therefore increase despite the amount of savings income not changing. Investing in Individual Savings Accounts (ISAs) can mitigate the problem, as can pension contributions particularly if income is above the £50,270 threshold.

There are different childcare schemes in Scotland, Wales and Northern Ireland, and Scottish tax rates and thresholds differ.

For information on tax relief for private pension contributions visit the government website.

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Making Tax Digital Update: Small Business Review

Written by Femi Ogunshakin on 7 February 2024. Posted in Making Tax Digital, MTD, Self Assessment. No Comments on Making Tax Digital Update: Small Business Review

The outcome from the Making Tax Digital (MTD) small business review is that MTD for income tax self-assessment (ITSA) will not be extended to those earning under £30,000 for the foreseeable future.

MTD ITSA for the self-employed and landlords is to be introduced from April 2026, with the initial mandate applying to those with income over £50,000. Those with income between £30,000 and £50,000 are set to join from April 2027.

The government said it would review the needs of smaller businesses – those with income under the £30,000 threshold – before extending MTD further. The latest announcement means there will be no extension, although the decision will be kept under review.

There is no set mandation date for general partnerships (those with individuals), non-general partnerships (those with a corporate partner) and limited liability partnerships.

An important point to note is that the £30,000 and £50,000 limits apply to total self-employment and property income, and not to the profits actually made.

Reporting

Some reporting changes have also been announced:

Year-end reporting was originally going to consist of two separate steps – an end of period statement and a final declaration. This would have caused considerable confusion, so there will now be just the one final declaration; and
Quarterly reports are now to be cumulative, so any errors will simply be corrected on the next report – rather than the previous requirement to resubmit past quarters.

Ongoing concerns

Despite the latest attempt to simplify the MTD process, there are still concerns that HMRC has simply lost sight of the needs of taxpayers. A recent House of Commons committee report criticised the project’s spiralling costs, design flaws and missed deadlines.

The report recommends HMRC research what business taxpayers would actually find most helpful, and to take into account the substantial costs of implementing MTD.

HMRC’s guide to using MTD ITSA can be found here.

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New lease and advertising rules for landlords

Written by Femi Ogunshakin on 2 February 2024. Posted in Freehold, Landlord, Leasehold. No Comments on New lease and advertising rules for landlords

If enacted in its current form, the recently published Leasehold and Freehold Reform Bill will affect landlords in England and Wales who own a leasehold property.

Extending a lease

The government’s intention is that the standard term given when extending a lease will be 990 years. The extension term for flats and apartments is currently 90 years.

The initial lease term for leasehold property could be just 99 years. For a new landlord, this might seem fine, but it is generally not a good idea to let a lease run down until there is less than 80 years remaining. Not only will it (currently) be more expensive to extend, but such a property could be difficult to sell or remortgage.

There are various other changes, with two of the more important being:

The reduction of ground rent to a peppercorn (virtually zero) upon payment of a premium.
The removal of the ‘marriage value’, which can make it more expensive to extend a lease where the lease term has run down. The marriage value reflects the additional market value of having a longer lease. Currently, there is only certainty of avoiding marriage value if a lease has more than 80 years to run.

Ground rent is of particular concern if it doubles every ten years or at more frequent intervals.

Advertising

More detail will now be required when advertising property, regardless of whether it is let privately or via an agent. Many landlords and agents will already provide much of the mandatory information, but landlords letting privately might overlook such items as:

Details of the property’s utilities, or lack of;
Available parking;
Issues with mobile coverage;
Flood risk; and
Accessibility facilities.

These new measures will now give prospective tenants as much information as possible prior to viewing.

A quick guide for landlords advertising a property can be found here.

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ISA reforms afoot from April 2024

Written by Femi Ogunshakin on 30 January 2024. Posted in Insights. No Comments on ISA reforms afoot from April 2024

Changes to individual savings account (ISA) rules coming into effect from 6 April 2024 will make ISAs more user friendly, most notably the move to allow multiple subscriptions of same-type ISAs in a tax year.

Multiple subscriptions

It is currently only possible to pay into just one ISA of each type in a tax year. Multiple subscriptions will mean:

Cash savers will be able to open new cash ISAs if better deals become available. Greater flexibility will mean some funds could go into a fixed-rate deal, with a reserve held in an easy-access cash ISA.
Investors will be able to spread their investments over several different providers. For example, one stocks and shares ISA might be used for longer-term investments, with another – offering low dealing costs – used where regular trades are made.

For 2024/25, the annual £20,000 ISA contribution limit will not see any change, with the £9,000 Junior ISA and £4,000 Lifetime ISA limits also frozen.

Other changes

Although details are still to be announced, the government’s intention is that in future it will be possible to hold fractional share contracts within a stocks and shares ISA. Under existing rules, at least one full share must be held, even though the shares of some US tech companies can cost hundreds.

Other changes to be introduced from April 2024 include:

Partial transfers between ISA providers will be possible during the tax year. For example, if £15,000 has been paid into a cash ISA since 6 April, £5,000 could be moved to a different provider. Currently, the whole £15,000 would have to be moved.
The minimum account-opening age for cash ISAs is to be harmonised at 18. It will therefore no longer be possible for 16- and 17-year-olds to open a cash ISA – just a Junior cash ISA where the investment limit is somewhat lower.

Any 16- and 17-year-olds without a cash ISA might want to open one while they still can – by 5 April 2024 at the latest.

Although not yet updated to the 2024/25 tax year, HMRC’s basic guide to ISAs can be found here.

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Business rates relief: extensions and cuts

Written by Femi Ogunshakin on 26 January 2024. Posted in Business Rates. No Comments on Business rates relief: extensions and cuts

Last November’s Autumn Statement included a package of measures to help alleviate the burden of business rates in England and on the Scottish islands, but Wales won’t be so fortunate.

75% relief rules

Retail, hospitality and leisure properties that do not qualify for small business rates relief currently receive a 75% business rates discount, subject to a cap of £110,000 for each business. This relief is to continue throughout 2024/25.

Property will typically qualify for relief if the business is mainly being used as a:

Shop;
Restaurant, café, bar or pub;
Cinema or music venue; or
Gym, spa or hotel.

There is an equivalent scheme for Welsh retail, hospitality and leisure property, but for 2024/25 the discount has been reduced to 40%. There is no equivalent relief for Scottish or Northern Irish business property. However, Scotland has announced a new 100% relief for hospitality businesses situated on the Scottish islands.

Multipliers

A business rates bill consists of a property’s rateable value multiplied by a multiplier (or poundage). For 2024/25, the small business multiplier (rateable value below £51,000) is again frozen at 49.9p. However, the standard multiplier (rateable value over £51,000 or more) is being uprated by 6.7% to 54.6p.

Given inflation has now dropped to 3.9% (November 2023), the 6.7% increase for the standard multiplier is not going to be favourably received.

Scotland: The basic multiplier has been frozen, but higher value properties will see poundage increased by 6.7%.
Wales: The multiplier will see an across-the-board increase of 5%. This will be painful for smaller businesses, especially as the Welsh multiplier at 56.2p is the highest in the UK.
Northern Ireland: No announcement as yet, and, in any case, rate poundage varies across council

To summarise the various outcomes:

	England		Scotland			Wales
	RV below £51,000	RV £51,000 or more	RV up to £50,000	RV £51,001 to £100,000	RV £100,000 or more
Retail, hospitality and leisure relief (all subject to a cap of £110,000)	75%		100% (islands only)			40%
Multiplier	49.9p	54.6p	49.8p	54.5p	55.9p	56.2p

Details of the various business rates reliefs available in England can be found here.

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National Insurance Cut

Written by Femi Ogunshakin on 23 January 2024. Posted in National Insurance Contributions, PAYE. No Comments on National Insurance Cut

Employee National Insurance cut announced in the Autumn Statement takes effect (from 6 January).

For many years, successive governments have been happy for the public to vaguely believe that national insurance contributions (NICs) are building up in some national benefit fund, rather than representing just another tax on income. While something called the National Insurance Fund does exist, as a House of Commons Library briefing noted back in 2019, “The Fund operates on a ‘pay as you go’ basis; broadly speaking, this year’s contributions pay for this year’s benefits.”

For politicians, the perceived difference between NICs and income tax made it possible to grab the headlines by reducing the basic rate of tax while receiving much less attention for maintaining or even increasing revenue by raising NICs.

Last November, the Chancellor appeared to have finally given up on the distinction-without-a-difference approach by proclaiming that his cuts to NICs for employees and the self-employed were tax cuts.

The changes

If you are an employee (but not a director, to whom special rules apply), the cut means your main NIC rate (on annual earnings between £12,570 and £50,270) fell from 12% to 10% from 6 January 2024. The extra amount in your pay packet is broadly the same as if a 2p cut had been made to basic rate tax (which covers the same £37,700 band of income). However, from the Chancellor’s viewpoint, the NICs cut was cheaper, as there was no ‘tax cut’ on pension or investment income, both of which are NIC-free.

The employer’s NIC rate did not change, remaining at 13.8% on all earnings above £9,100. If your earnings are below £50,270, the theoretical advantage of using salary sacrifice to pay pension contributions has been marginally reduced but remains attractive, as shown in the table below, based on a £1,000 sacrifice.

If you are among the growing band of higher or additional rate taxpayers, the financial advantage of salary sacrifice is unaltered. Either way, if you are not using salary sacrifice to pay pension contributions, it is still worth taking advice about the option. It is beneficial in most circumstances, but there are drawbacks to be aware of.

	Personal contribution		Salary sacrifice employer contribution (sacrificed amount + NIC saving)
Employee NIC rate	12%	10%	12%	10%
	£	£	£	£
Gross salary	1,000	1,000	Nil	Nil
Employer pension contribution	Nil	Nil	1,138	1,138
Employer NIC	138	138	Nil	Nil
Total employer outlay	1,138	1,138	1,138	1,138
Employee salary	1,000	1,000	Nil	Nil
Less: income tax	(200)	(200)
Employee NICs	(120)	(100)
Net pay = net pension contribution	680	700
Tax relief	170	175
Total pension contribution	850	875	1,138	1,138
*Gain*			*33.9%*	*30.1%*

Getting a head start: retirement planning attitudes in 2023

Written by Femi Ogunshakin on 19 January 2024. Posted in Retirement, Wealth. No Comments on Getting a head start: retirement planning attitudes in 2023

A survey of 6,000 people, aged 18 to 80, revealed starkly different views on retirement across the generations.

According to the Office for National Statistics, the median age of the UK population in mid-2021 was 40.7 years, up from 39.6 in mid-2011. Perhaps that gradual ageing and the impact of Covid-19 on working patterns explains why there is a steady flow of research reports on attitudes to, and experiences of, retirement. The latest to emerge is Standard Life’s Retirement Voice, now in its third annual edition. One of the more interesting topics covered is the extent and benefit of planning ahead of retirement.

The bad news is that only 29% of those questioned said they were doing “a great deal of planning for retirement.” Predictably, households with income of more than £100,000 and those who took professional financial advice were the most likely to fall into this category, but even in those instances the proportion was no more than half.

Just over one in five members of Generation X (born between 1965 and 1980, so in their 40s and 50s) said they had done a great deal of planning, a smaller share than either of the two subsequent and thus younger generations (Millennials and Gen Z). The reluctant Gen Xers would do well to consider that over half of today’s retirees wish that they had thought about retirement finances at a younger age or started saving earlier. However, Gen X may not be completely head-in-sand, as on average they confessed to a six-year gap between their aspirational retirement age (62) and what they expected to be the reality (68).

The benefits of planning were evident in responses to another survey question: “How do you feel about your current financial situation?” Those who had done the most planning were nearly three times more likely to feel positive about their finances than the non-planners (61% vs. 21%). The group that had done “only a little planning” fell in the middle (40%).

The survey found that on average, age 36 is when people start to take a keener interest in their retirement planning. That average figure hides a big generational difference – the Baby Boomers trigger age was 49, while for Gen Z (currently 18–25) it was 20. In this instance, Gen Z looks the wiser generation…

Find out more about retirement attitudes here.

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National Living and Minimum Wages increase

Written by Femi Ogunshakin on 19 January 2024. Posted in Employment Tax, National Living Wage, National Minimum Wage. No Comments on National Living and Minimum Wages increase

Minimum wage rates will see substantial increases from 1 April 2024 – welcome news for younger workers and apprentices, but not so much for those employers struggling in the current economic climate.

Eligibility for the National Living Wage is to be extended by reducing the age threshold so that 21 and 22-year-olds are included. Current and future rates of National Living/Minimum Wage are:

Current		From 1 April 2024		Increase
Age	Rates	Age	Rates	%
23 and over	£10.42	21 and over	£11.44	9.8%
21 to 22	£10.18	21 and over	£11.44	12.4%
18 to 20	£7.49	18 to 20	£8.60	14.8%
Under 18 and apprentices	£5.28	Under 18 and apprentices	£6.40	21.2%

Employers can only pay the apprentice rate if the apprentice is aged under 19 or, if older, is in the first year of their apprenticeship. Apprentices over 19 who have completed the first year of their apprenticeship must be paid the rate for their age.

The provision of accommodation is the only benefit counting towards the National Living/Minimum Wage, with the maximum offset from 1 April 2024 set at £9.99 a day (£69.93 a week).

Real Living Wage

Some 14,000 employers – covering over 460,000 employees – now pay the Real Living Wage. This is on a voluntary basis, with the Real Living Wage independently calculated based on actual living costs.

The current hourly rate of Real Living Wage outside of London is £12, so – with the latest increase – the National Living Wage is not far off parity.
Where the government’s rate falls down, however, is for London-based employees where a Real Living Wage of £13.15 is deemed necessary due to the higher costs of working and living in the capital.

Also, the National Living Wage covers employees aged 21 and over, but the Real Living Wage applies from age 18.

HMRC’s National Living and Minimum Wage calculator for employers can be found here.

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WANTED: Insolvency litigation support

Written by Femi Ogunshakin on 19 January 2024. Posted in Insights. No Comments on WANTED: Insolvency litigation support

I am reaching out to my LinkedIn connection for some direct networking – I have seen an increase in the volume of insolvency work (rescissions, WUP, validation orders) coming through my pipeline in recent months and whilst this is great, it is placing some pressure on my sole practice within @Nexa and so for this reason, I am looking to talk to legal practitioners (solicitor, Paralegal, Legal Executive) who may or may not be local to my base in Merseyside – and is familiar with LEAP – to work with me on my current cases.

I should add that I am not looking to employ anyone so I would only be willing to chat to individuals who work for themselves whether that be via a corporate vehicle, partnership or old fashioned self-employment. If this is you, or if any of my connections know anyone who might be interested in chatting about what’s on offer, then please feel free to share this missive.

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Cash basis to become default

Written by Femi Ogunshakin on 4 January 2024. Posted in Income Tax, Making Tax Digital, Self Assessment, Self-Employed. No Comments on Cash basis to become default

From 2024/25, restrictions to the cash basis will be removed, making it the default method for calculating trading profit for the self-employed and most partnerships.

The accruals basis is currently the default, with a business having to opt in to use the cash basis. In future, a business will need to opt out of the cash basis if it wants to use the accruals basis.

Restrictions removed

A business, regardless of size, will be able to use the cash basis once the £150,000 turnover restriction has been removed. The removal of two other restrictions will mean there are no longer any obstacles to – otherwise qualifying – businesses choosing to use the cash basis:

Interest costs will in future be fully deductible. Currently, there is a maximum deduction of £500.
Losses incurred under the cash basis will be relievable in the same way as accruals basis losses. Currently, a cash basis loss cannot be relieved against other income or carried back.

When moving from the accruals basis to the cash basis, a number of adjustments may be necessary to avoid double counting or items being omitted.

Pros and cons

The cash basis removes complexities such as accruals and most capital allowances, though it will be unsuitable for some businesses, especially larger ones.

The cash basis does mean it is quite easy to calculate trading profit by, for example, extracting information from easily accessible documents, such as bank statements – so there may be less need for a bookkeeper.
It is also easier to legally manipulate a period’s trading profit. For example, paying suppliers early towards the end of a period will reduce profit.

The accruals basis, however, is a more accurate reflection of a period’s trading profit, so banks and other financial institutions may insist on this basis being used.

HMRC’s guide to calculating trading profits, notably section 3 on moving to the cash basis, can be found here.

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R&D tax relief schemes set to merge, but concerns remain

Written by Femi Ogunshakin on 20 December 2023. Posted in Corporation Tax, R&D. No Comments on R&D tax relief schemes set to merge, but concerns remain

The two existing research and development (R&D) tax relief schemes are set to merge, although the newly created scheme will be similar to the R&D expenditure credit currently claimed mainly by large companies.

Although the merger will remove the complexities when companies move between schemes, there will invariably be some who significantly lose out as a result of the changes.

The merged scheme and other changes will apply in relation to accounting periods beginning on or after 1 April 2024.

R&D expenditure credit (RDEC)

Along with a deduction for the R&D expenditure itself, the RDEC provides for a 20% standalone credit. Since the credit is taxable, it is worth £15,000 for every £100,000 spent on R&D assuming the main rate of corporation tax applies.

For loss-making companies, the expenditure credit can lead to a repayment.
When calculating the repayment, the notional tax rate applied will in future be the profit rate of corporation tax of 19%.

If not used to reduce the current year’s corporation tax liability, the expenditure credit – before any alternative use – is capped according to the amount of PAYE and national insurance contributions paid in respect of R&D workers. In future, the more generous cap from the SME scheme will be used.

R&D-intensive SMEs

Despite the merger, loss-making R&D-intensive small or medium-sized enterprises (SMEs) will still be able to claim a 14.5% repayable credit under the existing SME scheme.

Given there is an 86% uplift, this works out to a cash repayment of £26,970 for every £100,000 of qualifying R&D expenditure.
R&D intensity is calculated as the proportion of an SME’s qualifying R&D expenditure compared to total spending. The intensity threshold is to be reduced from 40% to 30%.

Also, a one-year grace period will be introduced for companies that fall below the 30% threshold.

HMRC’s guide to the RDEC as it currently applies can be found here.

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Incoming NIC reforms for the self-employed

Written by Femi Ogunshakin on 15 December 2023. Posted in Income Tax, MTD, National Insurance Contributions, Self-Employed. No Comments on Incoming NIC reforms for the self-employed

National insurance contribution (NIC) changes for the self-employed announced in the Autumn Statement come in from 6 April 2024 and will be welcome news. But the reforms don’t go far enough to offset the continuing cost of frozen tax thresholds.

NICs classes

The self-employed currently pay two classes of NICs:

Class 2 NICs are at a flat weekly rate, and it is these contributions that give entitlement to contributory benefits, such as the state pension (35 qualifying years being required to receive a full pension). Class 2 NICs are deemed to be paid if profits are between £6,725 and £12,570, and can be paid voluntarily if profits are lower.
Class 4 NICs are earnings related. The main rate of 9% is paid on profits between £12,570 and £50,270, with an additional rate of 2% on profits in excess of £50,270.

Class 2 voluntary only

From 6 April 2024, any self-employed person with profits of £6,725 or more will be entitled to contributory benefits without having to pay class 2 NICs – an annual saving of £179 for those who would otherwise have had to pay.

However, those with profits below £6,725, will still have to pay voluntarily if they wish to maintain access to contributory benefits.

Anyone with profits just below £6,725 might decide to forego claiming sufficient expenses to meet the income limit, although the overall tax impact of doing so must be considered.

Class 4 reduced

From the same date, the main rate of class 4 NICs will be reduced from 9% to 8%, representing a maximum annual saving of £377. The additional rate of 2% is unchanged.

There are also no changes to the thresholds of £12,570 and £50,270, although this will be beneficial for anyone with profits in excess of £50,270 – it means no increase to the amount of profits charged at the main rate rather than at the lower additional rate.

HMRC’s guide to voluntary national insurance can be found here.

Social media suggestion
NIC changes from 6 April 2024 will be welcome news for the self-employed, although the reforms don’t go far enough to offset the continuing cost of frozen tax thresholds.

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Are we witnessing the decline of trusts?

Written by Femi Ogunshakin on 13 December 2023. Posted in Lasting Will & Testaments, Tax, Wealth, Wills & Probate. No Comments on Are we witnessing the decline of trusts?

The number of trusts filing self-assessment tax returns for 2021/22 was 37% lower than for 2003/04. The decline comes as no real surprise given the eroding advantages of using a trust and the recent requirement to register trusts with HMRC.

Interest in possession trusts

Interest in possession trusts have seen the sharpest decline since 2003/04, with their number falling from over 100,000 down to just 44,000.

HMRC figures show that the decline in interest in possession trusts is mainly at the lower end of the scale where trust income is less than £10,000.
The inheritance tax (IHT) regime for interest in possession trusts from 2006 removed much of their favourable tax treatment. Such trusts are now subject to IHT on a similar basis to discretionary trusts, so, for example, a 20% tax charge can arise on a lifetime gift into an interest in possession trust.

However, interest in possession trusts are still commonly used in wills. Typically, a spouse or partner will be given rights during their lifetime (such as being able to stay in a marital home), with the capital subsequently passing to children – which is particularly important if there are children from a previous relationship. Such arrangements still enjoy a favourable IHT treatment.

Going forward

Trusts are more than ever becoming a specialist method of tax planning, and this trend is only likely to increase over the coming years.

Trust planning is still popular for those with a high net worth. Trusts allow wealth to be passed down the generations, protecting against marital breakdown, bankruptcy and family disputes.

There are reports that a future Labour Government would scrap business relief and agricultural property relief, and such a move would further limit the use of trusts. Trusts holding assets currently qualifying for relief could find themselves facing periodic IHT charges.

HMRC’s latest information on trusts (at October 2023) can be found here.