Author: Femi Ogunshakin

Updated tax guidance for electric company car charging

Written by Femi Ogunshakin on 7 December 2023. Posted in Benefit-In-Kind, Company Car Tax, Employment Tax. No Comments on Updated tax guidance for electric company car charging

HMRC has updated its guidance to clarify that there is no taxable benefit when an employer reimburses employees who charge their electric company cars at home. Previously, HMRC maintained that the relevant exemption did not apply.

There is a general rule that no income tax liability arises where an employee is reimbursed for expenses incurred in connection with a company car – such as repairs, insurance and car tax. Although this exemption does not apply to car fuel, electricity is not treated as fuel for tax purposes.

Exemption

The exemption applies whether a company car is used solely for business mileage, solely for private mileage or where there is mixed use.

Although HMRC’s guidance has been updated, at the time of writing their tool to check if you need to pay tax for charging an employee’s electric car is still giving incorrect answers, unless a company car is used solely for business mileage.
National insurance contribution (NIC) guidance is in line with the income tax guidance, so there are no class 1 or class 1A NICs on reimbursements for charging an electric company car at home.

Employers do, however, need to ensure that the cost of electricity reimbursed is solely for the company car.

Employers, directors and employees who have previously followed HMRC’s incorrect guidance should be entitled to a refund of the tax and NICs that have been overpaid.

Other charging situations

There is no taxable benefit if an electric company car is charged at work, if a charge card is provided so that public charging points can be used, or if the employer pays for a charging point to be installed at an employee’s home.

If the employer does not reimburse for charging an electric company car at home, the employee can claim a deduction from earnings for the electricity cost of business mileage.

The relevant section of HMRC’s employment income manual can be found here.

Photo by CHUTTERSNAP on Unsplash

Powers of attorney move one step closer to the digital age

Written by Femi Ogunshakin on 1 December 2023. Posted in Insights. No Comments on Powers of attorney move one step closer to the digital age

The administration of lasting powers of attorney (LPA) is on its way to becoming fully online.

In an ideal world, you should have an LPA (or its Scottish or Northern Ireland equivalent) sitting beside your will. The absence of either can complicate matters considerably for your family. Without a will, the distribution of your estate defaults to the laws of intestacy, which may not match your (or your family’s) wishes. Similarly, if illness means that you cannot manage your own affairs, then in the absence of an appropriate LPA, the Court of Protection will be your family’s first port of call to make decisions on your behalf. Going to the Court can be an expensive and slow process.

In England and Wales, the LPA process is dealt with by the Office of the Public Guardian (OPG). Over the years, technology has gradually crept into what has traditionally been a heavily paper-based system. You can now prepare an LPA for property and financial affairs and/or health and welfare matters online (https://www.lastingpowerofattorney.service.gov.uk/lpa/type). These LPAs are basic, government-drafted documents, but you may prefer to use a solicitor to include specific provisions that the standard issue version does not contain.

However your LPA is prepared, it will need to be registered before it can be used. While in theory registration can be delayed until your attorney needs to act on your behalf, in practice it is best to register your LPA as soon as it has been completed. That involves signing the document and sending the paperwork to the OPG (with a fee of £82 per LPA). The OPG says that it takes “up to 20 weeks” to register an LPA, provided there are no mistakes in the application.

The Powers of Attorney Act 2023, which received Royal Assent in September, paves the way for LPA registration to be completed online (as is currently possible in Scotland with powers of attorney). The paper option will also remain available.

If you do not have an LPA, then do not let the passing of the Act be an excuse to carry on without one until the technology is in place. Even the Chief Executive of the OPG says “…it’s important to recognise that we’ve still got a long way to go.” You – and your family – could need an LPA before that journey is over.

Footnote: In October, the Law Commission launched a consultation on allowing wills in England and Wales to be made and stored in electronic form. More information can be found here.

Photo by David Veksler on Unsplash

VAT registration goes online only

Written by Femi Ogunshakin on 21 November 2023. Posted in VAT. No Comments on VAT registration goes online only

HMRC is moving ahead with its ‘digital by default’ ambition by pushing VAT registration to online only. Any business unable to use the online registration service will have to call HMRC’s VAT helpline to obtain a paper registration form.

According to HMRC, more than 95% of businesses already register online, but there are some circumstances when registration by post is the only option.

HMRC recently made an almost immediate U-turn after concerns were raised when it tried to remove the option for downloading paper self-assessment tax returns. the forms continue to be available to download.

Paper-only option

Online registration is not possible where a business wants to:

Apply for an exemption from VAT registration (where turnover has gone temporarily over the registration threshold);
Join the agricultural flat rate scheme; or
Register a company’s divisions or business units separately for VAT.

In these circumstances, businesses must contact HMRC’s VAT helpline to ask for a VAT1 form. The digitally excluded will need to do likewise.

Other registration issues

The compulsory VAT registration threshold has been frozen at £85,000 since 1 April 2017, so not surprisingly the number of new registrations has risen considerably – over 300,000 in each of 2020/21 and 2021/22. The threshold will remain unchanged until 31 March 2026.

With more smaller businesses being drawn into the VAT net, it doesn’t help that HMRC closed its VAT registration helpline earlier this year. Anyone with a registration query can now end up waiting well over a month before HMRC responds.

Currently, it can take HMRC 30-40 working days (although sometimes longer) to process an online VAT registration. However, VAT must still be accounted for from the date when the obligation to register arose, so sending out invoices in the interim can be problematic.

HMRC’s guide to VAT registration can be found here.

Photo by Svetlana Gumerova on Unsplash

Handy hints ahead of self-assessment

Written by Femi Ogunshakin on 21 November 2023. Posted in Benefit-In-Kind, Company Car Tax, High Income Child Benefit Charge, Self Assessment, Self-Employed. No Comments on Handy hints ahead of self-assessment

The 31 January 2024 deadline for submitting a 2022/23 self-assessment tax return is not far off, especially for those not yet registered.

Anyone who has not previously registered for self-assessment – but needs to submit a tax return for 2022-23 – should do so as soon as possible.

A self-assessment activation code can take a week to arrive (three weeks if overseas); and
It can take two weeks (again, three weeks if overseas) to obtain a unique taxpayer reference, although using a personal tax account or the HMRC app can speed things up.

For anyone who has not previously submitted a tax return, the deadline for informing HMRC of the need to do so for 2022/23 has already passed. Individuals who have missed the deadline might face a fine.

First-time registration

There are a number of reasons why a taxpayer might fall into the self-assessment system for the first time. For example, anyone who has:

Started part-time self-employment, including work in the gig economy, trading on eBay and similar websites, or earning money as an influencer (although the first £1,000 of self-employed income is exempt);
Disposed of cryptoassets (any profits are subject to capital gains tax); or
Rented out property for the first time, possibly through sites such as Airbnb (again, the first £1,000 of rental income is exempt).
Become liable to the High Income Child Benefit Charge as a result of their income exceeding £50,000.

Sooner rather than later

Leaving registration to the last moment will mean there is no time to deal with any unforeseen problems. You might need to consult HMRC’s self-assessment helpline, which is now available again after its summer closure.

There will also be little time before the related tax bill is due for payment, and this could be an issue if the amount payable is higher than expected.

More information about whether you need to submit a self-assessment tax return can be found here.

Photo by Markus Winkler on Unsplash

Free property alerts for landlords

Written by Femi Ogunshakin on 15 November 2023. Posted in Property. No Comments on Free property alerts for landlords

Landlords in England and Wales might not be aware, but there is a free property alert service that monitors any significant activity on let property.

There is greater risk of a property being fraudulently sold or mortgaged if the landlord lives overseas, the property is empty or if there is no mortgage.

Signing up for a property alert will not automatically block any changes to the property register, but it will act as a warning when something changes, such as a new mortgage being taken out against the property.

Although property fraud is rare, HM Land Registry has prevented more than £100 million of fraud over the past five years.

Set-up process

An important first point is that a property can only be monitored if it is already registered with HM Land Registry, which may not be the case if acquired prior to 1990 and not mortgaged since then. A search of English and Welsh property can be made here.

For registered property, it is simply a matter of:

Creating a property alert account; and
Adding the properties to be monitored.

Up to ten properties can be monitored. However, you don’t need to own a property to monitor it, so it is easy enough to enlist family members to get around this restriction.

Unregistered properties

There is also more risk if a property is not registered, so it is recommended that an application be made to have such property registered. Although registration can be done by a landlord, many may prefer to use the services of a solicitor or conveyancer.

Restriction on title

Going a step further, putting a restriction on a property’s title will prevent a sale or mortgage being registered unless certified by a solicitor or conveyancer. The request itself is free for landlords, although a fee will likely be payable should a certificate be required.

The starting point for setting up a property alert, along with some guidance, can be found here.

Photo by Tiffany Tertipes on Unsplash

An uncertain future for the Triple Lock

Written by Femi Ogunshakin on 9 November 2023. Posted in Pensioners, Pensions, Wealth. No Comments on An uncertain future for the Triple Lock

In mid-September, the Office for National Statistics (ONS) published the latest earnings data, covering the period May to July 2023. Earnings data has been the focus of much attention recently because a fall in the pace of pay growth is seen as a pre-condition for the Bank of England to consider a pause – and eventually cuts – in interest rates. However, the data that emerged in September was doubly important as, in theory, it sets the level of increase for the old and new state pension from April 2024.

Both the old and new state pensions are subject to the Triple Lock, which means they are due to increase by the greater of:

Annual earnings growth (including bonuses) for the May to July period;
Annual CPI inflation to September; or
5%.

Given the publicity it receives, you may be surprised to learn that the Triple Lock is nowhere to be found in pensions legislation. The Triple Lock is a discretionary feature that the government can ignore, although with an election almost certain in 2024, it would be difficult to imagine that it would depart much from its requirement this year.

May to July earnings total earnings growth this year was 8.5%, 0.3% higher than expected, a surprise that the ONS attributed to NHS and civil service one-off payments in June and July. That means from next April the old state pension will rise by £13.30 to £169.50 a week and the new state pension (applying to those who reach state pension age after 5 April 2016) will increase by £17.35 to £221.20 a week, unless the government decides to suspend the Triple Lock. It did so in 2022/23, when Covid-19 distorted earnings data and for 2024/25 it could tweak the earnings definition to exclude those one-off payments.

Whether the Triple Lock will survive beyond the next election is unclear. Shortly before the earnings data was published, the Prime Minister refused to commit to the Triple Lock being in the Conservative manifesto. At about the same time, the Institute for Fiscal Studies published a critical report saying that the Triple Lock created uncertainty both for the government and for individuals planning their retirement.

If you find yourself thinking you could retire on £221 a week, think again. It represents less than two thirds of this year’s 35-hour week National Minimum Wage.

Source: IFS.

Energy efficiency targets shelved. Will some landlords benefit from this?

Written by Femi Ogunshakin on 2 November 2023. Posted in Insights. No Comments on Energy efficiency targets shelved. Will some landlords benefit from this?

The government’s backtracking over the introduction of energy performance targets for property let out in England and Wales is facing criticism, but it will be welcome news for landlords with older properties deemed too expensive or difficult to upgrade.

Let property must currently have an energy performance certificate (EPC) rated E or above. Without this, the property cannot be legally let regardless of whether the tenancy is an existing one, a renewal or a new let. The government’s intention was to raise the EPC requirement to C or above by 2028.

The penalty for not having a valid EPC is £5,000. Under the now scrapped proposals, the penalty was going to be £30,000.

The cost

The cost of moving from a D or E rating to a C would typically be in the region of £10,000 to £20,000. There were reports that the government would have covered anything over £10,000, but that would still leave a significant burden for many landlords. As capital expenditure, most upgrades would not even have qualified for tax relief against rental income.

Raising energy efficiency to the required standard might have required improving insulation, installing double glazing or replacing old gas boilers.
However, it would have been very difficult, if not impossible, to bring some older properties up to an EPC C rating.

One concern considered by the government was that costs would have been passed on to tenants by way of higher rents.

The future

Although new EPC rules are off the agenda for now, there is every chance this could change if Labour wins the next election. Regardless of future changes, however, landlords should be aware that a good EPC rating makes a property more attractive to tenants given current high energy costs.

For Scottish landlords, it looks as if the Scottish Government still intends to go ahead with a move to an EPC C rating by 2028.

A useful guide to energy performance certificates can be found here.

Photo by American Public Power Association on Unsplash

Farewell to inheritance tax?

Written by Femi Ogunshakin on 28 October 2023. Posted in Inheritance Tax. No Comments on Farewell to inheritance tax?

In July, the government was reported as holding talks on abolishing inheritance tax (IHT). This wasn’t given much credence at the time, but there are now reports that the March 2024 Budget will include a reduction to the 40% IHT rate as a prelude to future abolishment.

IHT is charged at the rate of 40% on estates worth more than £325,000. However, there is also a further allowance of £175,000 that can be set against the value of a main residence if the property is inherited by descendants. Both allowances are shared between spouses or civil partners, so there is a potential family exemption of £1 million.

Although the combination of frozen allowances and higher property values has brought more estates into the IHT net, the tax is only paid on around 4% of estates.

Argument for change

Given that investments are generally paid for out of taxed income, IHT can be seen as a double charge to tax, preventing people passing on their wealth to children and grandchildren.

It applies to virtually all assets, without the exemptions given for capital gains tax – such as for a main residence.
Although IHT is mainly paid by the wealthy, the very rich typically have far more scope for reducing their overall IHT burden by, for example, making lifetime gifts and using trusts.

The moderately wealthy, where a main residence may account for the majority of wealth, may not be able to afford such tax planning measures.

How likely?

Although a rate reduction of a percentage point or two cannot be ruled out, full abolition is almost certainly going to be too costly in the current economic climate – some £7 billion in lost tax revenue annually – especially as HMRC is on course to have a record-breaking year from IHT receipts.

Then there is the forthcoming general election. A Labour government would be more likely to move in the opposite direction by cutting IHT allowances – in particular, the £175,000 main residence allowance.

In the meantime, if your estate may become liable for IHT, there are measures you can take. HMRC’s basic guide to IHT, including details of various exemptions, can be found here.

Photo by Glenn Carstens-Peters on Unsplash

Mitigating rising corporation tax rates

Written by Femi Ogunshakin on 18 October 2023. Posted in Company Director, Corporation Tax, Pensions, Wealth. No Comments on Mitigating rising corporation tax rates

New HMRC statistics have shed some light on how many companies are affected by the recent hike in corporation tax rates. Just over 1.5 million companies paid corporation tax for the financial year to 31 March 2022, but only 7% fell above the £50,000 small profits threshold.

Although fewer than 100,000 companies are likely to be facing the 26.5% marginal rate of corporation tax where profits fall between £50,000 and £250,000, they will be mainly owner-managed companies with owners keen to mitigate the tax increase.

For a company with a 31 March year end and profits of £200,000, this year’s corporation tax bill is going to be £11,250 higher than last year.

Director’s self-invested personal pension (SIPP)

Even if a director has not previously been in favour of making sizable pension contributions, there can now be a compelling case for doing so.

With a marginal tax rate of 26.5%, investing the maximum £60,000 into a SIPP will save corporation tax of £15,900.
Once the director reaches 55, 25% of the pension fund can be withdrawn tax free, but virtually immediately if a director is already 55.
There will be an overall tax saving if the tax rate eventually paid on pension withdrawals – taking into account the tax-free element – is less than 26.5%.

Even if there is no overall tax advantage as such, there will still be a timing benefit. The current year’s corporation tax bill is cut, but the tax cost does not apply until the director receives their pension income.

Mitigating cost and risk

By choosing a low-cost provider, the annual cost of maintaining a SIPP can be kept to a minimum.

If there are only a few years until retirement, a director might not want to be exposed to stock market volatility. This risk can be avoided by investing in fixed-term cash deposit accounts.

A basic guide to SIPPs can be found here.

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Deferring your state pension

Written by Femi Ogunshakin on 13 October 2023. Posted in Pensions. No Comments on Deferring your state pension

The current state pension age (SPA) – the earliest age at which you can draw your state pension – is 66. It will be gradually increased to 67 between April 2026 and April 2028. A further rise to 68 is due, probably between 2037 and 2039, but the confirmation of that timing has (conveniently) been delayed until after the next general election.

Most people draw their state pension as soon as it becomes available, which requires a claim to be made. If you do not make that claim, your state pension is automatically deferred until you choose to claim it. Up until then your deferred pension will increase every week you defer, provided you defer for at least nine weeks. The rate of increase is the equivalent of 1% for every nine weeks, which works out at just under 5.8% a year.

For example, if you defer the current state pension of £203.85 a week for 52 weeks you would receive an extra £11.82 a week once it started before adding the normal inflation related uplift. The increase is not compounded, so for two years’ deferral the extra would be £23.64, and so on.

5.8% a year does not sound bad, but don’t forget, your higher pension will be paid for a shorter period, as it started later. It can take a long time for the extra payments to overtake the loss of the full pension in the deferred period. For example, for a one-year deferral you will need to wait until you are about 81 before the total pension payments you have received are higher because of deferral, assuming 2.5% CPI inflation.

Nevertheless, there can be good reasons to defer. For example, if you are still working, your state pension would attract tax at your highest rate(s) which could be lower once you fully retire. There are other tax planning situations where being able to minimise income in a tax year can be useful, for example when cashing in an investment bond. Before you claim your state pension, make sure you take all your circumstances into consideration.

Government guidance on deferring your state pension can be found here.

Photo by Tim Hüfner on Unsplash

Don’t get caught in the VAT penalties net

Written by Femi Ogunshakin on 13 October 2023. Posted in VAT. No Comments on Don’t get caught in the VAT penalties net

The 50^th anniversary of the UK’s introduction of VAT was earlier this year, but despite being around for a while, many VAT-registered businesses still find VAT too complex and confusing. No surprise then that more businesses than ever are getting hit with penalties for inaccuracies.

Inflation and frozen thresholds

Two things that are not helping are the high rate of inflation combined with a freeze on various VAT thresholds.

Since 2017, the registration threshold has been £85,000, so with increased prices it is easy for a business to become liable for VAT despite staying the same size.

Meanwhile the thresholds for remaining within the flat rate, cash accounting and annual accounting schemes, have remained virtually unchanged for around 15 years, so, again, it is easy to mistakenly continue with a scheme when no longer eligible to do so.

Beware penalties

With HMRC aiming to close the tax gap for VAT, the risk of penalties for inaccuracies will only increase; for 2021/22, the number of penalties issued was already substantially higher than for the previous year, a trend which is sure to continue.

HMRC is able to charge a penalty of up to 30% of the extra VAT due if an error arises due to lack of reasonable care.

In HMRC’s view, it is reasonable to expect a business to find out about the correct VAT treatment or to seek appropriate advice when encountering a transaction with which they are not familiar.

A get out of jail card?

Incurring such a penalty is somewhat careless. However, there may be a get out of jail option if this arises.

HMRC have the discretion to suspend a penalty, for period of up to two years, during which time a business must comply with certain conditions. The aim is to prevent further penalties in the future, so a business could, for example, be asked to improve its record keeping.

If this is done, the penalty will be cancelled at the end of the suspension period, but best to avoid such a scenario in the first place.

HMRC’s guidance on VAT errors can be found here.

Photo by Oxana Melis on Unsplash

Fraud countermeasure drives R&D tax relief changes

Written by Femi Ogunshakin on 3 October 2023. Posted in Corporation Tax, R&D, Tax. No Comments on Fraud countermeasure drives R&D tax relief changes

The level of fraudulent claims being made for research and development (R&D) tax relief has prompted HMRC to introduce a new procedure: companies must provide detailed information ahead of making their claim.

HMRC figures show that nearly 20% of claims for R&D tax relief are fraudulent, so it is no surprise they are tightening up on the claim process. Non-compliance is a particular problem when it comes to small value claims, with nearly 80% of claims for less than £10,000 being suspect.

The new requirement will mean having to submit an additional information form to HMRC to support a claim for R&D tax relief or for expenditure credit.

This new form is a separate requirement to the claim notification form a company must submit to HMRC in advance of a claim for R&D tax relief. Notification applies for accounting periods beginning on or after 1 April 2023.

Submitting the new form

The additional information form must be sent to HMRC before the company’s corporation tax return is filed. If the tax return is filed without the additional information being provided, HMRC will simply remove the claim for R&D tax relief from the company’s tax return.

HMRC has set up an online portal for submitting the additional information form.
The new process will allow HMRC quickly to assess the validity of a claim, especially the level of expertise of those involved in preparing the claim.
The form requires detailed information on the R&D project, including a breakdown of the costs involved. For SMEs with just one to three projects, a full description of each project is required.

HMRC now require a considerable amount of additional information to be submitted, and this will be a challenge for SMEs. Companies should therefore start preparing for their R&D tax relief claims as far in advance as possible to avoid any last minute surprises.

HMRC guidance about the new requirements can be found here.

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Interest rate rises fuelling increased tax take

Written by Femi Ogunshakin on 26 September 2023. Posted in Capital Gains Tax, Income Tax, PAYE. No Comments on Interest rate rises fuelling increased tax take

The Bank of England base rate increase is impacting on the government’s tax takes, with more taxpayers paying tax on savings income due to higher interest rates. Increased mortgage rates are contributing to rocketing capital gains tax (CGT) takings too.

The impact of savings on tax

National Savings & Investment is offering a 5% return on its one-year bonds, and some financial institutions are offering 6% for a similar investment. So, a higher rate taxpayer with £10,000 or more invested will easily exceed their £500 savings allowance. In fact, it is estimated that the number of taxpayers paying tax on their savings income for 2023/24 will be a million more than the previous year.

There are two options to minimise tax liabilities:

You could move savings into ISA accounts, up to an annual investment limit of £20,000. This limit could restrict the scope of such planning for some.
You could invest in tax-free premium bonds. Although not paying interest as such, the expected annual return for larger investments is 4.65% – equivalent to a gross 7.75% for a higher rate taxpayer.

It’s advisable to keep careful track of your savings income for tax purposes. If tax is owed, it will be paid through self-assessment or via a PAYE coding adjustment.

Why is capital gains tax revenue increasing now?

The substantial increase in CGT receipts reported recently is partly explained by the number of buy-to-let landlords who are selling up. A buy-to-let was a good investment choice when mortgage costs were low, property prices were increasing, and cash savings accounts offered a very poor return in comparison. But all three of these factors are now in reverse, and landlords will often be able to get a better return investing their funds elsewhere.

Uncertainty around possible future increases to CGT is also pushing landlords to sell sooner rather than later.

If selling up, landlords can keep CGT bills as low as possible by:

Making sure any qualifying expenditure is claimed, including any enhancement expenditure which hasn’t qualified as a deduction against property income.
Disposing of any other investments standing at a loss in the same tax year, because capital losses cannot be carried back to earlier tax years.
Putting property into joint ownership with a spouse or civil partner prior to disposal.

These measures can help alleviate some of the seemingly punitive rates of CGT.

HMRC information on the taxation of savings income on can be found here [savings interest] and we are always happy to advise you on your options.

Photo by Andre Taissin on Unsplash

Finalising tax return figures and filing early

Written by Femi Ogunshakin on 19 September 2023. Posted in Income Tax, Self Assessment, Tax. No Comments on Finalising tax return figures and filing early

HMRC is chasing taxpayers who have submitted tax returns for 2021/22 containing unresolved provisional figures, while also extolling the benefits of filing early for 2022/23.

What are provisional figures?

A provisional figure is not the same as an estimated one.

An estimated figure is used when it is not possible to provide a more accurate figure – so it is intended to be final. For example, small amounts of income might be estimated, or records could have been lost, making an accurate figure impossible.
A provisional figure, on the other hand, is one that is used temporarily, with the intention to submit a more accurate figure later.

On a tax return, a box needs to be checked if a provisional figure has been supplied. HMRC will then be aware that an amended tax return is due.

HMRC is not chasing taxpayers directly, but via letters to tax agents. The strict deadline for amending a 2021/22 tax return is 31 January 2024, but HMRC is pushing for amendments by 30 November (if actual figures are now available), or otherwise by 31 December.

If the missing information is now too old to obtain, it will instead be necessary to confirm the provisional figure as final.

Why filing early is often a good idea

The deadline for submitting 2022/23 tax returns is also 31 January 2024, but there are benefits to earlier filing:

Tax liabilities will be established sooner, enabling more accurate financial planning throughout the year.
Using HMRC’s budget payment plan, as a taxpayer you can make regular weekly or monthly savings towards your tax bill.
Any tax refunds you are owed will be received earlier.
It is always advisable to contact HMRC well in advance if it’s not going to be possible to pay a tax bill in full.

If you submit your tax return early, you will avoid the worry of last-minute filing – always a stressful task and especially so if your record-keeping is not all that it should be.

We are always ready to assist you with your self-assessment filing, so don’t leave it too late to file your 2022/23 tax return

HMRC’s guidance on self-assessment tax returns can be found here.

Photo by Alexander Grey on Unsplash

Behind the numbers on income tax

Written by Femi Ogunshakin on 6 September 2023. Posted in Income Tax, Tax. No Comments on Behind the numbers on income tax

New income tax statistics from HMRC appear to be good news, but the numbers are not what they seem.

Taxpayer’s marginal rate	Basic Rate	Higher Rate	Additional Rate
2020/21 Average tax rate	9.5%	21.8%	38.3%
2023/24 Average tax rate	9.9%	20.8%	38.0%

Source: HMRC.

This table, recently released by HMRC, shows the average income tax rate for the three main categories of taxpayer. For example, in 2020/21, on average, basic rate taxpayers paid 9.5% of their income in tax and in the current tax year are expected to pay a slightly larger share, 9.9%. At first sight, higher rate and additional rate taxpayers seem to be doing better, as their average income tax rate drops.

HMRC offers no real explanation for the difference, other than a statement that says, “Average rates of income tax vary over time depending on the number of overall income tax payers and the number in each marginal rate band, as well as growth in incomes and changes to income tax thresholds and allowances.”

The story behind the changing numbers may be why HMRC is less than fulsome in setting out what has happened:

For basic rate taxpayers, the average rate has increased because the personal allowance has only risen by £70 (0.56%) since 2020/21, whereas average weekly earnings increased by 23% between April 2020 and April 2023. So a greater share of income is taxable in 2023/24 than in 2020/21 and the proportionate tax rate rises.
The backdrop for higher rate taxpayers is the same, so why the falling average rate? What HMRC forgot to mention is that in 2020/21, the higher rate tax band ended at £150,000, whereas in 2023/24 it stops at £125,140. Many higher rate taxpayers towards the top of the band three years ago have now migrated into the additional rate band. The overall result is the lower average rate for higher rate taxpayers.
The picture for additional rate taxpayers is almost a mirror image of the higher rate scenario. The near £25,000 lower starting point for additional rate in 2023/24 than 2020/21 means there are just about double the number of additional rate taxpayers in 2023/24 than in 2020/21. That extra, lower income population in the additional rate band drags down the average rate.

All of which should make you check what tax band you fall into for 2023/24 and seek professional advice if you have questions or concerns about how the changing rates might affect you.

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Abolishing the pensions lifetime allowance

Written by Femi Ogunshakin on 4 September 2023. Posted in Pensioners, Pensions. No Comments on Abolishing the pensions lifetime allowance

Although the lifetime allowance was effectively abolished from April 2023 as the lifetime allowance charge was removed, it has been retained on statute for a year to allow time for the intricacies to be ironed out. Draft legislation, to take effect from 6 April 2024, has now been published.

With the lifetime allowance abolished, the problem faced by the legislators was how to tax lump sums and death benefits in its absence. They have overcome this by introducing a new lump sum and death benefit allowance, which, not surprisingly, is the same amount as the old lifetime allowance – £1,073,100.

If the draft legislation is enacted, the most significant changes will be in the way death benefits are taxed when a pension saver dies before age 75.

Death benefits – lump sum

A beneficiary can generally receive lump sum death benefits tax free if the pension hasn’t been accessed (uncrystallised).

Previously, any excess over the lifetime allowance was taxed at the rate of 55%.
From 2024/25, the excess over the new lump sum and death benefit allowance will be taxed at the beneficiary’s marginal rate of tax.

This is as intended when the changes were announced.

Death benefits – Income

What was not announced alongside the initial abolition news is the proposed approach to taxing uncrystallised death benefits taken as income – either by drawdown or an annuity. Previously, the pension income was exempt from tax. From 2024/25, the proposed legislation will see pension income taxed in full at the beneficiary’s marginal rate of tax.

The new rules are broadly neutral if a pension saver dies after reaching age 75, but the tax treatment could be potentially worse from 6 April 2024 for those that die younger.

Given the more advantageous tax treatment if uncrystallised funds are taken as a lump sum (completely exempt if less than the new lump sum and death benefit allowance), this could push more beneficiaries into taking a lump sum even where income would be more suitable for their needs.

HMRC’s policy paper on the abolition of the lifetime allowance can be found here.

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Inheritance Tax: Intestacy entitlement increased

Written by Femi Ogunshakin on 30 August 2023. Posted in Inheritance Tax, Lasting Will & Testaments, Wealth, Wills & Probate. No Comments on Inheritance Tax: Intestacy entitlement increased

If an English or Welsh domiciled person dies without leaving a will, the amount that a surviving spouse or civil partner can inherit as a statutory legacy under the intestacy rules has – from 26 July – been increased from £270,000 to £322,000.

This statutory legacy only comes into play if the deceased also has children – the spouse or civil partner receives £322,000 and the deceased’s personal possessions, plus 50% of the remainder of the estate. The children receive the other 50% of the remainder. An exception applies where property is jointly owned. If there are no children, the spouse or civil partner will inherit the whole estate.

Example

Noah died intestate leaving an estate valued at £900,000. He is survived by his spouse, Emma, and two children. Emma inherits a total of £611,000 (£322,000 plus 50% of the remainder), and the two children will share £289,000.

Controversy

The statutory legacy is reviewed every five years, and the next review is due in January 2025. However, the five-year review period is overridden if inflation increases by 15% or more. The trigger point should have been December 2022, but inflation then fell in January 2023 before again going over 15%.

The 26 July uplift is therefore around seven months late, and some surviving spouses and civil partners will receive £52,000 less as a result of the delay. A House of Lords committee has raised the matter with the relevant authority, the Ministry of Justice, asking how such shortfalls will be dealt with.

Importance of leaving a will

The importance of leaving a valid will can be seen by looking at those who have no automatic right of inheritance:

Unmarried partners;
LBGT partners not in a civil partnership;
Relations by marriage;
Close friends; and
Close relatives other than children only inherit in certain circumstances.

The intestacy rules differ for those domiciled in Scotland or Northern Ireland.

The government has created an online tool to check who will inherit if someone dies without leaving a valid will. This can be found here.

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Agri-tax reliefs set for restrictions

Written by Femi Ogunshakin on 17 August 2023. Posted in Insights. No Comments on Agri-tax reliefs set for restrictions

Draft legislation has been published that will, from 6 April 2024, restrict the geographical scope of agricultural relief and woodlands relief to property in the UK.

Currently, property can qualify for either agricultural relief or woodlands relief if it is situated in the European Economic Area (EEA). With the UK having left the EU, the change will bring the inheritance tax treatment of property located in the EEA in line with the treatment of property located in the rest of the world.

The change will also see property located in the Isle of Man and the Channel Islands ceasing to qualify for agricultural relief from 6 April 2024, bringing the treatment in line with that for woodlands relief.

Inheritance tax relief

Agricultural relief: This effectively exempts most land or pasture used to grow crops or to rear animals from inheritance tax. Relief applies both for lifetime gifts and on death.
Woodlands relief: Not as generous as agricultural relief, given it only covers growing timber, not the land itself, and inheritance tax is just deferred until timber is sold.
Business relief: There are no indications that business relief will be likewise restricted, so it may be possible to restructure agricultural and woodland interests affected by the change to instead qualify for this relief. Another option will be to gift agricultural property while relief is still available. If such planning is not possible, individuals will need to review their future inheritance tax exposure.

Environmental land management

The government is also consulting on how agricultural relief might be extended to certain types of environmental land management. The current rules are sometimes perceived as a barrier to landowners participating in environmental schemes due to concern that tax relief could be lost. Although business relief will often be available as an alternative, this relief is not available in all circumstances.

HMRC’s detailed guidance on agricultural relief can be found here.

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New PAYE process for High Income Child Benefit Charge

Written by Femi Ogunshakin on 16 August 2023. Posted in High Income Child Benefit Charge, HMRC Investigations, Income Tax, PAYE. No Comments on New PAYE process for High Income Child Benefit Charge

One of the many criticisms aimed at the High Income Child Benefit Charge (HICBC) is that anyone caught by the charge needs to submit a self-assessment tax return even if all of their tax is collected under PAYE. However, this is set to change.

The government has announced that employed individuals will, in future, be able to pay the HICBC through their PAYE tax code without the need to register for self-assessment. The statement in July on draft Finance Bill legislation from Victoria Atkins, the Financial Secretary to the Treasury, didn’t give a date for the change, but said details would be released “in due course”.

The change will be particularly welcome for those earning just over £50,000 who have to go through the self-assessment process just to report and repay a small amount of child benefit.

Child benefit

For 2023/24, child benefit of £24.00 a week is paid for a first child, with £15.90 a week paid for each subsequent child. Child benefit is paid regardless of income, so the HICBC is the government’s way of reducing the amount paid to higher earners.

The charge

The HICBC can come into play when an individual – or their partner – receives child benefit and their annual income exceeds £50,000.

The charge removes 1% of child benefit for every £100 of income over £50,000.
Once income reaches £60,000, the charge is 100% so the amount of child benefit is essentially reduced to nil.
For those with several children, the HICBC can result in a high effective marginal tax rate.

For 2020/21, some 355,000 individuals were hit by the charge, with a high proportion having been subject to compliance checks by HMRC for failing to register for self-assessment. Despite the HICBC being in place since 2013 – and with HMRC running various publicity campaigns – there is still a general lack of awareness.

Although HMRC has adopted a more lenient attitude towards HICBC penalties in recent years, the maximum penalty can potentially be equivalent to the amount of HICBC owed.

Detailed government guidance on the HICBC can be found here.

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Take Two on Wealth tax…………

Written by Femi Ogunshakin on 15 August 2023. Posted in Inheritance Tax, Tax, Wealth. No Comments on Take Two on Wealth tax…………

Hard on the heels of May’s Sunday Times Rich List, will new proposals for a wealth tax gain any traction?

In 2020, a group of economic research bodies set up the Wealth Tax Commission to examine the options for a wealth tax to cover the huge costs then being incurred to handle the Covid-19 pandemic. The Commission produced a comprehensive report at the end of the year that suggested:

A one-off wealth tax (as opposed to annual);
A rate of 5%, payable at 1% a year for five years; and
The tax to be payable on all wealth above £500,000, including pensions and main residences.

The tax would have produced £260 billion in total, almost as much as income tax is projected to raise in 2023/24. While the proposals received considerable attention at the time, they were given the cold shoulder by the government and soon disappeared from view.

About two and a half years later, a new wealth tax proposal has been put forward by a group of three tax-campaigning organisations. Their launch came shortly after the latest Sunday Times Rich List was published, showing that 350 individuals and families together hold combined wealth of £796.5 billion.

The new wealth tax was substantially different from the Commission structure:

It would be an annual tax;
The rate would be 2%; and
It would only be payable on all wealth above £10 million.

The high threshold means that the annual amount raised each year would be less than the previous proposal – the campaigners suggested up to £22 billion, although the Commission’s 2020 research suggested a figure of around £17 billion for a similar structure– there are only around 22,000 individuals with wealth of greater than £10 million, according to the Commission.

Polling for one of the three organisations, undertaken by YouGov, showed 74% public support for the 2% wealth tax. Such a result is hardly surprising – most people are in favour of a tax from which they could only benefit.

This latest wealth tax proposal seems destined to suffer the same fate as its predecessor. Were the government to provide a counter argument, it could point out that the freezes it has made to the personal allowance and higher rate threshold alone will raise an extra £21.9 billion in 2023/24, rising to £25.5 billion by 2027/28. This seems unlikely however……………

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Tax gap at all-time low

Written by Femi Ogunshakin on 27 July 2023. Posted in Making Tax Digital, MTD, Tax. No Comments on Tax gap at all-time low

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. For 2021/22, the gap was at an all-time low of 4.8% (or £35.8 billion), although in monetary terms the gap increased by some £7 billion from 2020/21.

Small businesses

Recently published figures from HMRC show that small businesses now account for the largest share of the tax gap, at 56% of the total or just over £20 billion. This percentage has grown steadily from 40% in 2017/18. By comparison, the share for mid-sized and large businesses has fallen from 18% to 11% over the same period.

There isn’t sufficient information to understand what is happening here, but there are a couple of possibilities:

Having endured the challenges of the Covid-19 pandemic and now facing an equally tough economic climate, small businesses may be under-declaring income or, more likely given most sales are now done electronically, overclaiming on expense deductions.
At the same time, HMRC now lacks the resources to carry out extensive tax investigations.

And, of course, having an extremely complex tax system doesn’t help.

The whole concept of the tax gap has been subject to criticism, especially as HMRC does not explain how figures are calculated.

Making Tax Digital (MTD)

HMRC has been accused of using the tax gap to push their own agenda, in particular, making a case for MTD.

MTD for the self-employed and landlords is now not set to start until April 2026. MTD for VAT has been introduced in stages since April 2019, with virtually all VAT-registered business now included. The tax gap for VAT, although showing some improvement since 2018/19, doesn’t exactly support the need for MTD – the VAT gap fell from 6.4% in 2018/19 to 5.4% in 2021/22.

HMRC’s press release on the latest tax gap figures, along with more detailed information, can be found here.

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Businesses failing to pay minimum wage

Written by Femi Ogunshakin on 24 July 2023. Posted in HMRC Investigations, National Living Wage, National Minimum Wage. No Comments on Businesses failing to pay minimum wage

Just over 200 businesses – including some of the country’s best-known retailers – have failed to pay the minimum wage and will have to repay workers and face penalties of up to £7 million.

The minimum wage rules can be complex, and the fact that some major retailers have been caught out shows just how difficult compliance can be.

Uniforms

One particular area where businesses were not compliant was in regard to uniforms. The rules differ depending on whether uniforms are required as a condition or employment or if they are optional.

If employees are required to wear specific uniforms, any deduction by the employer to cover the cost reduces pay for minimum wage purposes. Similarly, if an employee has to reimburse their employer or has to purchase the uniform themself.
If uniforms are optional, pay is only reduced where the employer makes a deduction from the employee’s pay.

Working time

The other major problem area was paying correctly for time worked. This is not anywhere as simple as might first appear as illustrated by these examples:

Being on standby near the workplace counts as working time, but not if the worker is on standby at home nearby.
Travelling between assignments counts, but from home to the first assignment, and then from the last assignment back home does not – unless the first and last trips are by train and the employee is working on their laptop.

Penalties

A penalty of up to 200% of the unpaid wages can be charged, subject to a maximum penalty of £20,000 for each employee. However, the penalty will be cut in half if the unpaid wages and penalty are paid within 14 days.

Non-compliant employers will also be named and shamed, even where minimum wage underpayment is not intentional.

It is worth taking advice if an employer has any uncertainty over their wage position. A business can check if it is paying the correct amounts of National Living Wage and National Minimum Wage using HMRC’s calculator here.

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HMRC offers options on undeclared wealth

Written by Femi Ogunshakin on 24 July 2023. Posted in Income Tax, Litigation & Dispute Resolution, Wealth. No Comments on HMRC offers options on undeclared wealth

HMRC is offering taxpayers named in the leaked Pandora Papers a chance to correct their tax affairs. The October 2021 leak involved almost 12 million documents revealing hidden wealth and tax avoidance.

The papers revealed that many taxpayers had used shell companies to hold luxury items such as property and yachts.

HMRC has reviewed the papers and found UK residents who they believe have untaxed offshore assets. They are now warning those taxpayers that they might face penalties of up to 200% on the tax due, and there is also the possibility of prosecution.

Disclosure

There are two alternatives for taxpayers who wish to disclose tax due on undeclared overseas income or gains:

The Worldwide Disclosure Facility: This can be used by anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue. With this alternative, there is no protection from prosecution if, for example, there has been tax evasion.
The Contractual Disclosure Facility: This can only be used to admit to tax fraud, and not other types of disclosure. HMRC will agree not to criminally investigate, so this is the best option where there is dishonesty or fraud.

Voluntary disclosure may help mitigate penalties due, and also provide some measure of control over the process.

Receipt of a letter

Anyone who receives a letter from HMRC should review their tax position, and, if disclosure is required, take immediate steps to correct the situation. Given the complexity of overseas tax matters, professional advice is recommended.

The Pandora Papers is the third major leak of financial information, and with HMRC having 12 years to investigate offshore non-compliance, it should serve as a timely reminder to taxpayers who fail to declare and pay tax on overseas income and gains and think that HMRC will never find out.

HMRC’s press release on giving offshore taxpayers a chance to come clean, along with links to disclosure options, can be found here.

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Let’s talk about the National insurance gap extension

Written by Femi Ogunshakin on 24 July 2023. Posted in Pensioners, Pensions, Wealth. No Comments on Let’s talk about the National insurance gap extension

The normal time limit for a person to fill gaps in their national insurance (NI) record is six years, but transitional arrangements allow gaps to be filled back to 2006/07. The deadline for making such contributions was recently extended to 31 July 2023, but has now been extended to 5 April 2025.

The deadline has been delayed because people have been finding it difficult to get through on pension helplines once the July deadline received a publicity boost. The transitional arrangement will now apply for the years 2006/07 to 2017/18.

Voluntary NI contributions for the years 2006/07 to 2017/18 paid by 5 April 2025 will be at the 2022/23 rate of £15.85 a week, even though the rate is currently £17.45.

Contribution record

The first step is for a person to check their state pension forecast and NI record. This can easily be done online.

Voluntary contributions will not always increase the amount of state pension. The decision can be especially complex if contracted out of the state pension prior to 2016.
A person in very poor health or with a short life expectancy will probably not benefit from voluntary contributions.

Personalised advice can be obtained by contacting the Future Pension Centre (if not yet at state pension age) or the Pension Service (if already receiving the state pension).

The benefit

A person needs 35 qualifying years on their NI record to qualify for the full state pension, which is currently £10,600 a year. To add a full year the cost is £824, but this will boost annual pension entitlement by some £303 – a very respectable return for someone who then enjoys at least five years of retirement.

The return will be even better if partially complete years can be filled since these might only require a few missing weeks – at £15.85 per week – to be paid.

A state pension forecast can be obtained here.

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Action to counter increase in UK wide fraudulent activity

Written by Femi Ogunshakin on 7 July 2023. Posted in Insights. No Comments on Action to counter increase in UK wide fraudulent activity

The government has announced a new initiative to counter fraudulent activity, particularly in the financial sector.

You might not be surprised to learn that fraud is now the most common crime in England and Wales, although you may not be aware that it accounts for more than 40% of all crime. The growth in fraud has so far not been accompanied by a corresponding increase in prevention measures. At present, less than 1% of police resource is directed towards dealing with fraud.

In May, the Home Secretary announced a new fraud strategy – Stopping Scams and Protecting the Public. The Home Office’s plans include:

Stopping abuse of the telecom networks: Many scams start with unsolicited calls and text messages. The government says it will be “making it harder” for criminals to spoof phone numbers, which make their calls appear to be coming from your bank or another trusted source. Under the same heading, the government has launched a consultation on banning SIM farms, devices that can send thousands of fraudulent texts in a matter of seconds.

A ban on cold calling on investment products: Currently, there is a ban on cold calls from personal injury firms and pension providers (unless the consumer has explicitly agreed to be contacted). The government plans to extend this ban to all investment products, with an initial consultation on the mechanics “by summer”. The logic behind this move is that the ban will mean that anyone receiving such a call will know it is unauthorised – assuming they are aware of the law.

More protection for fraud victims: If you are a victim of unauthorised fraud (such as bank card theft), you are entitled by law to be reimbursed by your bank within 48 hours. However, if you fall foul of authorised fraud – for example, by being tricked into transferring money – you are currently not eligible for the same level of protection. The Financial Services and Markets Bill, currently on its way through parliament, will remove this distinction.

These and the many other proposals will inevitably take time to reach the statute book and, as now, will encounter the problem of offshore and ever more creative fraudsters. In the meantime, there is one sound piece of advice – if you receive an unsolicited call from your bank, the police or anyone else, tell them you will call them back on the number you have (e.g. on your bank card). A scammer will do everything to prevent that happening, but a genuine caller will have no such issue.

Find out more about the latest fraud strategy here.

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Tax and your home solar panel system

Written by Femi Ogunshakin on 1 July 2023. Posted in Income Tax, Self Assessment, Tax. No Comments on Tax and your home solar panel system

With continuing high electricity prices, now could be a very good time to install solar panels at your property. Unless a solar battery is part of the system, it makes sense to sell excess electricity back to the national grid. Normally such sales are free from tax, but there is an exception you should be aware of.

Exemption rules

The sale of excess electricity – from what is known as microgeneration system – is exempt provided the intention is to match the individual’s own home consumption needs.

The system must be installed at or near an individual’s home, e.g. rooftop solar panels; and
The amount of electricity generated by the system should not significantly exceed domestic needs – HMRC allow a 20% margin here, so the system can generate 120% of domestic needs before sales to the grid become taxable.

Even if electricity sales to the grid are taxable, they might still be covered by the £1,000 trading allowance. If income exceeds the allowance, a £1,000 deduction can be claimed.

Unless a solar battery is used, around half of the electricity generated may end up being sold back to the grid. Install too large a system and these sales will be taxable. This will extend the typical eight-to-ten-year payback period for solar panels, especially if higher rates of tax are involved.

Smart export guarantee

Larger energy suppliers have to pay for excess electricity that is exported to the national grid under the smart export guarantee (SEG) scheme. Any energy company can be chosen, but care should be taken as rates vary significantly – from 1p/per kWh up to a potential 15p/per kWh. Even higher rates might be available if a variable tariff is chosen.

The best SEG rates are normally only available when the same energy supplier is used to supply electricity.

Details of the best SEG available rates can be found here .

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Increase in number of estates paying IHT

Written by Femi Ogunshakin on 27 June 2023. Posted in Inheritance Tax, Lasting Will & Testaments, Wealth. No Comments on Increase in number of estates paying IHT

The combination of a frozen inheritance tax (IHT) nil rate band and considerably higher property values has pushed more estates into the IHT net. The average IHT bill is now nearly £62,000, with much larger amounts payable if an estate includes a property in London or the South East.

Increase in property values

Even though property prices have fallen recently, the average price of a detached house went up by more than £20,000 to nearly £454,000 during the year to March 2023. The average price for London property is not far off £525,000.

Since the nil rate band was frozen back in 2009, the average UK property has risen in value by 86%.
The FTSE All Share index shows an even better return, having gone up by just under 245%. An investment of £50,000 in March 2009 would have been worth over £170,000 by March 2023.

With cash savings also added in, a typical estate is now valued at just under £480,000. If the residence nil rate band is not available, the IHT liability on such an estate is £62,000. However, if the nil rate band had been uprated with inflation, no IHT would have been payable on such an estate.

Mitigating IHT liability

Mitigating a future IHT liability requires a shift from being a saver to a spender. This might mean putting assets into trust or making pension contributions – financial advice being essential here.

Making lifetime gifts will obviously reduce the value of an estate. Options could include regular monthly saving into junior ISAs for grandchildren (with such gifts normally completely free of IHT) or helping a child with their first home by paying the deposit (such a large gift will exceed the available exemptions but will fall out of IHT after seven years).

Even if you decide to just spend on yourself, leasing a new car or taking extended holidays abroad looks much more affordable if you factor in the future 40% IHT reduction.

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

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Self-assessment threshold rises from 2023/24

Written by Femi Ogunshakin on 19 June 2023. Posted in PAYE, Self Assessment, Self-Employed, Tax. No Comments on Self-assessment threshold rises from 2023/24

There is a long list of reasons why it is necessary to complete a self-assessment tax return, but PAYE taxpayers are generally exempt from the requirement. Previously, exemption was subject to a £100,000 income ceiling, but the threshold has been increased to £150,000 for the current tax year onwards.

The £150,000 threshold applies to total income – not just gross salary – and also any taxable benefits and income from savings and investments.

Other reasons to file a return

There are a number of other reasons why an employee with income below £150,000 will still be required to complete a tax return. For example, where the taxpayer also has:

Income from property rental;
More than £10,000 in either dividend income or savings income;
Income from a trust;
To pay capital gains tax (more likely now with the exempt amount reduced from £12,300 to £6,000);
Income from self-employment or partnership income; or
To pay the High Income Child Benefit Charge.

When a return is not required

Employed taxpayers with income between £100,000 and £150,000 for 2022/23 – and with no other reason for completing a return – should receive a self-assessment exit letter from HMRC confirming that they do not need to complete a return for 2023/24.

In other situations, it will be necessary for taxpayers to contact HMRC and inform them why a return is no longer necessary.

Taxpayers can ask for a return to be withdrawn even after HMRC has charged late filing penalties. Subject to HMRC agreement, the penalties will then be waived.

Even if a tax return is not strictly required, there are some situations where a taxpayer might want to complete a return anyway. The main reason will normally be to claim a relief, such as pension contributions or donations to charity.

If a tax return is not submitted, it will be more important than ever to check your tax code, which will typically be used to collect tax on taxable benefits and savings income.

To check if a self-assessment tax return is required, use HMRC’s online tool found here.

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The Ofgem price cap returns

Written by Femi Ogunshakin on 13 June 2023. Posted in Budget, Business Rates, Self-Employed. No Comments on The Ofgem price cap returns

From 1 July, the energy price cap set by energy regulator, Ofgem, will fall from £3,280 to £2,074. Prices are currently capped at £2,500, but this further reduction will help home-based employees and any small business owners who work out of residential accommodation.

In October last year, the government introduced a temporary energy price guarantee that has limited the annual gas and electricity costs for a typical household. This cap was set to increase from £2,500 to £3,000 this July, however, the lower energy price cap of £2,074 will now apply instead.

Impact of the cap

The energy price cap is set quarterly, so the limit of £2,074 will apply from 1 July to 30 September 2023.

Customers on standard variable tariffs with typical consumption will see their bills fall in line with the cut in prices.
However, annual bills are not capped as such. Households with higher energy use will pay more than the cap, with lower energy users paying less.

The £3,000 energy price guarantee will remain in place as a safety net until 31 March 2024 just in case energy prices increase above this level.

Even with the price reduction from 1 July, energy prices will still be almost double what they were before costs started to soar.

Fixed energy deals

There are virtually no fixed energy deals currently available, although they might return now that prices have started to fall.

The energy price cap is forecast to remain around £2,000 until March 2024, so any fixed rate deal must be compared to this rate. A fixed rate deal will provide certainty, but the downside is being locked in for a fixed term should prices fall. An exit fee – which can be quite substantial – is normally charged to end a fixed deal early.

A government briefing of the energy price guarantee and how it operates alongside the energy price cap can be found here.

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Government’s tax take on growth trajectory

Written by Femi Ogunshakin on 12 June 2023. Posted in Corporation Tax, Tax, VAT. No Comments on Government’s tax take on growth trajectory

Analysis of the projected outcomes of the government’s tax policies show an expected increase to the number of higher rate personal taxpayers, with the corporate tax yield expected to grow substantially.

Income tax

The default policy for income tax has generally been to increase thresholds in line with inflation. This is currently not happening, in particular for the personal allowance and the basic rate band, which are frozen at 2021/22 levels until 2027/28. The latest costing of these two threshold measures will mean:

Additional tax receipts of £13.1 billion for 2023/24, with over £20 billion in additional receipts for each of the four following years.
Some 2.2 million taxpayers having to pay tax for 2023/24 who would not otherwise have had to do so, with an extra 1.3 million having to pay higher rate tax.

The exception to the frozen rule is the additional rate threshold, which was cut from 2023/24, pushing more taxpayers into that higher bracket. Not surprisingly, income tax now accounts for 28% of the government’s tax take, up 2% from a few years ago.

VAT registration

The VAT registration threshold has stayed at £85,000 since April 2017, so it should come as no surprise that there are now around 300,000 registrations annually, although a disproportionate number of traders are avoiding registration by keeping turnover just below £85,000.

Corporation tax

The government’s yield from corporation tax was just over 8% in 2021/22, but the new main rate of 25% means this is expected to increase to about 10%. In actual figures, this is an increase from £68 billion to £112 billion.

Although there are around 1.5 million SMEs, they only contribute 45% of the total collected corporation tax. The other 55% comes from 18,000 large companies.

By 2027/28, the tax burden is forecast to reach a post-war high of 37.7% of GDP, with the highest ratio of corporation tax receipts to GDP since this tax was introduced nearly 60 years ago. Keeping on top of tax planning and how businesses and individuals can minimise their tax burden is more important than ever.

The Office for Budget Responsibility’s detailed economic and fiscal outlook can be found here.

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