Tax credits renewal deadline reminder

Posted on 6th July 2023 by Solutions Accountancy

The 31 July 2023 is the final day for families and individuals that receive tax credits to tell HMRC about any changes in their circumstances or income and to renew their tax credit application. As in previous years, there is likely to be a last-minute rush and it may be difficult to contact HMRC by phone. Renewing a claim online (either on the HMRC APP or GOV.UK) is the preferred method. It is also possible to renew by post or phone. There are still some 300,000 claims that need to be renewed.

Once the deadline has expired, anyone who has not yet renewed their tax credits should still ensure they do so as soon as possible as otherwise their payments may be stopped, and monies received since last April may have to be repaid. We would strongly advise any of our readers who have not yet renewed their tax credits application to do so as a matter of urgency.

Over 1.5 million renewal packs were sent out by HMRC between early May and mid-June. A renewal is required if the pack has a red line across the first page and it says, 'reply now'. If the pack has a black line and says, ‘check now’, recipients will need to check the details are correct. If the details are correct the tax credit awards will be renewed automatically, and no further action is required.

Taxpayers should notify HMRC where there have been changes to the living arrangements, childcare costs, number of hours worked and salary (increase or decrease). Details of previous year's income also need to be completed on the form to allow HMRC to check if the correct tax credits have been paid.

Universal Credit is expected to replace tax credits and other legacy benefits (including Income-Related Employment and Support Allowance, Income-Based Jobseeker’s Allowance) by the end of 2024.

Advising HMRC about changes in your income

Posted on 6th July 2023 by Solutions Accountancy

There are a number of reasons why you might need to contact HMRC about changes in your income.

HMRC’s guidance states that this could happen because you:

did not realise you needed to tell HMRC about it;
were not sure how to declare it; or
did not declare it because you could not pay the tax.

For example, reasons you may need to contact HMRC are if you are self-employed, a company director, have annual income over £100,000 and / or have undeclared income from savings, investment, property or overseas income. The £100,000 threshold for the Self-Assessment threshold for taxpayers taxed through PAYE only, has increased from £100,000 to £150,000 with effect from 6 April 2023. However, the Self-Assessment for 2022-23 tax returns remains at £100,000. 

Taxpayers that need to complete a Self-Assessment return for the first time should inform HMRC as soon as possible. The latest date that HMRC should be notified is by 5 October following the end of the tax year for which a Self-Assessment return needs to be filed. If you are required to submit a Self-Assessment return for 2022-23, you should ensure that you file your tax return electronically and pay any tax due by 31 January 2024.

HMRC has an online tool www.gov.uk/check-if-you-need-tax-return/ that can help you check if you are required to submit a Self-Assessment return.

There are two small exemptions from tax that may apply:

If you make up to £1,000 from self-employment, casual services (such as babysitting or gardening) or hiring personal equipment (such as power tools). This is known as the trading allowance.
If your annual gross property income is £1,000 or less, from one or more property businesses you will not have to tell HMRC or declare this income on a tax return. For example, from renting a driveway. This is known as the property allowance.

Where each respective allowance covers all the relevant income (before expenses) the income is tax-free and does not have to be declared.

If you have undeclared income, it is always preferable to contact HMRC as soon as possible. We would be happy to assist.

Filling gaps in your NIC record

Posted on 6th July 2023 by Solutions Accountancy

National Insurance credits can help qualifying applicants fill gaps in their National Insurance record. This can assist taxpayers in building up the number of qualifying years of National Insurance contributions and which can also increase the amount of benefits a person is entitled to, such as the State Pension.

This could happen if someone was:

employed but had low earnings;
unemployed and were not claiming benefits;
self-employed but did not pay contributions because of small profits; or
living or working outside the UK.

National Insurance credits are available in certain situations where people are not working and therefore not paying National Insurance credits. For example, credits may be available to those looking for work, who are ill, disabled or on sick pay, on maternity or paternity leave, caring for someone or on jury service.

Depending on the circumstances, National Insurance credits may be applied automatically or an application for credits may be required. There are two types of National Insurance credits available, either Class 1 or Class 3. Class 3 credits count towards the State Pension and certain bereavement benefits whilst Class 1 covers these as well as other benefits such as Jobseeker’s Allowance.

Taxpayers may be able to pay voluntary contributions to fill any gaps if they are eligible.

Tax relief for charitable donations

Posted on 6th July 2023 by Solutions Accountancy

The Gift Aid scheme is available to all UK taxpayers. The charity or Community Amateur Sports Clubs (CASC) concerned can take a taxpayer’s donation and, provided all the qualifying conditions are met, can reclaim the basic rate tax which provides an extra 25p for every pound donated to charity.

Higher rate and additional rate taxpayers are eligible to claim tax relief on the difference between the basic rate and their highest rate of tax. This can be actioned through their Self-Assessment tax return or by asking HMRC to amend their tax code.

For example:

If a taxpayer donates £500 to charity, the total value of the donation to the charity is £625. The taxpayer can claim additional tax back of:

£125 if they pay tax at 40% (£625 × 20%),
£156.25 if they pay tax at 45% (£625 × 20%) plus (£625 × 5%).

Taxpayers should be aware that one of the conditions of qualifying for tax relief is that you must have paid enough tax (or any tax) in the relevant tax year. The rules state that your donations will qualify for tax relief as long as you have not claimed more than 4 times what you have paid in tax in that tax year. If you have claimed more tax relief than you are entitled to you will need to notify the charity and pay back any excess tax relief to HMRC.

Taxpayers can also give money to charity from their wages using the payroll giving scheme. The scheme allows taxpayers to make a tax free donation to charity directly from their pay or pension if their employer runs a payroll giving scheme, approved by HMRC.

At Spring Budget 2023, the government announced that with effect from 15 March 2023, tax reliefs and exemptions for charities will be restricted to UK charities. Any non-UK charities that were registered with HMRC for tax reliefs and exemptions as of 15 March 2023, can continue to claim tax relief until 5 April 2024. This means that from April 2024, taxpayers will no longer be eligible to claim UK tax relief on donations to these non-UK charities and the charities themselves will be unable to claim Gift Aid.

Working out capital gains

Posted on 6th July 2023 by Solutions Accountancy

As with the Income Tax personal allowances, taxpayers have an annual exempt amount for Capital Gains Tax (CGT) which is forfeited if not used. The annual exemption for individuals in 2023-24 was reduced to £6,000 (from £12,300) and is set to be further halved to £3,000 from April 2024. A married couple each have a separate exemption. This also applies to civil partners who are treated in the same way as married couples for CGT purposes.

To work out capital gains for a tax year, you should take the following steps:

Work out the gain for each asset (or your share of an asset if it’s jointly owned). Do this for the personal possessions, shares or investments, UK property or business assets you have disposed of in the tax year.
Add together the gains from each asset.
Deduct any allowable losses.

If the total gains are less than the relevant annual exempt amount, then no CGT is due. Taxpayers still need to report gains in their tax return if both of the following apply. The total amount they sold the assets for was more than 4 times their allowance and they are registered for Self-Assessment.

Married couples and civil partners should ensure that assets sold at a gain are either jointly owned or that each partner utilises their annual exempt amount wherever possible. Any unused part of the annual exempt amount cannot be carried forward and is forfeited if unused in the current tax year.

CGT is usually charged at a simple flat rate of 20%. If you only pay basic rate tax and make a small capital gain, they may be subject to a reduced rate of CGT of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT. A higher rate of CGT (8% supplement) applies to gains on the disposal of chargeable residential property.

If you have sold or are planning to sell any assets in the current tax year it is important to ensure that you take full advantage of the annual CGT exemption and arrange your affairs to ensure the optimum CGT position. For example, capital losses are deducted from gains before net gains are calculated. Crystallising a loss that will waste the annual exemption should therefore be avoided.

Changes to Scottish Bankruptcy law

Posted on 6th July 2023 by Solutions Accountancy

The bankruptcy process applies to individuals living in England, Wales or Northern Ireland. There is a separate bankruptcy process sometimes known as sequestration in Scotland. Bankruptcy is a form of insolvency and is normally suitable for those who are unable to pay back their debts in a reasonable time. Most applications for bankruptcy are made by the individuals in debt, but it is also possible for a person to be made bankrupt.

A new Scottish Bill is currently making its way through the Scottish Parliament and will make the following changes to the Scottish bankruptcy laws:

Give powers to the Scottish Ministers to establish a pause on debt recovery action against people who are in debt and who also have a mental illness.
Make technical changes to the law on bankruptcy.
Update the law on diligence. Diligence is the legal processes that creditors can take to enforce repayment of overdue debts.

These changes are part of a wide-ranging policy review of Scotland’s statutory debt solutions, specifically moratorium protection, bankruptcy, Protected Trust Deeds (PTDs) and the Debt Arrangement Scheme that was launched back in 2019. Part of the work was delayed as a result of the Coronavirus pandemic. The Bill aims to help and improve the lives of people who are struggling with problem debt and serious mental health issues.

How copyright protects your work

Posted on 6th July 2023 by Solutions Accountancy

You get copyright protection automatically – you don’t have to apply or pay a fee. There isn’t a register of copyright works in the UK.

You automatically get copyright protection when you create:

original literary, dramatic, musical and artistic work, including illustration and photography
original non-literary written work, such as software, web content and databases
sound and music recordings
film and television recordings
broadcasts
the layout of published editions of written, dramatic and musical works

You can mark your work with the copyright symbol (©), your name and the year of creation. Whether you mark the work or not doesn’t affect the level of protection you have.

copying your work
distributing copies of it, whether free of charge or for sale
renting or lending copies of your work
performing, showing or playing your work in public
making an adaptation of your work
putting it on the internet

HMRC increases interest rates

Posted on 29th June 2023 by Solutions Accountancy

The Bank of England’s Monetary Policy Committee (MPC) met on 21 June 2023 and voted 7-2 in favour of raising interest rates by 50 basis points to 5% to continue to tackle inflation. The 2 remaining members voted to keep the rate at 4.5%. This is the thirteenth consecutive time that the MPC has increased interest rates with rates now the highest they have been since 2008.

This means that the late payment interest rate applied to the main taxes and duties that HMRC charges interest on increases by 0.5% to 7.5%.

These changes will come into effect on:

3 July 2023 for quarterly instalment payments
11 July 2023 for non-quarterly instalments payments

The repayment interest rates applied to the main taxes and duties that HMRC pays interest on will increase by 0.5% to 4% from 30 June 2023. The repayment rate is set at the Bank Rate minus 1%, with a 0.5% lower limit.

National Insurance credits

Posted on 29th June 2023 by Solutions Accountancy

National Insurance credits can help qualifying applicants fill gaps in their National Insurance record. This can assist taxpayers to build up the number of qualifying years of National Insurance contributions which can increase the amount of benefits a person is entitled to, such as the State Pension.

National Insurance credits are available in certain situations where people are not working and, therefore, not paying National Insurance credit. For example, credits may be available to those looking for work, who are ill, disabled or on sick pay, on maternity, paternity or adoption leave, caring for someone or on jury service.

There are usually no National Insurance credits available to the self-employed that need to pay Class 2 National Insurance or for older married women who chose to pay a reduced rate of National Insurance (pre-April 1977).

Transfer of unused IHT nil rate band

Posted on 29th June 2023 by Solutions Accountancy

The Inheritance Tax residence nil rate band (RNRB) is a transferable allowance for married couples and civil partners (per person) when their main residence is passed down to a direct descendent such as children or grandchildren after their death.

The allowance increased to the present maximum level of £175,000 from 6 April 2020. The allowance is available to the deceased person’s children or grandchildren. Any unused portion of the RNRB can be transferred to a surviving spouse or partner. The RNRB is in addition to the existing £325,000 Inheritance Tax nil-rate band.

The allowance is available to the deceased person's children or grandchildren. Taken together with the current Inheritance Tax limit of £325,000 this means that married couples and civil partners can pass on property worth up to £1 million free of Inheritance Tax to their direct descendants.

The transfer does not happen automatically and must be claimed from HMRC when the second spouse or civil partner dies. This is usually done by the executor making a claim to transfer the unused RNRB from the estate of the spouse or civil partner that died first. This transfer can also happen even if the first spouse or civil partner died before the RNRB was introduced on 6 April 2017.

There is a tapering of the RNRB for estates worth more than £2 million even where the family home is left to direct descendants. The additional threshold will be reduced by £1 for every £2 that the estate is worth more than the £2 million taper threshold. This can result in the full amount of the RNRB being tapered away.

The RNRB maximum rate of £175,000 and the taper threshold are currently frozen until at least April 2026.