Digitisation of tax postponed

Posted on 20th December 2022 by Solutions Accountancy

A statement was made by the Financial Secretary to the Treasury on 19 December 2022. It confirmed that the roll-out of Making Tax Digital for Income Tax, due to commence April 2024, is being delayed. The statement says:

Across the globe, digitalisation of tax is increasingly the norm. Modernisation of UK businesses and the tax system remains of crucial importance to the UK.

Making Tax Digital (MTD) for VAT is already demonstrating the benefits to businesses that digital ways of working can bring.

MTD for Income Tax Self-Assessment (ITSA) will follow, with businesses, self-employed individuals, and landlords keeping digital records and using MTD-compatible software to submit updates to HM Revenue and Customs.

The government understands businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition to MTD for ITSA represents a significant change for taxpayers, their agents, and for HMRC.

That means it is right to take the time needed to work together to maximise those benefits of MTD for small business by implementing gradually.

The government is therefore announcing more time to prepare, so that all businesses, self-employed individuals, and landlords within scope of MTD for Income Tax, but particularly those with the smallest incomes, can adapt to the new ways of working.

The mandation of MTD for ITSA will now be introduced from April 2026, with businesses, self-employed individuals, and landlords with income over £50,000 mandated to join first.

Those with income over £30,000 will be mandated from April 2027.

The government will now review the needs of smaller businesses, and particularly those under the £30,000 threshold. This will look in detail at whether and how the MTD for ITSA service can be shaped to meet the needs of smaller businesses and the best way for them to fulfil their Income Tax obligations. Once that review is complete – and in consultation with businesses, taxpayers, agents, and others – the government will lay out the plans for any further mandation of MTD for ITSA.

Following the phased approach, the government will not extend MTD for ITSA to general partnerships in 2025. It remains committed to introducing MTD for ITSA to partnerships at a later date.

The new penalty system, harmonising late submission and late payment penalties for Income Tax Self-Assessment with those for VAT, will come into effect for taxpayers when they become mandated to join MTD. This makes penalties fairer and simpler for taxpayers. The government will introduce the new penalty system for Income Tax Self-Assessment taxpayers outside the scope of MTD after its introduction for MTD taxpayers.

The government anticipates that most taxpayers within the scope of MTD for ITSA will be able to sign-up voluntarily before they are mandated to do so. HMRC will keep this under review to ensure all taxpayers using the MTD for ITSA service receive a high-quality service.

Using the HMRC app to make Self-Assessment tax payments

Posted on 15th December 2022 by Solutions Accountancy

A new press release from HMRC has revealed that more than 50,000 taxpayers have used the HMRC app to make Self-Assessment tax payments since February 2022. Payments can be made safely and securely through the app. In October alone, more than 6,700 Self-Assessment taxpayers paid almost £5.9 million in tax via the HMRC app, compared to around 2,500 customers in February 2022, who paid £1.8 million.

Commenting on the payments, HMRC’s Director General for Customer Services, said:

'We’re seeing more and more people embrace the convenience and flexibility the HMRC app offers. Self-Assessment customers can pay the tax owed through the HMRC app, which is a secure and convenient tool that can be used at a time and place to suit them.'

The free HMRC tax app is available to download from the App Store for iOS and from the Google Play Store for Android.

The app can also be used to complete a number of other tasks that include:

to renew and report changes to your tax credits;
access your Help to Save account;
using HMRC’s tax calculator to work out your take home pay after Income Tax and National Insurance deductions;
track forms and letters you’ve sent to us;
claim a refund if you’ve paid too much tax; and
update your postal address.

Mortgage payment support

Posted on 15th December 2022 by Solutions Accountancy

The Chancellor, Jeremy Hunt, recently hosted a meeting at 11 Downing Street to discuss what help may be available to support homeowners who encounter problems paying their mortgage. The meeting was attended by leaders of the UK’s major mortgage lenders, the Chair of the Financial Conduct Authority (FCA), and Martin Lewis of Money Saving Expert. The meeting was convened in light of the increase in interest rates over the last year coupled with rising inflation.

At the meeting, mortgage lenders committed to help all their customers by:

enabling customers who are up to date with payments to switch to a new competitive, mortgage deal without another affordability test;
providing well-timed information to help customers plan ahead should their current rate be due to end;
offering tailored support to those who start to struggle with payments, which may vary by lender, but may include extending the term of the mortgage to make monthly payments lower, a short-term reduction in monthly payments or accepting interest-only payments for a period where appropriate; and
ensuring highly trained and experienced staff are on hand to help where needed.

The government also confirmed that they would take action to make Support for Mortgage Interest easier to access and increased funding for the Money and Pensions Service to provide debt advice in England.

The FCA in turn published a consultation on draft guidance clarifying how lenders can support borrowers impacted by the rising cost of living and will also publish more information for borrowers struggling to make their monthly mortgage payment.

Collecting tax from wealthy taxpayers

Posted on 15th December 2022 by Solutions Accountancy

An updated briefing which looks at how HMRC deals with wealthy individuals has been published. The briefing looks at helping wealthy individuals to comply with their tax obligations and also what happens to those who don’t play by the rules. According to HMRC, the High-Risk Wealth Programme (HRWP) aims to accelerate the resolution of some of the most complex and high-risk cases within the wealthy customer group.

HMRC defines individuals as ‘wealthy’ if they have incomes of £200,000 or more, or assets equal to or above £2 million in any of the last 3 years. According to HMRC, there are approximately 800,000 wealthy taxpayers. HMRC uses details from tax returns and other public information databases to identify links between people, organisations, assets and income.

Wealthy customers are managed by the Wealthy Team within HMRC’s Customer Compliance Group. The team applies a proactive and co-operative approach, taking into account the unique nature of this customer group’s tax affairs.

According to HMRC, wealthy individuals may present a higher risk of error than other customers as the amounts involved are greater also because they may have investments in more than one country, making their financial affairs more complex.

The Wealthy Team also works with colleagues across HMRC, including Fraud Investigation Service and Counter-Avoidance, handling marketed avoidance schemes and offshore disclosure. This means that HMRC can see a taxpayer's past history including involvement in a tax planning scheme or the use of offshore bank accounts and use this information to help identify taxpayers for further investigation.

Post-cessation receipts and expenses

Posted on 15th December 2022 by Solutions Accountancy

Tax relief may be available for post-cessation expenses of a trade. In order to be an allowable post-cessation expense, the trade must have ceased, and the expense must have been deductible in calculating the trading profits.

This means that the expense still has to meet the wholly and exclusively test and be revenue, not capital, expenditure. The expenditure can be apportioned if necessary. The way in which post-cessation expenses can be relieved depends on the person incurring the expenditure and the type of expenditure incurred.

The following are examples of expenses that would likely be categorised as post-cessation expenses:

remedying defective work done, goods supplied, or services rendered while the business was continuing or as damages in respect of such defective work, goods or services whether awarded by a Court or agreed during negotiations on a claim;
paying legal or other professional expenses incurred in connection with the costs above;
insuring against liabilities arising out of any such claim or against the incurring of such expenses; and
collecting, or seeking to collect, debts which were considered in computing the profits of the trade before discontinuance.

An expense specifically relating to the cessation itself is not an allowable expense.

The Rent a Room Scheme

Posted on 15th December 2022 by Solutions Accountancy

The rent-a-room scheme is designed to help homeowners who rent-a-room in their home. If you are using this scheme, you should ensure that rents received from lodgers during the current tax year do not exceed £7,500. The tax exemption is automatic and if you earn less than £7,500 there are no specific tax reporting requirements. If required, homeowners can opt out of the scheme and record property income and expenses as usual.

The relief only applies to the letting of furnished accommodation and is available when a bedroom is rented out to a lodger by homeowners. The relief also simplifies the tax and administrative burden for those with rent-a-room income of up to £7,500. The limit is reduced by half if the income from letting accommodation in the same property is shared by a joint owner of the property.

The rent-a-room limit includes any amounts received for meals, goods and services provided, such as cleaning or laundry. If gross receipts are more than the limit, taxpayers can choose between paying tax on the actual profit (gross rents minus actual expenses and capital allowances) or the gross receipts (and any balancing charges) minus the allowance – with no deduction for expenses or capital allowances.

Tax on property you inherit

Posted on 15th December 2022 by Solutions Accountancy

If you inherit property, you are usually not liable to pay tax on the inheritance. This is because any Inheritance Tax (IHT) due should be paid out of the deceased’s estate before any cash or assets are distributed.

The rate of IHT currently payable is 40% on death and 20% on lifetime gifts. IHT is payable at a reduced rate on some assets if 10% or more of the 'net value' of the estate is left to charities.

If you inherit a property, you are not immediately liable for Stamp Duty, Income Tax or Capital Gains Tax. HMRC would contact you if any IHT was payable.

If you receive an inheritance, you will be liable to Income Tax on any profit earned after the inheritance, for example, Capital Gains Tax (CGT) on the increase in property value after the date of inheritance or tax on rental income. If inheriting a property means you own two properties, you must tell HMRC which property is your main home within two years. There are special rules if the property is held in trust.

Companies with 31 December year-end date

Posted on 12th December 2022 by Solutions Accountancy

Have you considered any last-minute planning options if your company has a 31 December 2022 year-end date?

It is not too late to consider your options. For example:

Expenditure on qualifying plant or other equipment may qualify for the super-deduction capital allowance. This would allow you to write off 130% of cost against your profits for 2022 if the purchase was completed before 31 December 2022.
Which is the best option, to take 2022 bonuses before or after 31 December 2022?
If you are expecting profits to reduce in the first quarter of 2023, perhaps making a loss in this period, would it reduce your corporation tax bill if you extended your accounting date to 31 March 2023, and use the first quarter losses earlier?
Have you prepared a budget for 2023?
Have you updated any business exit plans?

These options are the tip of the planning iceberg. Please call so we can decide if there are any options available before the 31 December deadline.

2023 is likely to be a challenging year with a projected recession, continuing high inflation and upward pressure on interest rates.

Make sure you don’t miss out. Take time out to consider your options now.

Don’t forget those trivial benefits

Posted on 8th December 2022 by Solutions Accountancy

Don’t forget to take advantage of tax-free trivial benefits before Christmas. If you are an employer and looking to give your employees a small token of appreciation for Christmas, then your best option is probably to give them a gift. In order to ensure that this is not a taxable gift, it is important to ensure that the trivial benefits in kind (BiK) rules apply.

There is no tax to pay on trivial benefits in kind (BiK) provided to employees where all of the following apply:

the benefit is not cash or a cash-voucher; and
costs £50 or less; and
is not provided as part of a salary sacrifice or other contractual arrangement; and
is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

So, for example a turkey that cost £45 would qualify as would a £15 bottle of wine. It is also possible to provide employees with a gift voucher (not a cash-voucher) where the value is £50 or less. It is important to remember that the gifts must not be provided in recognition of the employees’ services but merely as a gesture of goodwill at Christmas.

There is an annual cap for directors of a ‘close’ company of £300 per year. If the Christmas gifts have a value of over £50 or cannot be counted as a trivial benefit, then the gift must be reported on form P11D and Class 1A NICs will be payable on the value of the gift.

Super-deductions finish March 2023

Posted on 8th December 2022 by Solutions Accountancy

Time is running out to claim the super-deduction offering 130% first-year tax relief. The deduction is available to companies until March 2023. The super-deduction was designed to help incorporated businesses finance expansion after the coronavirus pandemic and to help drive growth.

The super-deduction tax break was introduced on 1 April 2021 and allows businesses to deduct 130% of the cost of any qualifying investment on most new plant and equipment investments that would ordinarily qualify for 18% main rate writing down allowances. This means that for every £1 businesses invest, they can reduce their tax bill by up to 25p. The temporary tax relief applies on qualifying capital asset investments until 31 March 2023.

In addition, an enhanced first year allowance of 50% on qualifying special rate assets also applies expenditure within the same period. This includes most new plant and machinery investments that would ordinarily qualify for 6% special rate writing down allowances.

The super-deduction can only be claimed by companies. This means that self-employed traders are unable to benefit. However, they could benefit from the Annual Investment Allowance (AIA) for investments of up to £1 million. The AIA allows for a 100% tax deduction on qualifying expenditure on plant and machinery. The temporary limit of £1 million will also remain in place until 31 March 2023 before reverting to the usual £200,000 limit.