Claiming back pre-trading VAT costs

Posted on 8th December 2022 by Solutions Accountancy

There are special rules that determine the recoverability of pre-trading VAT costs. Pre-trading VAT costs describe VAT that was incurred before a business registered for VAT and is known as pre-registration input VAT.

There are different rules for the supply of goods and services, but VAT can only be reclaimed if the pre-registration expenses relate to the supply of taxable goods or services by the newly VAT registered business.

The time limit is backdated from the date of registration and is:

4 years for goods you still have or goods that were used to make other goods you still have; and
6 months for services.

The VAT should be reclaimed on the business's first VAT return. When a new VAT registration is applied for it may be possible to backdate the registration (known as the effective date of registration). This should be considered if there is additional input tax that will be made recoverable.

There are special rules for partially exempt businesses and for businesses that have non-business income and for the purchase of capital items within the Capital Goods Scheme (CGS).

What is a salary sacrifice?

Posted on 8th December 2022 by Solutions Accountancy

A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to pay, usually in return for a non-cash benefit. The tax and NIC advantages of certain benefits provided as part of a salary sacrifice arrangement were removed from 6 April 2017. The change removed the income tax and employer NIC advantages of certain benefits provided as part of salary sacrifice arrangements such as mobile phones and workplace parking. There was a transitional plan in place for certain benefits that ended on 6 April 2021.

The following benefits are currently not subject to Income Tax or National Insurance contributions and do not have to be reported to HMRC:

payments into pension schemes;
employer provided pensions advice;
workplace nurseries;
childcare vouchers and directly contracted employer provided childcare that started on or before 4 October 2018, and
bicycles and cycling safety equipment (including cycle to work).

If an employee wants to opt in or out of a salary sacrifice arrangement, the employer must alter their contract with each change. The employee’s contract must be clear on what their cash and non-cash entitlements are at any given time.

It may also be necessary to change the terms of a salary sacrifice arrangement where a lifestyle change significantly alters an employee’s financial circumstances. This may include marriage, divorce and a partner becoming redundant or pregnant. Salary sacrifice arrangements can allow opting in or out in the event of lifestyle changes like these.

25% Corporation Tax from April 2023

Posted on 8th December 2022 by Solutions Accountancy

The planned increases in Corporation Tax (CT) rates from April 2023 are now proceeding as originally announced.

The Corporation Tax main rate will increase to 25% from 1 April 2023 for companies with profits over £250,000. A Small Profits Rate (SPR) of 19% will also be introduced from the same date for companies with profits of up to £50,000 ensuring these companies pay Corporation Tax at the same rate as currently.

Where a company has profits between £50,000 and £250,000 a marginal rate of Corporation Tax will apply that bridges the gap between the lower and upper limits. The lower and upper limits will be proportionately reduced for short accounting periods of less than 12 months and where there are associated companies.

The effect of marginal relief is that the effective rate of Corporation Tax gradually increases from 19% where profits exceed £50,000 to 25% where profits are more than £250,000.

The amount of Corporation Tax to pay will be found by multiplying your profits by the main rate of 25% and deducting marginal relief. For the fiscal year 2023, the marginal relief fraction will be 3/200.

For some businesses, it may be prudent to reconsider associated company relationships before April 2023 to avoid partial loss of the lower 19% rate or marginal tapering relief.

What is a defined contribution pension?

Posted on 8th December 2022 by Solutions Accountancy

A defined contribution pension (sometimes referred to as a money purchase pension scheme) is a type of pension scheme where the pension pot is based on how much money is paid into the scheme. This is markedly different to a defined benefit pension schemes which usually relates to workplace pensions where the pension provider promises to give you a certain amount each year when you retire.

A defined contribution pension can be a company or private pension. The pension pot is based on monies added by you and / or your employer. This money is invested by the pension provider. The final return with these pensions is not guaranteed and the value of the pension pot can go up or down depending on how investments perform.

There are three main options available at retirement, lifetime annuity, flexi-access drawdown and a lump sum payment. These options can be used on their own or in combination. The first 25% drawdown is tax-free and the remainder is taxed at the individual’s marginal rate.

There are no overall limits to employer or employee contributions and no upper limit to the total amount of pension saving that can be built up. However, there are limits that affect tax relief on pension contributions including an annual and lifetime allowance.

Use HMRC’s tax app to save time

Posted on 1st December 2022 by Solutions Accountancy

A free HMRC tax app is available and offers some useful functionality. In fact, in the 12 months up to October 2022, HMRC received almost 3 million calls from people asking for information that is now readily available on the app.

This included:

354,499 calls from people who forgot/lost their National Insurance number;
444,301 calls from people who wanted their employment history and tax details; and
323,381 calls from people who wanted their tax codes.

The information can also be downloaded and printed – so there is no need to call HMRC to ask for it to be sent in the post.

The APP can be used to see:

your tax code and National Insurance number;
an estimate of the tax you need to pay;
your income and benefits;
how much you will receive in tax credits and when they will be paid;
your Unique Taxpayer Reference (UTR) for self-assessment; and
how much self-assessment tax you owe.

The app can also be used to complete a number of tasks that usually require the user to be logged on to a computer. This includes:

make a self-assessment payment;
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.

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

Low-cost broadband and phone tariffs

Posted on 1st December 2022 by Solutions Accountancy

The Department for Digital, Culture, Media & Sport (DCMS) has published a new press release to confirm that they have been working together with internet service providers to deliver low-cost broadband and phone packages called social tariffs.

These new social tariffs offer discounted broadband and mobile deals for people on Universal Credit and other benefits. The new tariffs are being offered by a range of suppliers and the deals currently range from £10 – £25 per month. This can offer savings of up to 50% compared to the average cost of similar broadband packages.

If you or someone in your household claims Universal Credit, you could switch to any of the tariffs available. Some providers also include people on other benefits such as Pension Credit, Employment and Support Allowance, Jobseeker’s Allowance, and Income Support. The person receiving the benefit will need to be the main person on the contract.

If your current provider offers a social tariff, you can switch at any time free of charge. If your provider does not offer one of these tariffs you can switch to one that does. Your provider might let you leave your current contract without paying a penalty fee if you explain the reasons for the change.

Filing abridged company accounts

Posted on 1st December 2022 by Solutions Accountancy

Companies that are dormant or qualify as a small company or ‘micro-entity’ can choose to send a simpler set of accounts known as abridged accounts to Companies House and do not need to be audited. These abridged accounts contain a simpler balance sheet and mean that less information about the company will be available in the public domain.

A company is usually classed as dormant by Companies House if it’s had no ‘significant’ transactions in the financial year to be reported.

A small company is defined as a business with two of the following:

a turnover of £10.2 million or less;
£5.1 million or less on its balance sheet;
50 employees or less.

A micro-entity is defined as a business with two of the following:

a turnover under £632,000;
£316,000 or less on its balance sheet;
10 employees or fewer.

If your company is a micro-entity, you can:

prepare simpler accounts that meet statutory minimum requirements;
send only your balance sheet with less information to Companies House; and
benefit from the same exemptions available to small companies.

Abridged accounts can only be sent with the agreement of all the company members.

Who is a Scottish taxpayer?

Posted on 1st December 2022 by Solutions Accountancy

The Scottish rate of income (SRIT) is payable on the non-savings and non-dividend income of those defined as Scottish taxpayers. This means that Scottish taxpayers who also have savings and dividend income need to consider the UK rates as well as the Scottish rates when calculating their income tax bill.

Scottish taxpayer status applies for a whole tax year. It is not possible to be a Scottish taxpayer for part of a tax year. The definition of a Scottish taxpayer is generally focused on the question of whether the taxpayer has a 'close connection' with Scotland or elsewhere in the UK. The idea of being treated as a Scottish taxpayer is not based on nationalist identity, location of work or the source of a person’s income e.g., receiving a salary from a Scottish business.

For the vast majority of individuals, the question of whether or not they are defined as a Scottish taxpayer is a simple one – they either live in Scotland and are a Scottish taxpayer or live elsewhere in the UK and are not a Scottish taxpayer.

More specifically, an individual will generally be defined a Scottish taxpayer if they satisfy any of the following tests:

They are a Scottish Parliamentarian.
They have a 'close connection' to Scotland, through either:
i) having only a single 'place of residence', which is in Scotland; or
ii) where they have more than one 'place of residence', having their 'main place of residence' in Scotland for at least as much of the tax year as it has been in any one other part of the UK.
Where no 'close connection' to Scotland (or any other part of the UK) exists (either through it not being possible to identify any place of residence or a main residence) – then place of residence will be decided by day counting.

There will always be cases where a taxpayer's status is not so clear cut. HMRC’s technical guidance looks at relevant case law and includes examples where a taxpayer has more than one residence either side of the border.

Self-assessment payments on account

Posted on 1st December 2022 by Solutions Accountancy

Self-assessment taxpayers are usually required to pay their income tax liabilities in three instalments each year. The first two payments are due on:

31 January during the tax year e.g. for 2022-23 the first payment on account is due on 31 January 2023.
31 July following the tax year e.g. for 2022-23 the second payment on account is due on 31 July 2023.

These payments on account are based on 50% each of the previous year’s net income tax liability. In addition, the third (or only) payment of tax will be due on 31 January following the end of the tax year.

There is no requirement to make payments on account where your net Income Tax liability for the previous tax year is less than £1,000 or if more than 80% of that year’s tax liability has been collected at source.

The payments are based on 50% of your previous year’s net Income Tax liability. If you think that your income for the next tax year will be lower than the previous tax year, you can apply to have your payment on account reduced. This can be done using HMRC’s online service or by completing form SA303.

HMRC’s internal manuals are clear that a reason for requesting a reduction in the payments on account must be given. A request without a reason is not a valid claim.

There are no restrictions on the number of claims to adjust payments on account a taxpayer or agent can make. However, there is a time limit which means that the claim must be received before the 31 January following the tax year in question. There is no requirement to notify HMRC if your taxable profits have increased year on year.

Autumn Finance Bill published

Posted on 1st December 2022 by Solutions Accountancy

The government published the Autumn Finance Bill 2022 on 22 November 2022. The Bill is officially known as Finance Bill 2022-23. The Bill contains the legislation for many of the tax measures announced in the recent Autumn Statement.

The Autumn Finance Bill will be followed by the main Spring Finance Bill 2023 which will be published after the spring Budget and will cover any remaining tax measures needed ahead of April 2023.

Some of the many measures included within the Bill are:

The Energy Profits Levy (EPL) will increase to 35% (from 25%), effective 1 January 2023. The investment allowance will be reduced from 80% to 29% for qualifying investment expenditure thereby maintaining its existing cash value.
The Income Tax additional rate threshold will be reduced from £150,000 to £125,140 with effect from 6 April 2023
The current £2,000 dividend tax-free allowance is to be reduced to £1,000 from April 2023 and to £500 from April 2024.
Vehicle Excise Duty (VED) will become payable on new electric cars, vans and motorcycles from April 2025 in the same way as it currently applies to petrol and diesel vehicles. This change will apply to new and existing zero emission cars.
The Income Tax thresholds will be maintained at their current levels for a further two years until April 2028. The higher rate threshold will remain frozen at £37,700 and the personal tax allowance will remain at £12,570 through to April 2028.
The Research and Development Expenditure Credit (RDEC) rate will increase to 20% (from 13%) with effect from 1 April 2023. From the same date, the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%.