Pension tax relief at source

Posted on 31st August 2023 by Solutions Accountancy

You can usually claim tax relief for your private pension contributions. There is an annual allowance for tax relief on pensions of £60,000 for the current 2023-24 tax year. The annual allowance for 2022-23 was £40,000.

You can claim tax relief on private pension contributions worth up to 100% of your annual earnings, subject to the overriding limits. Tax relief is paid on pension contributions at the highest rate of Income Tax paid.

This means that if you are:

a basic rate taxpayer you receive 20% pension tax relief;
a higher rate taxpayer you can claim 40% pension tax relief; and
an additional rate taxpayer you can claim 45% pension tax relief.

There are two kinds of pension schemes where you receive relief automatically. Either:

your employer takes workplace pension contributions out of your pay before deducting Income Tax; or
your pension provider claims tax relief from the government at the basic 20% rate and adds it to your pension pot (‘relief at source’).

If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs you are entitled to on your Self-Assessment tax return. You may also need to make a claim if your pension scheme is not set up for automatic tax relief or if someone else pays into your pension.

There is a three year carry forward rule that allows you to carry forward any unused amount of your annual allowance from the last three tax years; if you have made pension savings in those years. (There used to be a lifetime limit for tax relief on pension contributions, but this was removed with effect from 6 April 2023.)

The above applies for claiming tax relief in England, Wales or Northern Ireland. There are regional differences if you are based in Scotland.

Higher rate tax relief on gifts to charities

Posted on 31st August 2023 by Solutions Accountancy

The gift aid scheme, which was originally introduced in 1990, allows charities to reclaim from HMRC the basic rate of Income Tax deducted from qualifying donations by UK taxpayers. This means that where a basic rate taxpayer claims gift aid on a £100 donation, the charity can reclaim from HMRC the £25 of tax paid on that donation.

If you are a higher rate or additional rate Income Tax payer you can also claim additional tax relief on the difference between the basic rate and your highest rate of tax.

For example:

If you donated £5,000 to charity, the total value of the donation to the charity is £6,250. You can claim back additional tax back of:

£1,250 if you pay tax at the higher rate of 40% (£6,250 × 20%),
£1,562.50 if you pay tax at the additional rate of 45% (£6,250 × 25%).

Taxpayers also have the option to carry back their charitable donations to the previous tax year. A request to carry back the donation must be made before or at the same time as your previous year’s Self-Assessment return is completed.

This means that if you made a gift to charity in the current 2023-24 tax year that ends on 5 April 2024, you can accelerate repayment of any tax associated with your charitable giving by carrying back the donation to the previous tax year, 2022-23. This can be a useful strategy to maximise tax relief if you will not be paying higher rate tax in the current tax year but did so in the previous tax year. This should be done as part of the Self-Assessment tax return for 2022-23 which must be submitted by 31 January 2024.

You can only claim if your donations qualify for gift aid. This means that your donations from both tax years together must not be more than 4 times what you paid in tax in the previous year.

Current capital allowances for car purchases

Posted on 31st August 2023 by Solutions Accountancy

If you are thinking about purchasing a company car through a limited company, there are many issues that need to be considered. In this short article we will point out some of the main issues, but it is important to research this area and weigh up all the available options. The tax treatment of the purchase will depend on how the purchase of the company car is financed.

The purchase of a company car will be classed as a fixed asset and tax relief will be obtained by way of capital allowances. Cars do not qualify for the annual investment allowance.

The amount of capital allowances that can be claimed will fall within one of the following 3 categories:

100% First Year Allowance. New and unused electric or zero emission cars emission cars benefit from 100% capital allowances. This means that 100% of the cost of the car can be deducted in the first year.
18% of the car’s value (main rate allowances). This effectively means that 18% of the purchase price can be deducted from your profits each year before you pay tax.
6% of the car’s value (special rate allowances). This effectively means that 6% of the purchase price can be deducted from your profits each year before you pay tax.

The difference between the main rate and special rate allowances depends on when the car was bought and its CO2 emissions. The government continues to encourage employers to choose more fuel-efficient vehicles by offering a tax incentive.

Share buy-back clearance applications

Posted on 31st August 2023 by Solutions Accountancy

Most payments a company makes to its shareholders, in respect of their shares, will be qualifying distributions and be subject to Income Tax.

However, if certain conditions are met, the payment can be treated as an exempt distribution. An exempt distribution is a payment that is treated as consideration for the disposal of shares and is subject to CGT.

When a company makes a purchase of its own shares, any excess paid over the amount of capital originally subscribed for the shares is usually treated as a distribution (a dividend). However, there are special provisions that enable an unquoted trading company or an unquoted holding company of a trading group to undertake a purchase of its own shares without making a distribution.

To check out the tax implications of an intended buy back, a clearance application may be made to HMRC. Under this procedure a company wishing to make a purchase of its own shares can obtain advance confirmation from HMRC that the distribution arising will be an exempt distribution.

Broadly there are two situations where a payment on the purchase by a company of its own shares is not treated as a distribution:

the company must be an unquoted trading company; and
either Condition A: purchase benefiting a company’s trade or Condition B: purchase in connection with Inheritance Tax liability must be met.

Reducing self-assessment payments on account

Posted on 31st August 2023 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 was due on 31 January 2023.
31 July following the tax year e.g., for 2022-23 the second payment on account was due on 31 July 2023.

These payments on account are based on 50% 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, for example by 31 January 2024 for the year 2022-23.

There is no requirement to notify HMRC if your taxable profits have increased year on year.

Are you a company director?

Posted on 29th August 2023 by Solutions Accountancy

There is more to being appointed a company director than accepting the title.

According to Companies House directors formal, statutory duties and responsibilities include:

filing an annual confirmation statement;
filing your company annual accounts – even if the company is dormant;
notifying Companies House of any change in your company’s officers or their personal details;
notifying any change to your company’s registered office address
filing details of any allotment of shares;
dealing with the registration of any charges (mortgage); and
notifying Companies House of any change in your company’s people with significant control (PSCs) or their personal details.

Additionally, directors need to record minutes of company meetings that impact returns to Companies House and HMRC. For example, when dividends are voted and paid.

Directors should be aware that if you use a sensitive address like your home address as your company’s registered office or single alternative inspection location (SAIL), it will be available to the public. You cannot remove a registered office or SAIL address from the public register, even if it’s your home address.

If you are a director of a registered company, some of your details will be made public. This includes your:

name
nationality
occupation
month and year of your date of birth

A director must provide two addresses:

a correspondence address for the public register – known as a ‘service address’; and
their home address – known as the ‘usual residential address’.

A correspondence address is one you can use to receive communications about the company. This can be the same as the registered office address of the company, or it can be somewhere different.

A residential address is a director’s usual home address. You must tell us your home address, but it will not be available on the public register for everyone to see. It’s kept on a private register.

We will only provide home address information to credit reference agencies and specified public authorities, such as the police. In certain circumstances, you may be able to restrict the disclosure of your home address to credit reference agencies.

Do you need to submit a Self-Assessment tax return?

Posted on 24th August 2023 by Solutions Accountancy

There are a number of reasons why you might need to complete a Self-Assessment return for the first time. This includes if you are self-employed, have an annual income over £100,000 and / or have income from savings, investment or property.

Taxpayers that need to complete a Self-Assessment return for the first time (for the 2022-23 tax year) should inform HMRC as soon as possible. The latest date that HMRC should be notified is by 5 October 2023.

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.

The following list summarises some of the reasons when taxpayers are usually required to submit a Self-Assessment return:

newly self-employed (earning more than £1,000);
individuals with multiple sources of income;
taxpayers that have received any untaxed income, for example earning money for creating online content;
individuals with income over £100,000, and note, that from tax year 2023-24 the Self-Assessment threshold for individuals taxed through PAYE only, will change from £100,000 to £150,000;  
those who earn income from property that they own and rent out;
who are a new partner in a business partnership;
taxpayers whose income (or that of their partner’s) was over £50,000 and one of you claimed Child Benefit;
those receiving interest on savings or investment income of £10,000 or more before tax;
taxpayers who made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax; and
taxpayers who are self-employed and earn less than £1,000 but wish to pay Class 2 NICs voluntarily to protect their entitlement to State Pension and certain benefits.

Class 2 and 4 NIC for the self-employed

Posted on 24th August 2023 by Solutions Accountancy

There are two types of National Insurance contributions (NICs) payable by most self-employed people. These are known as Class 2 NICs and Class 4 NICs.

Class 2 NICs are paid by all self-employed taxpayers unless they earn under the Small Profits Threshold (SPT), currently £6,725, which remove the necessity to pay NICs. Class 2 NICs are currently payable at a flat weekly rate of £3.45 for the 2023-24 tax year. Class 2 NICs count towards payments such as the basic State Pension, the employment and support allowance, maternity allowance and bereavement benefits.

In addition, most self-employed people are also required to pay Class 4 NICs. The self-employed are required to pay Class 4 NICs (as well as to Class 2 NICs) if their profits are £12,570 or more a year. Class 4 NIC rates for the tax year 2023-24 are 9% for chargeable profits between £12,570 and £50,270 plus 2% on any profits over £50,270.

There is also a specific list of jobs where class 2 NICs are not payable. These are:

examiners, moderators, invigilators and people who set exam questions;
people who run businesses involving land or property;
ministers of religion who do not receive a salary or stipend; and
people who make investments for themselves or others – but not as a business and without getting a fee or commission.

If you fall within any of these categories, it may be beneficial to get a State Pension forecast and examine whether to make voluntary Class 2 NICs to make up missing years.

On your bike tax-free

Posted on 24th August 2023 by Solutions Accountancy

The Cycle to Work scheme was introduced over 20 years ago to help promote the use of environmentally friendly modes of transport.

The scheme allows employers to provide bicycles and cyclists’ safety equipment to employees as a tax-free benefit. The scheme must be offered to all employees and the bike must be used mainly for qualifying journeys, i.e., between home and work. However, pleasure use of the bike is also allowed. Where the scheme conditions are satisfied employees can benefit from a significant tax and National Insurance Contributions (NICs) reduction. In addition, there is no employer liability to NICs.

The cycle to work benefits only relate to the loan period, however, it is commonplace for an employer or a third party bicycle provider to offer the employee the bicycle / equipment they have been using for sale after the loan period has ended. The bike may be offered to the employee for sale at a fair market value, but this must be done as a separate agreement.

Employers of all sizes across the public, private and voluntary sectors are eligible to take part in the scheme to provide (technically loan) bicycles and cyclists’ safety equipment to employees as a tax-free benefit. The scheme can also be used for electronic bikes known as e-bikes.

Checking your Simple Assessment tax bill

Posted on 24th August 2023 by Solutions Accountancy

Simple Assessment is a method by which HMRC can assess where additional Income Tax is due by a taxpayer. A Simple Assessment letter is usually issued to taxpayers with reasonable straight forward tax affairs. The Simple Assessment notice of liability does not require taxpayers to submit a Self-Assessment tax return.

The Simple Assessment process was first announced by HMRC back in 2016. However, the rollout has been paused a number of times. The process can be used in various situations, for example, where it is not possible to collect the whole of a person’s annual Income Tax liability through PAYE, if HMRC is owed £3,000 or more and if there is tax to be paid on the State Pension.

Recipients of a Simple Assessment tax bill should check that the amounts shown in the letter match your records, for example, your P60, bank statements or letters from the Department for Work and Pensions (DWP).

If the amounts are correct, you will need to pay your Simple Assessment tax bill.

You must pay by either:

31 January – for any tax you owe from the previous tax year; or
within 3 months of the issue date if you received your letter after 31 October.

The tax year runs from 6 April to 5 April. In some cases, HMRC will allow the payments to be made in instalments.

A taxpayer who does not agree with the Simple Assessment has 60 days from the date it was issued to contact HMRC, setting out the reasons for their objections. If no objections are raised within 60 days, the Simple Assessment is automatically finalised.