Hello

Welcome to our November newsletter/blog looking at some of what has happened over the month of October and a few items that come into place in November or later which I hope is of interest to our clients.

The month started with panic buying at the pumps, the shortage of HGV drivers, and a looming winter energy crisis many of us are running our businesses in an ever increasing level of uncertainty. It all seems a long time ago now!

If you are concerned about the future of your business then take some time to reflect on where you are and what could happen in the next few months.

It is now vitally important for all businesses to plan ahead for a range of scenarios. Cash flow and business planning in these uncertain times may appear difficult but there are some practical steps you can take to minimise potential disruption to your business. 

  • Review your Budgets and set realistic and achievable targets for the remainder of 2021.
  • Get your employees involved in a discussion of likely trading conditions and get their input on reducing costs and maintaining revenues. 
  • Review and flow chart the main processes in your business (e.g. Sales processing, order fulfilment, shipping etc.) and challenge the need for each step.
  • Put extra effort into making sure your relationships with your customers are solid.
  • Review your list of products and services and eliminate those that are unprofitable or not core products/services.
  • Pull everyone together and explain the business strategy and get their buy-in.

The month finished with the budget. Most of what was announced had already been revealed and anything new was mostly for larger businesses. The reduction in business rates for hospitality continues and there were cuts in the duty on alcohol. The way the duty is assessed is also to be revamped.

One good point was the extension of the deadline to declare and submit Capital Gains Tax details on the sale of residential property. This has now been extended from 30 days to 60 days.

We have already assisted clients in making these declarations and the additional time is very welcome. The system however is still clunky and the way payments are dealt with does need to be sorted out.

More details on the budget can currently be found on the news pages of our website.

Don’t forget that we are here to assist you with any business queries you may have.

In this month’s issue:

NIC increases

 

MTD for Self Assessment delayed

VAT Registered - Are you ready for Making Tax Digital?

 

Capital Gains on the sale of Residential Property

Change in basis year of assessment

 

Why don’t you ask us?

     

 

NIC increases

On 7 September the Prime Minister, Boris Johnson, announced an increase in National Insurance Contributions and dividend tax which would raise £36bn for frontline services in the next three years and be the "biggest catch-up programme in the history of the NHS". He accepted the tax and NIC increases broke a manifesto pledge, but said the global pandemic was in no one's manifesto.

 

It is was confirmed in the budget that there will be a 1.25% rise in National Insurance Contributions (NICs) from April 2022 paid by both employers and workers and will then become a separate tax on earned income from 2023 - calculated in the same way as NIC and appearing on an employee's payslip. Note that the 1.25% increase applies to the Class 4 contributions paid by the self-employed on their profits as well as the Class 1 contributions paid by employees increasing the rates to 10.25% and 13.25%. The employers Class 1 rate will increase from 12.8% to 14.05% however many small businesses are able to set off a £4,000 employment allowance against their employers NIC liability.

Those above State Pension Age who are earning or self-employed will start paying NIC and the new Health and Social Care Levy from 2023/24.

The 1.25% additional levy doesn’t just apply to national insurance contributions, it is proposed that the income from share dividends, earned by those who own shares in companies, will also see a 1.25% tax increase. This would mean that after the current £2,000 tax free dividend allowance the rate of tax would be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for those with income in excess of £150,000 a year.

This is obviously a tax rise by any other name and it will effect everyone, even those who have income other than the state pension.

 

VAT Registered - Are you ready for Making Tax Digital?

From 1 April 2022 (only 6 months away!) a new tranche of businesses will need to comply with the Making Tax Digital (MTD) regime.

All businesses which are VAT registered will have to sign up for MTD and will need to submit their first VAT return that starts on or after 1 April 2022 digitally. This covers businesses who are under the registration threshold of £85,000 and have voluntarily registered. Maybe now is the time to review your VAT registration with us.

 

There will be a requirement for these businesses to keep digital records and for these digital records to be used to file the returns. It will be possible to use spreadsheets for record keeping but there will need to be some form of bridging software that is compatible with the HMRC gateway.

Our clients who have already signed up for MTD have found using the software easy to use and have also found other benefits in using the software.

Also be aware that Income Tax for Self Assessment will be start from 2024 and limited companies will be forced to join from around 2026.

We urge all clients to move to a digital record keeping regime as soon as possible. At Stewart & Partners we are Xero Certified Advisors with qualifications in migrating to Xero software. We also are able to work with all other software providers so if you feel that another software is better for you we can work with you to make sure you are compliant.

Speak to us for more details.

 

Change in basis year of assessment

Despite still consulting on the matter HMRC have made it clear that they will be progressing with a change in the basis period for assessment for sole traders and partnerships.

If you are a sole trader or partnership with a year end that is not 31 March/5 April, then from 2024 the period on which you pay tax will not be the same as the accounts year. You will need to pay tax on the profits earned in the fiscal tax year 6 April to 5 April (1 April to 31 march will also be allowed). This will mean apportioning the profits for 2 accounts years and if your year end is late int eh year this may mean making estimates.

For example a December year end would need to include profits from the accounts to December which is only 1 month before the filing deadline for the return.

During the change a period of more than 12 months could be subject to being taxed in a year. With the Covid 19 pandemic having affected the level of profits now would seem to be a good period to take advantage of lower profits rather than wait until they go up again.

We are therefore now urging all sole traders and partnerships which do not have a 31 March/5 April year end to change the year end now rather than wait.

 

MTD for Self Assessment delayed

The government have announced that they will introduce Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) a year later than planned, in the tax year beginning in April 2024.This will give the self-employed and buy to let landlords an extra year to prepare for the digitalisation of Income Tax and also allow HMRC more time for customer testing of the pilot system.The start date for partnerships to join MTD for ITSA has been put back still further to the tax year beginning in April 2025.

There has been no change to the £10,000 per annum gross income threshold which means that most self-employed traders and buy to let landlords will be mandated to comply with MTD for income tax from April 2024.

 

Capital Gains on the sale of Residential Property

Taxpayers who make a taxable gain on the disposal of a UK residential property have to report this gain and pay the CGT due within 60 days of the property deal completion date. These actions both have to be performed using the badly designed UK property reporting service.

This online property reporting service does not transfer data about the disposal or the tax paid into the SA tax return system, so the reporting and payment functions have to be repeated at when submitting the SA tax return. This is an unnecessary duplication of tax compliance work, which also requires the taxpayer to separately authorise their tax agent to act for them on two different HMRC systems.

Where the taxpayer cannot manage the digital process, perhaps because they don’t have the UK documents which will allow them to complete the online ID checks, a paper return of the property disposal can be submitted.

However, where a paper return has been filed the CGT can‘t be paid until HMRC issue a payment reference and a demand for the tax due. This can take from three to six months, as HMRC has a backlog of paper returns to process.

HMRC has now confirmed that taxpayers will have 30 days from the issue of a demand to pay, rather than 14 days to pay. A late payment penalty will not be issued if the tax is paid within 30 days of the manual demand charge. However, a late filing penalty may apply if the paper return was not submitted within 60 days of the completion date – this can be appealed.

We have a number of clients who have sold residential properties over the past few months and we have assisted them in the preparation of CGT computations and have also walked them through the HMRC registration process and submission of returns.

If you are in the process of selling a residential property or have recently done so then talk to us about the whole process and how we can ensure that you are compliant with the rules an make sure the returns and tax are submitted on time.

 

Why don’t you ask us?

Are you considering starting something new as you come out of Covid hibernation and your business opens up again or do you have a query about tax planning? Do you need advice about financing or cashflow, maybe you just need help in accessing a loan.

We have a broad range of experience that goes far beyond just preparing accounts and tax returns. We also have access to a broad range of tools that will help with providing answers. Get in touch as we will probably have an answer to help you with your challenges.

 

I wish you the best for the next month.

 

If you have any queries you can book a free 15 minute zoom meeting with me.

 

Regards 

Simon

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