Hello

We wish everyone the best of the season and hope it is a peaceful and quiet one for all

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

 

Tax returns!

It is now less than 2 months until your 2021 tax returns have to be filed with MHRC. If you have not let us have the information to complete them then do not delay. January is a busy month for us and we cannot guarantee to get the returns submitted if you leave it until next year to let us have the information.

 

HMRC issues scam alert as tax deadline looms

HMRC has warned customers(!) to watch out for fraudulent tax rebate emails and texts after a year in which nearly 800,000 tax-related scams were reported.

The warning comes as HMRC is preparing to send more than four million emails and SMS text messages to self assessment customers ahead of the 31 January 2022 deadline, prompting them to pay their tax bill and pointing them to guidance and support if they are unable to pay in full.

However, HMRC has warned that scammers typically use this time to try and steal money or personal information from unsuspecting individuals and it is urging customers (I hate that word being used by HMRC) not be taken in by malicious emails, phone calls or texts. In the last year, almost 800,000 tax-related scams were reported, of which nearly 360,000 were bogus tax rebate referrals.

"If someone contacts you saying they're from HMRC, wanting you to urgently transfer money or give personal information, be on your guard," said Myrtle Lloyd, HMRC's director general for customer services.

"HMRC will also never ring up threatening arrest. Only criminals do that. Scams come in many forms. Some threaten immediate arrest for tax evasion, others offer a tax rebate. Contacts like these should set alarm bells ringing, so if you are in any doubt whether the email, phone call or text is genuine, you can check the 'HMRC scams' advice on GOV.UK and find out how to report them to us."

Criminals often mimic government messages to make them appear authentic. If you are in any doubt about a contact from HMRC speak to us as soon as possible.

Our advice is:

  • Take a moment to think before parting with your money or information;
  • If a phone call, text or email is unexpected, don't give out private information or reply, and don't download attachments or click on links before checking on GOV.UK that the contact is genuine;
  • Do not trust caller ID on phones. Numbers can be spoofed;
  • It's ok to reject, refuse or ignore any requests - only criminals will try to rush or panic you;
  • Go to GOV.UK for information on how to recognise genuine HMRC contact and how to avoid and report scams;
  • Contact your bank immediately if you think you've fallen victim to a scam, and report it to Action Fraud.
  • Contact us before doing anything if you are in any way unsure about a HMRC contact.

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

 

In this month’s issue:

 

SEISS Letters

 

New Fuel Rates for Company Cars

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?

 

SEISS Letters

As part of the application for any of the first three SEISS grants the taxpayer had to declare that their business met all of the following conditions:

  • traded in the tax year 2019/20
  • intended to continue to trade in the tax year 2020/21
  • the trade was adversely affected by coronavirus.

 

The taxpayer also had to have submitted their 2018/19 SA tax return by 23 April 2020.

 

HMRC is now looking at the 2019/20 SA tax returns which should have been submitted by 31 January 2021. These returns should include income from self-employment if completed by a taxpayer who claimed an SEISS grant.

 

If the taxpayer ceased trading permanently in 2019/20, they were not eligible for the SEISS grant. However, a temporary break in the trade and the commencement of the same or a different self-employed trade is permissible within the SEISS rules.

 

Individuals who took a break from self-employment due to maternity or adoption leave in 2019/20 were treated as if they continued to trade throughout the period.

 

HMRC is now writing to those SEISS claimants who have either:

 

  • Not submitted their 2019/20 SA tax return; or
  • The 2019/20 return does not include any self-employed income.

The taxpayer is reminded that they must repay the SEISS grant if they we not eligible to claim it. Penalties may be imposed if the grant is repaid later than: 20 October 2020 or 90 days after it was received.

The HMRC letter gives the taxpayer a 30-day deadline to submit or correct their 2019/20 SA tax return or repay the SEISS grants received in full.

As agents we do not receive copies of these letters and would not be aware that one had been sent. If you receive one you should contact us immediately so that we may advise you of how to respond.

 

NIC increases

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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 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 4 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.

 

New Fuel Rates for Company Cars

 

As the result of recent increases in fuel prices, HMRC have increased the advisory fuel rates that apply for the reimbursement of employees' private fuel for their company cars. The same rates apply when the employer reimburses employees for fuel used for business journeys in their company car.

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The new rates apply from 1 December 2021, but you can continue to use the previous rates for up to 1 month from the date the new rates apply. Note that the electric car reimbursement rate also increases from 4p to 5p a mile.

Where there has been a change, the previous rate is shown in brackets: -

 

Engine Size

Petrol

Diesel

LPG

1400cc or less

13p

(12p)

 

9p

(7p)

1600cc or less

 

11p

(10p)

 

1401cc to 2000cc

15p

(14p)

 

10p

(8p)

1601 to 2000cc

 

13p

(12p)

 

Over 2000cc

22p

(20p)

16p

(15p)

15p

(12p)

 

 

Note that for hybrid cars you must use the petrol or diesel rate which may differ significantly from the actual fuel costs. The advisory electricity rate for fully electric cars is 5 pence per mile (was 4p).

Employees should carefully consider whether it is advantageous having private fuel provided for their company car. Remember that the P11d benefit for having private fuel provided for a company car in 2021/22 is £24,600 multiplied by the CO2 emissions percentage for that vehicle, rising to £25,300 for 2022/23.

For example, a director driving a Mercedes Benz E200 saloon company car (CO2 emissions 169g per km) would be assessed on 37% x £24,600 = £9,102 for 2021/22. If they are a higher rate taxpayer that would mean £3,641 tax. That is an awful lot of private fuel!

On top of that there would be 13.8% Class 1A NIC payable by the employer = £1,256 (15.05% next year = £1,409).

 

 

MTD for Self Assessment delayed

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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.

This may seem a long time away but the start date will come round quicker than you may think. Don’t delay, talk to us now about planning for this major change in taxation.

 

 

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.

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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.

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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.

 

Finally we wish all our readers the best of this festive season. Make time for yourself and do not let your business run you in this time of celebration.

 

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

 

 

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