Posts from 2022-02-01

February 22 News Blog

 

Hello

Welcome to our February 2022 newsletter/blog looking at some of what has happened since December and a few items that come into place in the near future which I hope is of interest to our clients.

The start of a new year is a time for hope and expectation. I encourage you to look forward to this year with more optimism than the last 2 years have provided.

There was no newsletter/blog for January as we were working hard to get as many tax returns finished before the 31 January deadline. I do not understand why so many clients leave it to the last minute to send us their tax return information. As we have so many returns to complete  at the last minute our time is at a premium and we are now charging extra to complete returns where we do not have the information in time. We send out many reminders during the year so there is no real excuse.

However, for the second year running, HMRC have announced an amnesty for the £100 late filing penalty for returns as long as they are filed by 28 February 2022. This amnesty does not extend to late payment of the tax due so it is still essential that if you have not yet submitted your return that you pay the tax even if the return will be late.

Speak to us urgently if you still need to submit your 2021 return.

 

In this month’s issue:

Own your own Limited Company? Act now to reduce your tax

 

 

Challenging SEISS grants

Government aims to level playing field for small businesses

 

 

More nudge letters

VAT Registered - Are you ready for Making Tax Digital?

 

 

We can help

Change in basis year of assessment

 

 

 

 

 

 

Own your own Limited Company? Act now to reduce your tax

 

 

In September 2021 the Chancellor announced increases to National Insurance Contributions (NIC) by 1.25% on both employee and employer NIC. These were temporary increases which will be replaced by the Health and Social Care Levy from 6 April 2023.

 

At the same time he announced an increase in tax on dividends by 1.25% also from 5 April 2022.

 

However, this dividend tax increase is permanent and not temporary. It will apply to all dividends taken from all companies, where the total dividend income exceeds the taxpayer’s dividend allowance which has been held at £2,000 for 2002/23, see table.

 

 

 

Dividends falling within:

2022/23

2021/22

Basic rate band

 

Dividend allowance

8.75%

 

£2,000

7.5%

 

£2,000

Higher rate band

 

Dividend allowance

33.75%

 

£2,000

32.5%

 

£2,000

Additional rate band

 

Dividend allowance

39.35%

 

£2,000

38.1%

 

£2,000

 

 

This tax increase is significant. For a director of an owner managed company, who takes a salary of £12,570 and dividends of £37,700 per year, their tax will increase by £442.44 in 2022/23.

 

That’s a tax increase of nearly 14.5% in one year. The rate of corporation tax charged on overdrawn directors’ loan accounts (s 455 charge), is currently set at 32.5% to match the tax on dividends in the higher rate band. It is likely that this rate will also increase to 33.75% from 6 April 2022, but this wasn’t mentioned in the Budget announcements.

 

If you own a limited company and have sufficient reserves, then there is a short time to carry out some simple tax planning to keep the level of tax on your dividends at the lower tax levels. Speak to us about paying dividends before 5 April 2022. Dividends cannot be backdated so you need to act now.

 

 

Government aims to level playing field for small businesses

 

 

The government wants to give smaller businesses better access to the £50 billion worth of public contracts - which can include anything from supplying hospital equipment to providing public sector pensions - and which are tendered each year.

 

The Selling To Government Guide provides SMEs with essential information on how to find government contract opportunities and how to bid for and win them. It includes tips on how small firms can make sure they are showcasing their strengths during the bidding process. The guide will be backed up by online webinar sessions for small businesses.

 

The guide also offers advice on how small firms can get work through supply chains by working with larger companies to help deliver services such as long-running IT or catering projects. The government considers social value when choosing suppliers which gives smaller enterprises the chance to highlight the work they do in their communities and could offer them a better chance of winning government contracts.

 

The government is bringing in "sweeping procurement rules changes", according to Lord Agnew (Cabinet Office Minister), to make it easier for SMEs to win government work. The measures will remove barriers for smaller suppliers by getting rid of "unnecessarily complicated regulations".

 

Lord Agnew said: "We are simplifying the bidding process to make it easier for SMEs to secure contracts by creating one single central platform which suppliers have to register on, so they only have to submit their data once to qualify for any public sector procurement."

 

 

VAT Registered - Are you ready for Making Tax Digital?

 

 

From 1 April 2022 (only 2 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 in the 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.

 

Whilst we plan to talk to you about this you can pre-empt the discussion by speaking to us now.

 

 

Challenging SEISS grants

 

 

The Self-employed Income Support Scheme (SEISS) grants were designed to help small unincorporated businesses survive the COVID pandemic, when they were unable to trade, or were subject to restrictions.

 

Applications for the fifth and final SEISS grants closed on 30 September 2021, and the grants should have been paid out by the end of October 2021. However, it is not too late to challenge the amount of grant paid, even where HMRC decided the taxpayer was due nothing at all.

 

The first step should be to check the calculation of turnover for the tax year 2020/21, which for this purpose is the level of sales in the 12 months ending on 31 March/ 5 April 2021 (or some day in between).

 

The HMRC guidance was initially misleading as it said the 2020/21 figure of turnover would be found on the 2020/21 tax return, but that would not be the case if the business has an accounting period which does not align with the tax year. Also, an accurate figure of sales in 2020/21 may not have been available by 30 September 2021.

 

Once the quantum of drop in turnover had been established (up to 30% or more than 30%), the amount of SEISS grant was based on the average trading profits (not turnover) for the past 4 years.

 

There was scope for a lot of confusion and error in these calculations.

 

If you think you were underpaid an SEISS grant you should contact HMRC by 28 February 2022 and provide all of the following:

 

  • the grant claim reference
  • client’s NI and UTR numbers
  • client’s Government Gateway user ID used to make the claim
  • why you think the grant amount is too low

 

If you did not make a claim for an SEISS grant because of an HMRC error (perhaps your tax return had not been processed), or exception circumstances existed, you can now contact HMRC to submit a claim.

 

If you need assistance with challenging a claim we look at your situation and hopefully help you.

 

 

More nudge letters

 

 

We have warned you previously about the HMRC nudge letters and since then the tax authority has found three more topics to write to taxpayers about.

 

Receiving one of these letters it doesn’t necessarily mean the taxpayer has done anything wrong, it’s just a nudge to check the amounts claimed on the 2019/20 tax return are correct.

 

Property finance

 

The tax return for 2019/20 was the last opportunity for individual landlords to claim any deduction for finance costs, and they could only deduct 25% of such costs from their rental income.

 

HMRC is writing to landlords who let property in 2019/20, who may have deducted more than the allowable proportion of 25% of finance costs. Note that HMRC has not checked whether the taxpayer has claimed any deduction for finance costs, or even if they claimed the right amount of deduction.

 

Letters are being sent sometimes to us as agents and sometimes directly to landlords with us copied in (sometimes!) as the agent suggesting that finance costs need to be checked.

 

Employment expenses

 

A nudge letter may be sent to all those taxpayers who have claimed employment expenses on their SA tax return for 2019/20.

 

The HMRC letter lists the five conditions which must all be met for an expense to be claimed against employment income and asks the taxpayer to keep evidence of the expenses incurred.

 

HMRC is known to be concerned about the activities of High Volume Agents who submit employment-related expense claims to generate tax repayments, without checking the details.

 

These nudge letters could potentially uncover fraudulent claims where the taxpayer’s online Govt Gateway credentials have been used to submit a tax return including an expense claim, without the taxpayer’s knowledge.

 

Gift Aid carry back

 

Gift Aid donations made in the current tax year (2021/22) can be claimed on the 2020/21 return, if that return has not yet been filed.

 

The carry back of Gift Aid donations cannot be made by amending an earlier tax return, it can only be included on the original version of that return which was submitted - crazy, but that’s the law

 

HMRC is nudging taxpayers who have amended a declaration of Gift Aid in an earlier return. That amendment to box 8 of the tax return is not valid, although the tax software may have allowed it to be submitted, and HMRC initially accepted the amended return, and issued a tax repayment.

 

If the tax return is not corrected to reinstate the original figure of Gift Aid, HMRC will make an amendment under TMA 1970, s 9ZA or it may open a formal enquiry

 

If you receive any letter from HMRC it is essential that we are sent a copy as soon as possible. Do not assume that you have done anything wrong or that here is a problem or error. However we will need to review any letter so make sure that the correct amount shave been claimed.

 

The deadline for making adjustments to a 2019/20 tax return is 31 January 2022 so if you do receive such a letter do not delay in letting us know.

 

We can help

 

 

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.

 

Finally we hope that you are still managing to keep your New Year Resolutions. We offer a mentoring service to help hold you to account so that your plans and goals for the year can be achieved. Don’t forget to make time for yourself and do not let your business run you, you should run your business.

 

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