Posts from 2022-03-11

March 22 News Blog

 

Hello

A little later than intended welcome to our March 2022 newsletter/blog looking at some of what has happened since February and a few items that come into place in the near future which I hope is of interest to our clients.

 

In this month’s issue: 

Own your own Limited Company? Last chance to reduce your tax

Payrolling Benefits in Kind

VAT Registered - Are you ready for Making Tax Digital?

More nudge letters

Change in basis year of assessment

We can help

 

Own your own Limited Company? Last chance 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                                                                                  8.75%                7.50%

Dividend allowance                                                                          £2,000                £2,000

Higher rate band                                                                               33.75%               32.50%

Dividend allowance                                                                          £2,000                £2,000

Additional rate band                                                                          39.35%              38.10%

Dividend allowance                                                                          £2,000                £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.

 

VAT Registered - Are you ready for Making Tax Digital?

 

From 1 April 2022, less than 1 month 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.

 

Payrolling Benefits in Kind

 

HMRC are encouraging more employers to payroll employee benefits in kind rather than declaring benefits on the end of year P11D. They have included guidance on registering to use the scheme in their latest employer bulletin.

If employers haven’t already done so they can register online now or before 5 April 2022 to payroll employee benefits for the 2022/23 tax year.

The advantages of payrolling benefits in kind are:

  • employers no longer need to submit P11D and P46(Car) forms to HMRC
  • simpler PAYE codes mean HR teams receive fewer queries from employees regarding tax
  • tax deductions in monthly payroll will be more accurate
  • tax codes for individuals should change less frequently
  • fewer forms for employers to complete at year-end

If you are not yet in a position to move to payrolling you can still move away from legacy paper P11D forms by submitting them online. You can submit them in one click without worrying about posting them to HMRC. It is also a useful first step towards payrolling of benefits in kind and bringing your payrolling processes into the digital age.

We prepare forms P11d for many clients each year. If you would prefer to payroll the benefits or just have us submit the forms for you then please let us know and we can start the process.

 

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.

 

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.

 

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Finally, don’t forget to make time for yourself and do not let your business run you, you should run your business.

 

Regards

Simon

 

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