• Decrease in the additional rate threshold from £150,000 to £125,140 from 6 April 2023. The government is also fixing other personal tax thresholds within income tax, NICs and Inheritance Tax for an additional 2 years, until April 2028
• Reduction in the Dividend Allowance (currently £2,000 tax free but set to reduce to £500 from April 2024)
• Reduction in Capital Gains Tax Annual Exempt Amount (reducing to £6,000 from April 2023 and £3,000 from April 2024). The Personal Allowance will generally be available in addition to the reduced Dividend Allowance and Capital Gains Tax Annual Exempt Amount
• The income tax additional rate threshold will be lowered from £150,000 to £125,140 from 6 April 2023. The ART for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland. The ART for savings and dividend income will apply UK-wide.
• VAT registration and deregistration thresholds will be maintained at the current levels for an additional 2 years and will not change for a further period of 2 years from 1 April 2024.
• Confirmed Off-payroll working rules: maintain 2017 and 2021 reforms (also known as IR35)
• Reflecting the success of the transition to electric vehicles, the government will introduce Vehicle Excise Duty (car tax) on electric cars, vans and motorcycles from April 2025

The Autumn Statement 2022 – Full Report

On 17 November 2022, the government undertook the third fiscal statement in as many months, against a backdrop of rising inflation and economic recession. The Chancellor laid out three core priorities of stability, growth and public services. The government sought a balanced path to support the economy and return to growth, partially through public spending restraint and partially through tax rises.

Income tax

Income tax rates

The government had previously announced that there would be a cut in the basic rate of income tax, from 20% to 19%, from April 2024. This was to be accelerated so that it took effect from April 2023. However, whilst the government aims to proceed with the cut in due course, this will only take place when economic conditions allow and a change is affordable. The basic rate of income tax will therefore remain at 20% indefinitely.

At the Mini Budget on 23 September 2022 the government announced a plan to abolish the 45% additional rate of income tax from April 2023. It was announced on 3 October 2022 that the government would not proceed with this plan.

From 6 April 2023, the point at which individuals pay the additional rate will be lowered from £150,000 to £125,140.

The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.

Income tax allowances

The income tax personal allowance and higher rate threshold were already fixed at their current levels until April 2026 and will now be maintained for an additional two years until April 2028. They will be £12,570 and £50,270 respectively.

The government will uprate the married couple’s allowance and blind person’s allowance by inflation for 2023/24.

Dividends

The government has also confirmed that, from April 2023, the rates of taxation on dividend income will remain as follows:

• the dividend ordinary rate – 8.75%
• the dividend upper rate – 33.75%
• the dividend additional rate – 39.35%.

As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%.

In addition, the government will reduce the Dividend Allowance from £2,000 to £1,000 from April 2023 and to £500 from April 2024.

These changes will apply to the whole of the UK.

National Insurance contributions

In September 2021 the government published its proposals for new investment in health and social care in England. The proposals were intended to lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government introduced a UK-wide 1.25% Health and Social Care Levy based on the National Insurance contributions (NICs) system but ringfenced for health and social care.

The Health and Social Care Levy Act provided for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates were intended to revert back to 2021/22 levels and be replaced by a new 1.25% Health and Social Care Levy.

However, the government has:

• reversed the temporary increase in NICs and
• cancelled the Health and Social Care Levy completely.

More detail for employees and employers

The changes took effect for payments of earnings made on or after 6 November 2022, so:

• primary Class 1 NICs (employees) generally reduced from 13.25% to 12% and 3.25% to 2% and
• secondary Class 1 NICs (employers) reduced from 15.05% to 13.8%.

The effect on Class 1A (payable by employers on taxable benefits in kind) and Class 1B (payable by employers on PAYE Settlement Agreements) NICs will effectively be averaged over the 2022/23 tax year, so that the rate will generally be 14.53%.

More detail for the self-employed

Following the principle detailed above, the changes to Class 4 NICs will again be averaged across 2022/23, so that the rates will be 9.73% and 2.73%.

NICs thresholds

A similar principle to that outlined above for income tax thresholds will be followed in respect of the NICs upper earnings limit and upper profits limit. From July 2022, the NICs primary threshold and lower profits limit were increased to align with the personal allowance and will be maintained at this level from April 2023 until April 2028. The Class 2 lower profits threshold will also be fixed from April 2023 until April 2028 to align with the lower profits limit. They will again be £12,570 and £50,270 as appropriate.

In addition, the government will fix the lower earnings limit and the small profits threshold at 2022/23 levels in 2023/24, namely £6,396 and £6,725 per annum respectively.

The government will uprate the Class 2 and Class 3 NICs rates for 2023/24 to £3.45 per week and £17.45 respectively.

Finally, the government will fix the level at which employers start to pay Class 1 NICs for their employees at £9,100 from April 2023 until April 2028.

Capital gains

The government has announced that the capital gains tax annual exempt amount will be reduced from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.

Inheritance tax

The inheritance tax nil-rate bands are already set at current levels until April 2026 and will stay fixed at these levels for a further two years until April 2028. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000 and the residence nil-rate band taper will continue to start at £2 million.

Stamp Duty Land Tax

A number of changes were made to the Stamp Duty Land Tax (SDLT) regime earlier this year and these remain. Generally, the changes increase the amount that a purchaser can pay for residential property before they become liable for SDLT.

The residential nil rate tax threshold increased from £125,000 to £250,000.

The nil rate threshold for First Time Buyers’ Relief increased from £300,000 to £425,000 and the maximum amount that an individual can pay while remaining eligible for First Time Buyers’ Relief increased to £625,000.

The changes apply to transactions with effective dates on and after 23 September 2022 in England and Northern Ireland. These changes do not apply to Scotland or Wales which operate their own land transactions taxes.

There are no changes in relation to purchases of non-residential property.

Higher rates may be payable where further residential properties are acquired.

Land Transaction Tax

The Welsh government also altered its rates in relation to land and buildings in Wales for transactions with an effective date on or after 10 October 2022.

Higher rates may be payable where further residential properties are acquired.

Business

Corporation tax rates

It had been previously announced that the expected increase in the rate of corporation tax for many companies from April 2023 to 25% would not go ahead. However the government announced on 14 October 2022 that this increase will now proceed and this has been confirmed.

This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

In addition:

• bank corporation tax surcharge changes will proceed, meaning that from April 2023 banks will be charged an additional 3% rate on their profits above £100 million and
• from April 2023 the rate of diverted profits tax will increase from 25% to 31%.

Capital allowances

The Annual Investment Allowance (AIA) gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur.

Up to 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from capital allowances, generally referred to as ‘super-deductions’. These reliefs are not available for unincorporated businesses.

The government will also extend the 100% first year allowance for electric vehicle chargepoints to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.

Research and Development

For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20% but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%.

Seed Enterprise Investment Scheme

From April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. To support these increases, the annual investor limit will be doubled to £200,000.

Company Share Option Plan

From April 2023, qualifying companies will be able to issue up to £60,000 of Company Share Option Plan (CSOP) options to employees, twice the current £30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.

VAT

The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2024, staying at £85,000 and £83,000 respectively.

Vehicles

The government will set the rates for the taxation of company car benefits until April 2028 to provide long term certainty for taxpayers and industry. Rates will continue to incentivise the take up of electric vehicles.

In addition, from 6 April 2023 car and van fuel benefits and the van benefit charge will increase in line with inflation.

Welfare, work and pensions

Cost of living payments

The government will provide households on means-tested benefits with an additional £900 cost of living payment in 2023/24. Pensioner households will receive an additional £300 and individuals on disability benefits will receive an additional £150.

Uprating of benefits

The government will increase benefits in line with inflation, including the state pension. The standard minimum income guarantee in pension credit will also increase in line with inflation from April 2023.

Raising the benefit cap

The benefit cap will be raised in line with inflation, so that more households will see their payments increase as a result of uprating from April 2023. The cap will be raised from £20,000 to £22,020 for families nationally and from £23,000 to £25,323 in Greater London. For single adults it will be raised from £13,400 to £14,753 nationally and from £15,410 to £16,967 in Greater London.

National Living Wage and National Minimum Wage uprating

The government will increase the National Living Wage (NLW) and National Minimum Wage from 1 April 2023 as follows:

• the rate for 23 year olds and over to £10.42 an hour
• the rate for 21-22 year olds to £10.18 an hour
• the rate for 18-20 year olds to £7.49 an hour
• the rate for 16-17 year olds to £5.28 an hour and
• the apprentice rate to £5.28 an hour.

In-work conditionality for Universal Credit claimants

The government will bring forward the nationwide rollout of the In-Work Progression Offer, starting with a phased rollout from September 2023, to support individuals on Universal Credit (UC) and in work to increase their earnings and move off benefits entirely. This will mean that over 600,000 claimants on UC whose household income is typically between the equivalent of 15 and 35 hours a week at the NLW will be required to meet with a dedicated work coach in a Jobcentre Plus to increase their hours or earnings.

Energy

The Autumn Statement sets out reforms to ensure businesses in the energy sector who are making extraordinary profits contribute more. From 1 January 2023, the Energy Profits Levy will be increased to 35% and extended to the end of March 2028 and a new, temporary 45% Electricity Generator Levy will be applied on the extraordinary returns being made by electricity generators.

The Energy Price Guarantee (EPG) will be maintained through the winter, limiting typical energy bills to £2,500 per year. From April 2023 the EPG will rise to £3,000.

The government is also setting a national ambition to reduce energy consumption by 15% by 2030, delivered through public and private investment, and a range of cost-free and low-cost steps to reduce energy demand.

The post The Autumn Statement 2022 Full Report – what it means for small business owners appeared first on Assure Accountants.

Q1 – As an accountant, what’s the best piece of advice you’d give to a small business owner?

Even after your business has taken off it is still beneficial to budget and be aware of cash flow, ensuring that you always have enough capital to pay for any forecasted expenses, and regularly updating to allow for any adjustments to your business plan. I was once told that most businesses fail in their first year of trade, but this is not necessarily because of the business itself, it would be down to managing cash flow.  Also, always check if anything has changed and to keep updated with any requirements specific to your business, such as insurances or specific software and equipment that would need to help grow the business.

Q2 – What’s the most common topic you’re quizzed about by your clients?

It has to be dividends! With the end of the tax year in sight a lot of our clients are wondering what the tax rates currently are, if they have any unused allowance, and if the rates are changing in the new tax year. Here’s a little background information about dividends, in case you’re wondering what the answers are:

Dividend tax changes – rates will increase from 6 April 2022. The below points highlight the current % you pay based on which tax band you fall into, and what you can expect to pay from April onwards:

• If you’re a basic rate taxpayer – increase from 7.5% to 8.75%
• If you’re a higher rate taxpayer – increase from 32.5% to 33.75%
• If you’re an additional rate taxpayer (for those earning over £150,000) – increase to 39.35%

Self Employed

• If you’re a basic rate taxpayer – increase from 9% to 10.25%
• If you’re a higher rate/additional rate taxpayer – increase from 2% to 3.25%

Employees

• If you’re a basic rate taxpayer – increase from 12% to 13.25%
• If you’re a higher rate/additional rate taxpayer – increase from 2% to 3.25%

The £2,000 dividend allowance isn’t set to change, so you’re able to continue to enjoy the first £2,000 at 0%.

If you have unused allowance then speak to your Vantage Accountant, who will be able to advise the maximum dividend you’re able to take whilst remaining in the lower tax band. Our blog on dividends has a deeper look at the facts and figures behind the upcoming changes should you want to take a more in-depth look at dividends, or alternatively speak to your accountant.

Q3 – The Spring Statement is due March 23^rd. What would you like to see announced that would really help small business owners?

In an ideal world after the last few years that everyone has been through, it would be great to hear that decreases to rates would be announced in the Statement, but unfortunately HMRC will be trying to make up for the grants they have helped some businesses with during this time. As inflation has increased it would be handy if lower VAT rates were introduced to entice businesses and individuals to keep spending, along with maybe an increase in the VAT registration threshold to help small businesses trade for a little longer before they are required to register. Many of these things are the same points that come up year after year, but one can always hope.

Q4 – If a small business is just starting out, what’s the first thing they should do (other than sourcing a reliable accountant!)?

It is not uncommon to make a loss in your first year of trade, as you are starting out you will have a lot of expenses or capital assets that you may need to consider whilst your business kicks off. It would be within your interest to get up to speed and set reminders for when your accounts and tax will be due, alongside the tax rates for your business so you know how much to keep aside for your tax liability at the end of the year so it isn’t a surprise – HMRC don’t wait to send out penalties for any late filings. These are all things we can help with so please feel free to get in touch if you have any queries. Also, from the moment you start trading it is ideal to keep ahead of the game and stay organised with your accounting records. Make sure all receipts are kept and recorded in a spreadsheet or software to keep an eye on your costs throughout the year.

Q5 – What piece of advice would you give to your clients who have been in business for a while?

One thing is certain with what we have learned with Covid, the world can change suddenly, so you should make sure that your business is diverse enough for future change. It is always a good idea to budget and plan throughout the year and not just at the end when your accounts are complete, allowing for any variances that could happen as and when they arise, such as a regular customer not paying you. Alternatively, if you have been in business for a while and have built up some spare funds, utilising them in the best way can help benefit you in the long run. It is always a good idea to keep some cash aside for anything that can come up, but it may be beneficial to check if there are any specific allowances that you can take advantage from to use some of the surplus cash, such as the temporary super allowance with 130% tax relief on qualifying assets, or maybe contributing into a pension might suit you as another way of getting some tax relief.

Q6 – For seasoned small business owners, is there any tax legislation they should particularly be focusing on this year to help maximise their take home pay?

Understanding your tax thresholds and what you’re entitled to is the best way to make the most from what’s available to you, and therefore make the most from your take home pay. We’ve recently written a blog that details what you can do before 5 April 2022 to make the most from your tax allowances, and another blog that looks ahead to the new tax year, and what you can be doing to get a head start. Your Vantage Accountant will also be able to advise you further, based on your personal and professional goals.

Q7 – What’s your favourite part about being a Vantage accountant?

I like being able to help people wherever I can, whether it be with something simple like advising their forecasted tax to plan at the end of the year for, or something in a bit more detail like intercompany loans. It is also great to build relationships with clients and learning about the different varied businesses they have and what they do, enabling me to help advise for each client individually.

Q8 – Tell us something about you personally that your clients won’t know

I like to be as eco-friendly as possible and have tried to increase my recycling over the last few years, finding places outside of my local council collection to venture to. I was amazed to find that there are all sorts of recycle schemes, ranging from toothpaste tubes and make up brushes to a variety of all sorts of plastics.

Q9 – What do you enjoy doing when you’re not helping Vantage clients

I like the natural world so when I am outside the flat I like to explore new places, whether it be off path deep in the forest or far down a coastline somewhere, half the fun is finding your way back home before it gets too dark. On a rainy day I like to look after and propagate my plants, its great watching them grow from seed and watching them flourish.

Q10 – What made you decide to become an accountant?

When I was at school, numbers were one of the things that always made sense to me. When it came to number puzzles and problems, mathematics felt like second nature to me. As an added bonus I always enjoyed any challenge and love my spreadsheets outside of work too, so who wouldn’t want a job they enjoy! I have also never really liked the fact that HMRC like to take as much tax as they can, so I thought it looked like a perfect opportunity to try and put the two together, helping business owners run their business in the most tax efficient way.

The post Meet your Assure Accountants team – Lucy Eve appeared first on Assure Accountants.

The Chancellor Rishi Sunak presented his third Budget on 27 October 2021. In his speech he set out the plans to “build back better” with ambitions to level up and reduce regional inequality.

Main Budget proposals

Tax measures include:

• a new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022/23
• a change in the earliest age from which most pension savers can access their pension savings without incurring a tax charge. From April 2028 this will rise to 57
• the retention of the £1 million annual investment allowance until 31 March 2023
• individuals disposing of UK property on or after 27 October 2021 now have a 60 day CGT reporting and payment deadline, following the completion of the disposal.

Other measures include:

• a complete overhaul of alcohol duties that will see drinks taxed on their strength
• the cancellation of the previously announced rise in fuel duties
• pubs supported with a reduction in draught beer and cider duty
• increases in the National Living Wage and the National Minimum Wage rates
• an ultra-long-haul band of air passenger duty introduced.

Some Budget proposals may be subject to amendment in the Finance Bill 2021-22. Should you need any further help or support please contact us.

Personal Tax

The personal allowance

The personal allowance is currently £12,570. The Chancellor announced in the March 2021 Budget that the personal allowance will be frozen at £12,570 for the tax years 2022/23 to 2025/26.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So there is no personal allowance where adjusted net income exceeds £125,140.

The marriage allowance

The marriage allowance permits certain couples, where neither party pays tax in the tax year at a rate other than the basic rate, to transfer £1,260 of their personal allowance to their spouse or civil partner.

Tax bands and rates

The basic rate of tax is 20%. In 2021/22 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance.

At Spring Budget 2021, the Chancellor announced that the basic rate band will be frozen at £37,700 for the tax years 2022/23 to 2025/26. The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these years.

Individuals pay tax at 45% on their income over £150,000.

Scottish residents

The tax on income (other than savings and dividend income) is different, for taxpayers who are resident in Scotland, from that paid by taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

In 2021/22 there are five income tax rates which range between 19% and 46%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK. The two higher rates are 41% and 46% rather than the 40% and 45% rates that apply to such income for other UK residents. Currently the 41% band applies to income over £43,662 for those who are entitled to the full personal allowance. The 46% rate applies to income over £150,000.

The Scottish Government will announce the Scottish income tax rates and bands for 2022/23 in the Scottish Budget on 9 December.

Welsh residents

From April 2019, the Welsh Government has had the right to vary the rates of income tax payable by Welsh taxpayers (other than tax on savings and dividend income). The UK government has reduced each of the three rates of income tax paid by Welsh taxpayers by 10 pence. For 2021/22 the Welsh Government has set the Welsh rate of income tax at 10 pence which has been added to the reduced rates. This means the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers.

The Welsh Government will publish its Draft Budget for 2022/23 on 20 December.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.

Tax on dividends

The first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates for 2021/22:

• 5% for basic rate taxpayers
• 5% for higher rate taxpayers
• 1% for additional rate taxpayers.

In September 2021 the government announced an increase to the rates of dividend tax by 1.25% from 6 April 2022 to help fund the new planned investment in health and social care. The new rates will therefore be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Green National Savings and Investment (NS&I) product

In the Spring Budget 2021 the government announced  a green retail savings product through NS&I. The Bonds are now available to buy online and offer savers a chance to support green projects at a fixed rate of 0.65% pa over a three-year term. The Bonds are available to those aged 16 or over, with a minimum investment of £100 and a maximum limit of £100,000 per person. The interest is taxable in the tax year the Bond matures.

The UK’s inaugural sovereign green bond (or ‘green gilt’) was launched in September 2021, and was followed by a second issuance in October 2021. They are the first sovereign green retail product of their kind in the world.

Universal Credit

The Universal Credit taper rate is reduced from 63% to 55%, meaning Universal Credit claimants will be able to keep an additional 8p for every £1 of net income they earn.

Increase to the normal minimum pension age

The current earliest age at which most pension savers can access their pension savings without incurring a tax charge is age 55. From April 2028 this earliest age will rise to 57.

This measure will affect individuals born after 5 April 1973 whose earliest date to access their pension benefits will see a two-year delay to those born on or before that date.

Pensions – Scheme Pays

Although there are no limits to how much an individual can save or accrue in a registered pension scheme, there is an overall limit on the amount of an individual’s tax-relieved annual pension savings or accrual which includes employer contributions. This is known as the annual allowance and the standard annual allowance is currently £40,000, but in some circumstances this is reduced, with the maximum reduction taking it down to £4,000.

An individual’s unused annual allowance from the three previous tax years can be carried forward and added to the annual allowance. However, if the individual’s pension savings for the tax year exceed their annual allowance, the annual allowance tax charge is applied to the excess.

Although this tax liability would normally be the individual’s liability it is possible for them to elect for the pension scheme administrator to be jointly liable.

Where an individual has inputted more than £40,000 and their annual allowance charge exceeds £2,000 the individual can request that their pension company pays the charge for them in return for an equivalent reduction in the value of their pension pot. This is called mandatory Scheme Pays.

From April 2022 there will be a change to the rules for certain pension schemes to remove anomalies where the tax charge has arisen due to a retrospective change of facts, the tax charge is £2,000 or more and the individual requests the pension scheme pays the amount. This measure applies retrospectively from 6 April 2016.

Employment

National Insurance Contributions (NICs)

In September 2021 the government published its proposals for new investment in health and social care in England. The proposals will lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government will introduce a UK-wide 1.25% Health and Social Care Levy based on the NIC system but ring fenced for health and social care.

The Health and Social Care Levy Act provides for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates will decrease back to 2021/22 levels and will be replaced by a new 1.25% Health and Social Care Levy.

Broadly, the new Health and Social Care Levy will be subject to the same reliefs, thresholds and requirements as NIC. However the Levy (as opposed to the temporary increase in NICs for 2022/23) will also apply to those above State Pension age who are still in employment.

Existing reliefs for NICs to support employers will apply to the Levy. Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in Freeports will not pay the Levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new Freeport employees.

The Employment Allowance, which reduces employers’ Class 1 NICs by up to £4,000, will also be available for the employers’ liability to the Levy.

National Living Wage (NLW) and National Minimum Wage (NMW)

Following the recommendations of the independent Low Pay Commission, the government will increase the NLW for individuals aged 23 and over by 6.6% from 1 April 2022. The government has also accepted the recommendations for the other NMW rates to be increased.

From 1 April 2022, the hourly rates of NLW and NMW will be:

• £9.50 for those 23 years old and over
• £9.18 for 21-22 year olds
• £6.83 for 18-20 year olds
• £4.81 for 16-17 year olds
• £4.81 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.

Power to make temporary modifications of taxation of employment income

This will allow HM Treasury, under ministerial direction, to make regulations to make temporary modifications to existing legislation for a period of up to two tax years in the event of a disaster or emergency of national significance as determined by HM Treasury. This will enable the government to support taxpayers, for example by:

• exempting benefits in kind of a specified description from income tax where appropriate
• changing the qualifying conditions for exemptions on benefits in kind
• exempting specified reimbursements from the charge to income tax
• providing relief for specified expenses.

This will have effect on and after the date of Royal Assent to the Finance Bill 2021-22.

Business

Making Tax Digital for income tax

The Making Tax Digital (MTD) regime is based on businesses being required to maintain their accounting records in a specified digital format and submit extracts from those records regularly to HMRC. It had been expected that sole trader businesses and landlords with business income of more than £10,000 per annum would be required to enter the MTD regime for income tax purposes from 6 April 2023. However, HMRC recently announced that this will be deferred until 6 April 2024. Early adoption of digital record keeping and voluntary submission of MTD for income tax data remains possible.

Following the deferral for sole trader businesses and landlords, general partnerships will not be required to comply with MTD for income tax until 6 April 2025 and the date other types of partnerships (for example limited liability partnerships) will be required to comply will be confirmed in the future.

HMRC has also confirmed that the new system of penalties for the late filing and late payment of tax for income tax self assessment will be aligned with when a taxpayer becomes mandated into MTD for income tax. For individuals without trade or property income or otherwise exempt from MTD for income tax, the new penalty regime will apply to their income tax affairs from 6 April 2025.

MTD for corporation tax

HMRC has previously announced that MTD for corporation tax will not be mandated before 2026.

Accounting periods that are not aligned to tax years

Aligned to the revised start date for MTD for income tax, changes will be made to simplify the rules under which trading profits made by self-employed individuals and partnerships are allocated to tax years.

The changes mainly affect unincorporated businesses that do not draw up annual accounts to 31 March or 5 April. The transition to the new rules will take place in the 2023/24 tax year and the new rules will come into force from 6 April 2024.

Affected self-employed individuals and partnerships may retain their existing accounting period but the trade profit or loss that they report to HMRC for a tax year will become the profit or loss arising in the tax year itself, regardless of the chosen accounting date.  Broadly this will require apportionment of accounting profits into the tax years in which they arise.

This change will potentially accelerate when business profits are taxed but transitional adjustments in 2023/24 are designed to ease any cashflow impact of the change.

Corporation tax rates

The main rate of corporation tax is currently 19%. In the Spring Budget 2021, the Chancellor announced the rate would remain at 19% until 1 April 2023 but the rate will then increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

Capital allowances

Plant and machinery

Most corporate and unincorporated businesses are able to utilise a £200,000 annual investment allowance (AIA) to claim 100% tax relief on their qualifying expenditure on plant and machinery. The allowance was temporarily increased to £1 million for expenditure incurred on or after 1 January 2019 and was due to revert back to £200,000 from 1 January 2022. The £1 million allowance will now be retained until 31 March 2023.

Transitional rules will apply to accounting periods that span 1 April 2023.

For companies, this aligns the end of the temporary AIA with the end of the ‘super-deductions’ as announced by the government in Spring Budget 2021.

Structures and Buildings

A Structures and Buildings Allowance (SBA) was introduced with effect from 29 October 2018 to relieve costs for new structures and buildings used for qualifying purposes. A business must hold an allowance statement containing certain information to be eligible to claim SBA. Minor changes will be made to the allowance statement requirements to clarify the information required to be kept.

Annual Tax on Enveloped Dwellings

The Annual Tax on Enveloped Dwellings (ATED) charges increase automatically each year in line with inflation. The ATED annual charges will rise by 3.1% from 1 April 2022 in line with the September 2021 Consumer Price Index.

Residential Property Developer Tax

A new tax will be applied from 1 April 2022 on company profits derived from UK residential property development. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million. For companies that are part of a group, the £25 million allowance will be allocated by the group between its companies.

Cultural relief

The government has announced that it will temporarily increase cultural tax reliefs for theatres, orchestras, museums and galleries across the UK from 27 October 2021 to 31 March 2024, increasing the relief organisations can claim as they invest in new productions and exhibitions.

Changes will also be introduced to better target the cultural reliefs and ensure that they continue to be safeguarded from abuse. These will apply from 1 April 2022.

Research and Development relief reform

Research and Development (R&D) tax reliefs for companies will be reformed to:

• support modern research methods by expanding qualifying expenditure to include data and cloud costs
• more effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK
• target abuse and improve compliance.

These changes will take effect from April 2023.

Cross-border group relief

Following the UK’s exit from the European Union (EU), the government is bringing the corporation tax group relief rules relating to European Economic Area (EEA) resident companies into line with those for non-UK companies resident elsewhere in the world. This applies to accounting periods ending on or after 27 October 2021 and will affect UK groups with subsidiary companies established in the EEA along with EEA-resident companies that are trading in the UK through a permanent establishment.

Online Sales Tax

The government has announced its plans to consult and explore the arguments for and against the introduction of an ‘Online Sales Tax’.

Should such a tax be introduced in future, it would raise revenue to fund business rates reductions.

Business rates review

Business rates have been devolved to Scotland, Northern Ireland and Wales.

The government announced at Budget 2020 that it would conduct a fundamental review of the business rates system in England. The government’s objectives for the review were reducing the overall burden on business, improving the current business rates system and allowing the consideration of more fundamental changes in the long term.

In March 2021, the government published the Interim Report of the review. The Final Report was published on 27 October 2021. Collectively, these set out the government’s commitments by:

• Supporting local high streets as they adapt and recover from the pandemic by introducing a new temporary business rates reliefin England for eligible retail, hospitality and leisure properties for 2022/23. Over 90% of retail, hospitality and leisure businesses will receive at least 50% off their business rates bills in 2022/23.  This amounts to support worth more than double the relief that was announced pre-COVID for the 2020 to 2021 financial year and includes additional businesses such as hotels, gyms and bowling alleys.
• Cutting the burden of business rates for all businesses by freezing the multiplierfor 2022 to 2023.
• Introducing a new relief to support investment in property improvements, enabling occupying businesses to invest in expanding their properties and making them work better for customers and employees.
• Introducing new measures to support green investmentand the decarbonisation of non-domestic buildings. This will provide exemptions for eligible green plant and machinery such as solar panels, wind turbines and battery storage used with renewables and electric vehicle charging points, as well as a 100% relief for low-carbon heat networks that have their own rates bill.
• Making the system fairer by moving to three-yearly revaluations from 2023.
• Providing stability ahead of the 2023 revaluation by extending Transitional Relief and the Supporting Small Business Scheme for 2022 to 2023to protect small businesses from significant bill increases in the final year of the current revaluation cycle.

Capital Taxes

Capital gains tax (CGT) rates

No changes to the current rates of CGT have been announced. This means that the rate remains at 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains, mainly chargeable gains on residential properties, with the exception of any element that qualifies for Private Residence Relief.

There is still potential to qualify for a 10% rate, regardless of available income tax basic rate band, up to a lifetime limit for each individual. This is where specific types of disposals qualify for:

• Business Asset Disposal Relief (BADR). This is targeted at directors and employees who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met. It can also apply to owners of unincorporated businesses.
• Investors’ Relief. The main beneficiaries of this relief are investors in unquoted trading companies who have newly-subscribed shares but are not employees.

Current lifetime limits are £1 million for BADR and £10 million for Investors’ Relief.

CGT annual exemption

The CGT annual exemption will be maintained at the current level of £12,300 for 2022/23 and up to and including 2025/26.

CGT reporting and payment following a property disposal

UK resident individuals who dispose of UK residential property are sometimes required to deliver a CGT return to HMRC and make a payment on account of CGT within 30 days of completion of the property disposal. Broadly, this only applies where the property disposal gives rise to a CGT liability and as such usually excludes the disposal of a property to which private residence relief applies.

Non-UK residents are subject to similar deadlines in respect of the disposal of all types of UK land and property.

In both cases, for disposals that complete on or after 27 October 2021, the reporting and payment deadline is extended to 60 days following the completion of the disposal.

From the same date, changes will clarify that for UK residents disposing of a mixed use property, only the portion of the gain that is the residential property gain is required to be reported and paid.

Inheritance tax (IHT) nil rate bands

The nil rate band has been frozen at £325,000 since 2009 and this will now continue up to 5 April 2026. An additional nil rate band, called the ‘residence nil rate band’ (RNRB) is also frozen at the current £175,000 level until 5 April 2026. A taper reduces the amount of the RNRB by £1 for every £2 that the ‘net’ value of the death estate is more than £2 million. Net value is after deducting permitted liabilities but before exemptions and reliefs. This taper will also be maintained at the current level.

Other Matters

Tonnage Tax

The UK’s tonnage tax regime will be reformed from April 2022 to help the UK shipping industry grow and compete in the global market. The reform is intended to make it easier for shipping companies to move to the UK, ensure they are not disadvantaged compared with firms operating in other countries, and reduce unnecessary administrative burdens.

Landfill Tax

As announced at Spring Budget 2021 both the standard and lower rates of Landfill Tax will increase from 1 April 2022 in line with the Retail Prices Index (RPI).

Gaming Duty

The government will raise the bandings for Gaming Duty in line with inflation. The new bandings will affect Gaming Duty accounting periods commencing on or after 1 April 2022.

Vehicle Excise Duty (VED)

The government will increase VED rates for cars, vans, motorcycles, and motorcycle trade licences in line with RPI with effect from 1 April 2022.

For heavy goods vehicles, VED continues to be frozen in 2022/23. The HGV Levy is suspended for another 12 months from 1 August 2022.

Tobacco Duty

Increases in Tobacco Duty rates take effect from 27 October 2021 and the government will legislate in Finance Bill 2021-22 to introduce tougher sanctions to tackle Tobacco Duty evasion.

Alcohol Duty

Rates of Alcohol Duty were not changed in this Budget. The government is publishing a consultation on its detailed proposals for Alcohol Duty reform. These include:

• changes to duty structures
• new rates for some products sold on draught
• extension of small producer reliefs
• simplification of the administrative regime.

In addition alcohol duties have been frozen to February 2022.

Air Passenger Duty (APD)

The government will introduce a new domestic band for APD for reduced rate and standard rate travel, covering flights within the UK. In addition, a new ultra-long-haul band will be introduced, covering destinations with capitals located more than 5,500 miles from London. These changes will take effect from 1 April 2023.

Freeports

The government announced its plans for Freeports in 2020. Freeports are specified geographical areas that allow certain benefits to businesses operating within them. The main VAT benefit is that businesses selling goods within free zones will be able to zero-rate their supplies. Services carried out on goods in those zones may also be zero-rated subject to conditions. The government will introduce an additional element to the VAT free zone model for Freeports. This will implement a free zone exit charge to ensure businesses do not gain an unintended tax advantage from the zero-rate in the free zone model. The measure will take effect from 3 November 2021.

VAT on second-hand cars sold in Northern Ireland

In a measure that will be backdated to 1 January 2021, motor dealers in Northern Ireland will be able to include motor vehicles sourced from Great Britain in their second-hand margin scheme calculations. This measure will apply should a relevant agreement be reached with the EU.

Second-hand Motor Vehicle Export Refund Scheme

Under this scheme, businesses that remove used motor vehicles from Great Britain for resale in Northern Ireland or the EU may be able to claim a refund of VAT following export. The power will come into effect on Royal Assent of Finance Bill 2021-22. Legislation outlining the detail of the scheme will be introduced in 2022.

VAT treatment of fund management fees

A consultation will take place on options to simplify the VAT treatment of fund management fees.

VAT penalties

Budget documents confirm that the new late submission and late payment penalties for VAT will still come into effect for VAT registered businesses for accounting periods starting on or after 1 April 2022, as announced at Spring Budget 2021.

Plastic Packaging Tax

Draft legislation has been issued to establish a Plastic Packaging Tax. This is a new tax that applies to plastic packaging produced in or imported into the UK, that does not contain at least 30% recycled plastic. Plastic packaging is packaging that is predominantly plastic by weight.

The tax rate will be £200 per tonne of non-compliant plastic packaging. There will be an exemption for businesses that manufacture or import less than ten tonnes of plastic packaging per year. The tax will take effect from April 2022.

The post The October Budget 2021 – what it holds for small business owners appeared first on Assure Accountants.

In this blog we explore just that, to give you an idea what it’s like to operate as a sole trader, and whether it’s the right business model for you.

What is a sole trader?

A sole trader is a person who owns and runs their business as an individual, and whose company isn’t classed as a separate legal entity from them as a person. For more information and a detailed look into what a sole trader is and how they operate, take a look at our blog.

Are sole traders entitled to claiming expenses?

Absolutely! Some people believe that you have to have your own Limited Company in order to be able to claim expenses, but that simply isn’t the case. Whilst you’re not able to claim as many expenses as someone who’s limited, you’re still entitled to claim certain tax reliefs.

What is tax relief?

By claiming tax relief on your business expenses (so long as they’re allowable) you’re able to keep hold of more of your sole trader income. Tax relief can be used to offset against your taxable profits, when you file your self-assessment tax return with HMRC.

If you’re VAT registered you’ll also be able to claim the VAT you’ve paid on goods and services for your business in your quarterly returns.

What can you claim as an expense?

Uniform or work clothing – If the uniform you wear for your work is exclusively for this use, then you’re able to claim the tax back. However, if the clothing could also be used for everyday wear, (and not therefore purely for the purpose of completing your work), then it won’t be eligible for a work clothes tax rebate. You can read more about this on the GOV.uk website.

Travel and expenses incurred in the running of your vehicle – Whilst you are able to legitimately claim your travel expenses as a sole trader, there are some aspects you need to be aware of. Commonly as a sole trader you’ll use your vehicle for both work and personal use, therefore you’ll only be able to claim for the elements that enable you to complete your job (such as fuel, parking, repairs, servicing, breakdown cover and insurance). Your travel between home and work is not included, nor are any speeding or parking fines.

One option you do have is to claim your business mileage. For the first 10,000 miles travelled in any tax year you’re able to claim 45p per mile, then any additional miles are 25p.

You can also claim for train, plane, or other travel costs, so long as the journeys are solely for business purposes.

Buying or leasing a vehicle

If your job requires you to travel to your client’s premises and you have a number of tools, you’ll more than likely need a van or car. If you purchase one for your business, it will be listed as a fixed asset and classed as a form of ‘plant and machinery’. This will allow you to claim capital allowances on the value of the vehicle, thus reducing your taxable profit.

If you decide to lease rather than buy, you can do so with the following three options:

1. Hire purchase
2. Finance lease
3. Operating lease

Each of these options carry their own rules and regulations when it comes to what you’re able to claim back in tax, so it’s always advisable to discuss your plans with an accountant before making any purchases. For more information on company cars, take a look at our free guide.

Tools and equipment

It’s possible to claim tax relief on the purchase and maintenance of tools and other equipment that is required in order for you to complete your job. When first purchasing equipment, claiming relief will be in the form of capital allowances or as an allowable expense, depending on which basis you’re using, again your accountant will be able to advise you on this.

Household expenses

If you work from home you’re able to claim a portion of your household bills, and the amount you can claim is based on your total bills, the area in which you work and the duration you’ve used it for.

To be able to claim you must make the space in which you work exclusively for this purpose only during working hours, which also allows you to avoid paying Capital Gains Tax when you come to sell your home.

The following expenses are classed as tax deductible:

1. Mortgage interest (excluding the capital repayment aspect)
2. Rent
3. Council tax
4. Electricity, water and heating costs
5. Property repairs and cleaning costs

To calculate the amount you can claim you’ll need to decide how much space your work area takes up from your total overall home. For example if your home has ten rooms and you use one for work, you’ll need to calculate 10% of your household expenses as listed above, divide it by seven, then multiply it by five (or the number of days you work). This will give you the amount you can claim.

Training courses

Training courses are deemed as an allowable expense, but it must be relevant to your chosen field of expertise and give you the opportunity to further your career. For example, if you were a plumber and needed to complete training in order to learn the latest safety information, this would be claimable.

HMRC’s tool to help you see if an expense is claimable

HMRC’s simplified expenses calculator allows you to see if your business costs are allowable. It allows you to determine your business expenses using flat rates rather than calculating it as a specific cost to your business. Flat rates can be used to cover:

• Business costs for cars and vans
• Working from home costs
• Living costs from running your business from your home

This tool is to be used as a guide rather than an instructional piece of legislation, and as always we advise you running your costs past an accountant to see what you’re able to legitimately claim as a business expense.

How can Vantage help?

We are expert small business Sole Trader accountants with offices in Dorset and Hampshire. If you want the peace of mind that all the legal bits are under control plus the best advice to help you to save more of your hard-earned income, then Assure Accountants can help. We can also advise you on whether you’d be financially better off as a Limited Company or a Partnership.

For a fixed monthly fee, we will submit all the necessary paperwork accurately and on time with HMRC. We’ll be available for advice whenever you need it and help you set up and run your business in the most tax efficient way as possible.

We know tax and accounting inside out, so you don’t have to; trust us to give you the best advice and you can focus on running your business. Get in touch to find out more today.

The post Claiming expenses as a sole trader appeared first on Assure Accountants.

In this blog we explore just that to help you make the right decision for your business.

What is a sole trader?

A person who is self-employed and owns and runs their business as an individual. Being a sole trader means that your business isn’t classed as a separate legal entity from you.

Business control

As a sole trader you have total control over your business, its assets and profits once you’ve paid the tax due. There are also a number of other benefits to becoming a sole trader, such as it being a relatively simple and straightforward way of running your business.

There are, however, downfalls to using this trading method. For example, if you decided to form your own Limited Company your business is classed as a separate legal entity, and therefore your personal finances and liabilities are kept separate from your personal dealings. As a sole trader you don’t form a separate legal entity and therefore you’re liable for any and all of the business risk.

What are the characteristics of a sole trader?

One of the main characteristics of being a sole trader is that you’ll operate both the working and business sides yourself, so there is little to no differentiation between the management and ownership of your business.

What are a sole trader’s obligations?

Whilst there’s no obligation to file accounts or documentation with Companies House, you must register with HMRC. You’ll need to pay income tax on your business’ profits, and National Insurance Contributions (NIC). You will also be required to complete an annual self-assessment tax return, and register for VAT if you earn over £85,000 per year.

What makes you a sole trader and what’s the difference between self-employment?

For tax purposes, a sole trader is always considered as self-employed, but in the same breath not everyone who’s classed as self-employed is a sole trader. In the eyes of HMRC being self-employed means you don’t pay tax through PAYE and you’re therefore not employed by anyone. If you’re self-employed you’ll usually either operate through your own Limited Company, be part of a partnership, or use a sole trader structure.

Sole trader profession examples

The sole trader business structure is traditionally used by (but not limited to) those professionals who operate within the services sector. Such as:

• Plumbers
• Painters and decorators
• Hairdressers
• Personal trainers and fitness instructors
• Freelance creatives (copywriters, graphic designers)
• Private tutors
• Gardeners

What if you want to employ staff?

As a sole trader you’re able to employ casual, part-time or even full-time basis employees. As their employer you will be responsible for collecting their income tax and NIC, and ensuring that it’s paid to HMRC. In order to do so you’ll need to operate a PAYE payroll scheme, which your accountant will be able to advise and help you with.

What are your legal obligations?

Whilst setting up as a sole trader is the easiest and quickest way to get going, there are certain legal obligations and responsibilities which you must adhere to:

• Self-assessment tax return – you’ll need to file an annual self-assessment tax return at the end of every tax year (April 5^th). Your assessment will highlight the amount of tax that’s due on your profits, and that amount will be due for payment by January 31^st the following year. To file your assessment you’ll need to submit a record of your expenses, sales and receipts as well as other relevant records. Again, your accountant will be able to advise you on what’s expected of you, and ensure you’re keeping on top of things.
• National Insurance Contributions – As a sole trader you’ll need to pay both Class 2 and Class 4 NIC. Class 4 NIC is calculated as a percentage of your profits automatically once a year, and is included in your taxes when you complete your tax return. Class 2 NIC is a flat rate contribution which is calculated weekly. You must register for Class 2 NIC, or you’ll end up having to pay whatever’s due in one lump sum at a future date. Registering for Class 2 also means you’ll be eligible for state benefits, and payment can usually be done through your self-assessment.
• Check with your accountant if you need to register for VAT- Registering for VAT is optional if your turnover is below £85,000, and mandatory if you exceed that amount.

By registering you’ll need to keep your bookkeeping records up-to-date and file a VAT return. You’re able to register for VAT online, and by doing so you’ll be given your VAT number, and online VAT account which you’re able to file your VAT return through.

Be advised that if your turnover is still below £85,000 and you plan to do business with other businesses, it’s advisable that you still register for VAT. By doing so you’ll be able to claim the VAT back on business-related purchases and pass the VAT onto your clients, without the need to charge more for your service.

Generally it’s also considered that those sole traders who are VAT registered tend to carry a more professional image than those who aren’t.

• You’ll need to register for PAYE if you employ any staff – as previously mentioned should you decide to employ staff on any basis, legally you’ll need to be registered for PAYE in order to collect income tax and NIC from your employees, which are then paid directly to HMRC. You can do so by registering online for a PAYE reference number and set up a workplace pension scheme. Your accountant will be able to advise you on all of this. Be aware that by employing staff you’ll also need to get employer’s liability cover, pension payments, holiday and paternity / maternity pay and be responsible for ensuring your workplace is safe.

How can Assure Accountants help?

Here at Vantage we help sole traders every day. From ensuring all the legal bits are taken care of, to helping you save more of your hard-earned income, we can help you get started. We can also advise you on which trading model we believe is best for both your personal and professional goals. We know tax inside out so you don’t have to, so get in touch today to find out more.

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