August 2023

Technical and Client Update

In this issue

Deadline for topping up NI contributions extended again to 5 April 2025

Super-deduction replaced by “full expensing”

Can we still be paid £6 a week for working from home?

Keeping pace with inflation

Deadline for topping up NI contributions extended again to 5 April 2025

With all of the changes to personal pensions in the Spring Budget, maximising the State Pension entitlement should not be overlooked. The full rate of new State Pension increased to £203.85 per week (£10,600 pa) from 6 April 2023; a 10.1% increase over the 2022/23 rate as a result of the “triple lock” being restored.

At least 10 qualifying years are required to qualify for a UK State Pension, with full State Pension entitlement at 35 qualifying years. Individuals should log into their Government Gateway account to check their contribution record as they may be entitled to credit for missing years, for example if they were on maternity leave or a carer. They can also check how many more qualifying years they need for a full State Pension and, if necessary, make additional national insurance (NI) contributions for missing years.

Normally it is only possible to make voluntary NI contributions for the past 6 tax years, to top up any missing or partial years.  The Government announced an extended deadline to allow taxpayers to make NI contribution in respect of missing years going back to April 2006.  This opportunity was originally scheduled to end on 5 April 2023 and was then extended to 31 July 2023.  The deadline has now been extended to 5 April 2025.

Class 3 voluntary NI contributions made before 5 April 2025 will be at the Class 3 voluntary NI rates for the 2022/23 tax year of £15.85 per week, or £824.20 for each full year.

Super-deduction replaced by “full expensing”

In the Spring Budget the Chancellor announced that “full expensing” - 100% relief for new, eligible plant and machinery - would replace the 130% super-deduction from 1 April 2023 for limited companies. This is in addition to the £1 million annual investment allowance (AIA) and will be available for expenditure incurred up to 31 March 2026.

Unlike with AIA, the equipment must be new and must qualify for inclusion in the capital allowances main pool.  The legislation specifically excludes motor cars and assets for leasing. The items purchased are not pooled with other equipment, and a separate record needs to be kept of each piece of equipment. That is because there is a clawback charge based on the disposal value of the asset.

Where the company’s year end straddles 31 March 2023, the amount of super-deduction is pro-rated. For example, if the company had a year end of 30 September 2023, and incurred expenditure on a new machine before 31 March 2023, there would be 115% relief for that equipment. A new lorry purchased in May 2023 would only qualify for 100% full expensing.

Where a company buys new equipment that would normally be dealt with in the capital allowances special rate pool, such as the installation of air conditioning or central heating, the 50% first year allowance (FYA) continues to apply until 31 March 2026. The balance of expenditure would then be dealt with in the special rate pool with a 6% writing down allowance per annum on a reducing balance basis. Where the £1 million AIA is available it would be more advantageous to claim AIA at 100%, rather than the 50% FYA.

Can we still be paid £6 a week for working from home?

During the COVID pandemic the government relaxed the conditions to enable those working from home to be paid £6 a week tax free by their employer, or, where that was not paid by the employer, they could claim relief for £6 a week against their employment income for a tax refund from HMRC. Those relaxed rules applied for 2020/21 and 2021/22. Many employers and employees may not be aware that from 6 April 2022 the rules reverted to the strict statutory position.

Employees can claim tax relief if they have to work from home under a home-working agreement, for example because:

  • their job requires them to live far away from the office,
  • their employer does not have an office, or
  • the office is closed every Friday and employees are required to work from home that day.

Tax relief cannot be claimed if the employee chooses to work from home.

Keeping pace with inflation

Strategies to manage the challenges of the current inflationary business environment.

Inflation has resulted in businesses grappling with escalating production costs, dwindling purchasing power, and the urgent need for pricing strategy recalibration. Here are some strategies to help firms deal with inflation:

Monitoring and projections

Businesses should closely track key economic indicators and the effect of inflation on their respective sectors of the market. By keeping up to date on pricing trends, input costs, and market conditions, firms can proactively adapt their tactics to counteract inflationary pressures.

Pricing

Conducting a thorough review of pricing structures is imperative to reflect the changing cost landscape. Embracing dynamic pricing strategies that allow for real-time adjustments based on market fluctuations ensures that businesses can navigate inflation without compromising profitability. If your material costs, staff costs and general costs of doing business are going up, then your prices need to rise accordingly.

Cost Optimisation

Prudent management of operational costs can make all the difference. Analyse existing processes and seek opportunities for efficiency enhancement and waste reduction. Negotiate supplier contracts in order to insulate against escalating prices. In addition, look for opportunities to reduce costs through reduced business travel, expenses, etc.

Strategic supplier sourcing

A diversified supplier base provides insulation against supply chain disruptions and potential price hikes. Consider entering long-term contracts or employing hedging strategies to lock in favourable pricing terms and safeguard against future inflationary pricing shocks.

Retain your staff

Recruitment costs money. Its far cheaper to keep the people that you already have. Ensuring employee satisfaction in the face of rising inflation can be challenging so ensure you regularly reassess and adjust compensation packages to offset mounting living costs, where possible. Performance-based incentives and profit-sharing schemes align employee interests with organisational objectives and can go some way towards mitigating against the demand for higher salaries.

Financial planning and discipline

Good financial planning and budgeting are indispensable. Maintaining ample cash reserves will ensure that your business is ready to weather unforeseen challenges and even capitalise on new opportunities when the time is right to do so. Regularly reassessing debt levels and interest rates can help you to manage your firm’s financials effectively. Focus on reducing debtor days and consider appropriate strategies to get clients to make their payments quickly and efficiently.