November & December 2022
Technical and Client Update
In this issue
Tax increases and public spending cuts
Freezing income tax bands and more to pay 45% income tax
NIC bands frozen
Dividend income – reduced 0% band
CGT annual exemption cut
VAT registration limits unchanged
Cars, vans and taxation!
R&D ‘rebalancing’
A mini U-turn on SDLT
and remember…
Get ready for new VAT penalties from 1 January 2023
HMRC late payment interest rates revised
“Off-Payroll” working rules continue to apply
Tax Investigation Service
Our Wills Service
Staff entertaining & trivial benefits
Christmas opening hours
Exam Success
Tax increases and public spending cuts
The new Chancellor Jeremy Hunt had warned the public and the financial markets that his Autumn Statement would include “eye-watering” cuts in public spending and tax rises for those with the ‘broadest shoulders’. Unlike the ill-fated Fiscal Event of 23 September, the Government “rolled the pitch” this time with several leaks prior to the event.
Mr Hunt wants to avoid the austerity that followed the 2008 financial crash and is focused on measures that will keep the period of recession as short as possible.
Many pensioners and those on means-tested benefits will be relieved that their 2023/24 payments will be uprated in line with the 10.1% inflation in the year to September 2022. There will also be further support for those struggling with energy bills. But this continued support needs to be paid for and the tax increases and spending cuts will not be popular.
Freezing income tax bands and more to pay 45% income tax
It had already been announced that the income tax personal allowance (£12,570) and higher (40%) rate threshold (£50,270*) would be frozen until 5 April 2026, instead of increasing each year in line with inflation.
The Chancellor has now announced that these freezes will continue until 5 April 2028.
As earnings increase, this will result in more higher rate taxpayers and is often referred to as ‘fiscal drag’ because it will raise more tax without actually increasing income tax rates.
The income level at which point the ‘additional’ 45% rate of income tax starts to apply will be reduced from £150,000 to £125,140* from 6 April 2023.
The new £125,140 threshold ties in with the £12,570 personal allowance being gradually withdrawn for those with income in excess of £100,000. For these individuals, once their income exceeds £125,140, they will no longer be entitled to a personal allowance and, from April 2023, will move straight into 45% income tax.
*It should be noted that, for Scottish taxpayers, income tax rates and thresholds are, for certain income types, separately set by the Scottish government.
NIC bands frozen
Employers will be relieved that there are no more changes to NIC rates and bandings meaning there will also be no further changes required to payroll software!
Like the main income tax bandings, NIC thresholds are now also frozen until 5 April 2028. This means that employers’ NIC will continue to apply at 13.8% to earnings in excess of £9,100 a year (£175 per week) and employees and the self-employed will continue to pay 12% and 9% respectively on earnings/profits between £12,570 and £50,270 and 2% thereafter.
Despite rumours to the contrary, the 1.25 percentage point increase to NIC rates that has just been removed from 6 November 2022, will not be making a return from 6 April 2023.
Dividend income – reduced 0% band
For all individuals, the first £2,000 of dividend income is taxed at 0%.
The government have now decided that this 'dividend allowance’ of £2,000 will be reduced to £1,000 in the 2023/24 tax year and then again to just £500 in the 2024/25 tax year.
It should be remembered that the income tax rates applied to dividend income outside of the allowance have only recently been increased to 8.75%, 33.75% and 39.35% (for dividend income falling into basic rate, higher rate and additional rate bands respectively).
Combined, these measures will mean that those reliant on dividend income will pay more tax. If you are a director/shareholder, please contact us to discuss the best strategy for extracting profits from your company from 6 April 2023.
CGT annual exemption cut
Many were predicting that the rates of Capital Gains Tax (CGT) paid by individuals would increase, possibly to align with the rates of income tax.
Instead, the Chancellor has announced that the current £12,300 annual tax-free CGT exemption (or allowance) will be reduced to just £6,000 in 2023/24 and only £3,000 in 2024/25.
This change will mean that those disposing of investments such as shares, second homes and buy-to-let properties will pay more tax.
If you are planning any capital disposals, please contact us to discuss the best strategy for timing of sale.
Cars, vans and taxation!
For those provided with an electronic or ultra-low emission company car (emitting less than 75g of CO2 per kilometre), there will be annual increases in the benefit-in-kind percentages, and therefore the taxes paid by both employees and employers, from the 2025/26 tax year.
For all other company car users, there will be a 1 percentage point increase (up to a maximum of 37%) in the calculation of the benefit-in-kind in 2025/26 before being fixed for the following two tax years.
The fixed multipliers used to calculate benefits-in-kind on employer provided vans, van fuel (for private journeys in company vans) and car fuel (for private journeys in company cars) will increase in line with the Consumer Price Index (CPI) from 6 April 2023.
The government have also announced that they will introduce Vehicle Excise Duty on electric cars, vans and motorcycles from April 2025.
R&D ‘rebalancing’
The Chancellor has again expressed concerns about the alleged abuse of Research & Development (R&D) tax reliefs.
Alongside plans to merge two existing schemes in future, he announced that, from 1 April 2023:
- The Research and Development Expenditure Credit (RDEC) available to non-SME companies would be increased from 13% to 20%.
- For SME companies, the additional R&D tax relief deduction will be reduced from 130% to 86%.
- For loss-making SME companies, the payable credit will be reduced from 14.5% to 10%.
A mini U-turn on SDLT
One of the few changes announced on 23 September that has not been reversed concerns Stamp Duty Land Tax (SDLT) in England and Northern Ireland.
The starting threshold was increased from £125,000 to £250,000 (and, for First Time Buyers, from £300,000 to £425,000) from 23 September 2022.
However, it has now been announced that these are to be temporary changes and, from 1 April 2025, the thresholds will return to their original rates.
and remember…
As previously announced and as we head into 2023;
- The £1million Annual Investment Allowance - giving 100% tax relief to businesses investing in qualifying plant and machinery - is now permanent.
- The Government is increasing the generosity and availability of certain Venture Capital Schemes, including the Seed Enterprise Investment Scheme for start-up companies.
And finally, in all matters, we are here to help you. Please do get in touch about any of the Autumn Statement measures or otherwise.
Download Autumn Statement PDFGet ready for new VAT penalties from 1 January 2023
For VAT periods starting on or after 1 January 2023, HMRC is replacing the default surcharge with separate penalties for late returns and late payment of VAT. At the same time, HMRC is introducing a new approach to charging interest on late-paid VAT.
The new points-based system for late submissions is designed to be more lenient for the occasional slip-up, whilst still penalising those who repeatedly fail to comply. It will operate in a similar way to the penalty points system for motoring offences. Also, like the system for motoring penalties, the points expire after a period of time.
If your business submits its return late (which also applies if you submit a nil or repayment return late), you could face penalty points and a £200 fine. See the link for details of the new points-based system: https://www.gov.uk/guidance/prepare-for-upcoming-changes-to-vat-penalties-and-vat-interest-charges
HMRC late payment interest rates revised
The Bank of England Monetary Policy Committee voted on 3 November 2022 to increase the Bank of England base rate to 3% from 2.25%.
HMRC interest rates are linked to the Bank of England base rate.
As a consequence of the change in the base rate, HMRC interest rates for late payment and repayment will increase.
These changes come into effect:
- An increase to 4% from 3.25% from 14 November 2022 for quarterly instalment payments.
- An increase to 5.5% from 4.75% from 22 November 2022 for non-quarterly instalments payments.
- An increase to 2% from 1.25% from 22 November 2022 for refunds due on the overpayment of tax.
“Off-Payroll” working rules continue to apply
With all of the U-turns on tax policy in the last couple of months, businesses may be confused about what changes are going ahead and which ones have been scrapped by the new chancellor.
One of the controversial announcements in the mini-budget on 23 September was the abolition of the “off-payroll” rules that apply when workers are engaged via an intermediary, typically their own personal service company (PSC). This was due to take effect from 6 April 2023, restoring the tax rules to the pre-6 April 2017 position and would have reduced the compliance burden on end-user organisations. However, this is one of the many measures that was scrapped by Jeremy Hunt, so the current rules continue to apply.
This means that public sector bodies and large and medium-sized organisations will still need to decide the employment status of every worker who supplies their services through their own intermediary (PSC), even if they are provided through an agency. Whether the organisation qualifies as large or medium-sized is determined by the criteria set out in the Companies Act.
If the off-payroll working rules apply to the relationship, they are required to communicate the worker’s employment status determination to them and also the fee-payer by using a Status Determination Statement (SDS). If the end-user organisation is also the fee-payer, they will need to deduct and pay Income Tax and National Insurance contributions to HMRC.
HMRC suggest that end-users utilise the Check Employment Status for Tax service to help them decide if the off-payroll working rules apply.
For detailed guidance see: April 2021 changes to off-payroll working for clients.
Tax Investigation Service
HMRC conducted 394,000 tax enquiries last year, showing just how many UK taxpayers it suspects of underpaying tax.
HMRC can target anyone who submits a tax return and their highly efficient ‘Connect’ software is accessing and trawling through financial information right now. The powerful system can trace even the smallest discrepancy in spending or earnings, prompting an investigation into individuals and businesses.
With a budget deficit of over £300 billion, we fully expect HMRC to raise more enquiries to increase tax revenue to plug the hole left in the Government’s finances by the economic damage caused by Covid-19. For those who have relied on a Covid-19 support scheme such as the CJRS (furlough scheme), it is likely that HMRC will be looking a lot more closely at tax returns, payments and compliance history. Tax and VAT repayments will also be checked more rigorously alongside the usual full tax investigations.
Humphrey & Co has offered a Tax Investigation Service (TIS) to our clients for several years now, and we invite all our clients to share in the protection offered. Tax investigations can be costly. Investing a small amount into our Tax Investigation Service now means that you will receive complete support if HMRC targets you, at no additional expense.
We believe that we know you and your business best and we want to be there for you when you need us most. We will manage your case from start to finish, reducing stress and providing peace of mind.
Please visit our website for further information on the Tax Investigation Service and how it can protect you.
Our Wills Service
Our Trust & Estate Support Services (TESS) team provide support not only with Trusts and Estates but also with related matters, including inheritance tax advice, drafting Wills and preparing Lasting Powers of Attorney (LPAs).
As part of our Will Service, we register our clients’ signed Wills with The National Will Register and offer to hold our clients’ Wills in our offices for safe keeping. There is no additional or ongoing charge for these services. The article from The National Will Register explains the benefits of both registration and safe keeping.
If you require any further information on our Wills Service or any of the other areas that TESS can advise on, please see the link below or contact one of our team by email or call the office and ask to speak with Sue Pocklington, Amanda Eade or Lucy Coney.
Further Information Contact UsStaff entertaining & trivial benefits
With the Christmas season suddenly on the horizon, principals will be looking at ways to thank their staff for their contributions and hard work during the year. Whatever your plans are, you do need to be aware of the tax implications of entertaining and making such gifts.
Staff entertainment
As an employer providing social functions and parties for your employees, you have certain National Insurance and reporting obligations.
What you need to report and pay depends on:
- if it’s an annual event
- if it’s open to all of your employees
- if it costs more than £150 per head
- how many events you provide during the tax year
- whether the employee is a director, and how much they earn
You might not have to report anything to HM Revenue and Customs (HMRC) or pay tax and National Insurance. To be exempt, the party or similar social function must be all the following:
- £150 or less per head per year
- annual, such as a Christmas party or summer barbecue
- open to all your employees
Trivial benefits
You do not have to report a benefit for your employee if all of the following apply:
- it costs you £50 or less to provide (per employee)
- it is not cash or a voucher that can be exchanged for cash
- it is not a reward for their work or performance
- it is not in the terms of their contract
This is known as a ‘trivial benefit’. You do not need to pay tax or National Insurance or let HMRC know.
The employee will have to pay tax on any benefits that do not meet all of the above criteria.
If a business provides a bottle of wine in a nice gift bag as a Christmas gift, for example, the value of the gift bag should be included in the value of the gift when deciding whether the total value exceeds the trivial benefits limit.
Staff Christmas Bonuses
Staff bonuses issued must be reported through payroll as these are subject to Income Tax and National Insurance.
Bonuses paid to staff must be included in payroll as additional earnings. If you do have plans to pay a bonus, you will need to speak to your payroll provider in advance of the payment to ensure that this is reported to HMRC at the time of payment.
As always, do feel free to contact us if should you require advice.
Exam Success
We are pleased to announce that Eleanor Stracey has passed her exams to qualify as a Chartered Accountant (ACA). Eleanor joined the firm in 2016 as an Apprentice Accounting Technician, qualifying in 2018. She then went on to study towards her Chartered Accountancy qualification (ACA) which she achieved in October of this year. Eleanor works for Partner Andrew Robinson assisting with accounts and tax work for individuals, limited companies and partnerships.
“I’m incredibly proud to have qualified as a Chartered Accountant and I’m extremely grateful for the support and encouragement provided by Humphrey & Co over the years. I look forward to using the knowledge I have gained throughout my studies to provide the best possible service in assisting our clients with their accounting and tax needs.” said Eleanor.
Senior Partner Anthony Smith comments “Eleanor has shown complete commitment throughout her studies and we are thrilled she has achieved success. We look forward to putting her skills to good use and combining those with her broad experience to deliver the best possible service that our clients expect and enjoy.”
We are delighted to have yet more exam success within the firm and congratulate Eleanor on all her hard work in achieving this qualification.