September 2022
Technical and Client Update
In this issue
New approach for a new era?
UK Government outlines plans to help households and businesses with energy bills
Back to School – Childcare Vouchers or Tax-Free Childcare Account?
Interaction with Childcare Voucher schemes
Self-employed need to plan for big tax bills in 2023/24
Proposed changes to CGT on separation
Register of Overseas Entities
Exam success
New approach for a new era?
Last week, the Bank of England (BOE) raised interest rates to 2.25%, the highest level since 2008. They believe the UK economy has shrunk by 0.1% between July and September and, for the seventh time in a row, has made the increase to interest rates in an attempt to halt soaring prices. Inflation is at its highest since the 1980s and prices are expected to rise further in October, with inflation peaking at just under 11%.
We will have more insight in November when the BOE will work out the effect of the government’s recent interventions to bring down inflation and ease the cost-of-living crisis, albeit with vastly increased borrowing.
On Friday the Chancellor Kwasi Kwarteng announced a series of “growth” measures that the government thinks will help businesses and households get through this winter and beyond.
The chancellor announced:
- The 1.25% percentage point rise in National Insurance contributions will be reversed from 6 November 2022 and the government will not go ahead with the planned April 2023 levy to fund health and social care.
- The planned increase in corporation tax from 1 April 2023 will not happen and it will remain at 19%, irrespective of the level of company profits.
- The basic rate of income tax will be cut from 20% to 19% from April 2023.
- Dividend tax rates will reduce by 1.25 percentage points from April 2023.
- The 45% and 39.35% ‘additional rates’ of income tax that apply to income over £150,000 will be abolished from 6 April 2023.
- The annual investment allowance, allowing 100% tax relief on certain capital expenditure including computer equipment and vans, will remain at £1million beyond April 2023, when a reduction had been planned.
- From April 2023, workers providing services via an intermediary will once again be responsible for determining their employment status and paying the correct amount of tax and National Insurance contributions under the IR35 rules. The complex ‘off-payroll’ working rules for larger employers will be repealed.
- New ‘Investment Zones’ are to be established across England, with the Government currently in discussions with 38 local authorities. Within each Zone there will be targeted and time limited tax cuts for businesses on offer. The 38 local authorities taking part in discussions can be viewed here.
- A possible future extension to the tax-advantaged Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT). In relation to the Seed Enterprise Investment Scheme (SEIS), there will be a widening of the criteria, allowing companies to raise £250,000 under the scheme, 66% more funding than previously.
- Enhancements to the tax advantaged Company Share Option Plan (CSOP) scheme. The maximum employee share option limit will be increased from £30,000 to £60,000 for any new options granted from 6 April 2023. There will also be increased flexibility for share options granted from 6 April 2023 due to a removal of conditions around the class of shares used.
- Modifications will be made to the Universal Credit regime, to support claimants to secure more or better paid work.
- Stamp Duty Land Tax (SDLT) in England and Northern Ireland has been permanently cut from 23 September 2022. The cut is delivered by an increase in the threshold before SDLT is payable from £125,000 to £250,000. First time buyers currently pay no stamp duty on the first £300,000 and that will be raised to £425,000. The revised rates table can be viewed here.
- VAT-free shopping for overseas visitors is to be introduced as soon as possible.
- A package of measures to help households and businesses with energy bills.
UK Government outlines plans to help households and businesses with energy bills
For households
To provide immediate support for households, an Energy Price Guarantee (EPG) will cap the unit price that consumers pay for electricity and gas. This will mean the average household will pay no more than £2,500 per year for a period of two years from October 2022, and is expected to save at least £1,000 a year, although savings for individual households will vary according to their energy use. The discount is automatic and there is no need to apply or contact energy suppliers.
The EPG is in addition to the £400 support all households will receive from the Energy Bills Support Scheme (EBSS) over the coming winter.
The government will also provide an additional payment of £100 to compensate for the rising costs of alternative heating fuels for UK households not able to receive support for heating costs through the EPG, for example if they are living in an area of the UK that is not served by the gas grid. See: Energy Bills Support Factsheet
For businesses
Through a new Energy Bill Relief Scheme (EBRS), the government will provide a discount on wholesale gas and electricity prices for all non-domestic customers (including UK businesses, voluntary sector organisations like charities and public sector organisations such as schools and hospitals) whose current gas and electricity prices have been significantly inflated in light of global energy prices. This support will be equivalent to the EPG put in place for households.
It will apply to fixed price contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts. It will initially apply to energy usage from 1 October 2022 to 31 March 2023, before a review is undertaken to inform decisions on future support. The savings will be first seen in October bills, which are typically received in November.
As with the EPG for households, customers do not need to take action or apply to the scheme to access the support. Discounts will automatically be applied to bills. See: Energy Bill Relief Scheme: help for businesses and other non-domestic customers.
Back to School – Childcare Vouchers or Tax-Free Childcare Account?
There continues to be poor take-up of the Government’s Tax-Free Childcare Accounts which provide a 25% subsidy towards the cost of childcare.
The system operates by topping up savings of up to £8,000 per child by 25%, potentially an extra £2,000 from the Government to spend on qualifying childcare. The scheme applies to children under 12 and the account can be used to pay nursery fees, breakfast clubs, after school clubs and registered childminders. In contrast childcare vouchers may be used to pay for childcare up to age 16. Despite the PAYE and NIC advantages not all employers provided childcare vouchers.
Tax free childcare accounts are available to both employees and the self-employed.
To be eligible the parent generally needs to be working and earning at least the National Minimum Wage or Living Wage for 16 hours a week on average. For a 3 month period they need to earn at least £1,976 and they are not eligible if their adjusted net income is more than £100,000 a year.
Interaction with Childcare Voucher schemes
Tax-free Childcare Accounts will gradually replace Childcare Voucher schemes as no new schemes could be set up after 4 October 2018. Those within voucher schemes continue to be eligible until their child is aged 16, provided the employer is willing to continue operating the scheme. Many organisations provided the vouchers by way of salary sacrifice and there were tax and NIC advantages. However, with many employees working from home during the pandemic and the move to hybrid working many families found that they were not using all of their vouchers and chose to leave the scheme.
Note that the two schemes are mutually exclusive, and employers must stop giving their employees childcare vouchers with income tax and NIC relief if the employee informs them that they’ve started using the Tax-Free Childcare scheme.
The employer may need to stop or change the employee’s salary sacrifice arrangement and must also update the employee’s contract and their payroll software.
Self-employed need to plan for big tax bills in 2023/24
The changes to the basis of assessment of self-employed profits are scheduled to change from 6 April 2024. The new rules mean that profits (and losses) will be assessed based on the amounts arising between 6 April and 5 April instead of the profit/loss of an accounting period ending in the tax year. This means that where the business accounts do not coincide with the tax year the profits or losses will need to be apportioned. This is intended to coincide with the start of Making Tax Digital for income tax.
Transitional rules proposed for the 2023/24 tax year could result in large tax bills for some sole traders and partners, particularly those with an existing 30 April year end. The profits of year ended 30 April 2022 would be taxed in 2022/23 under the current rules with 2024/25 taxing profits arising between 6 April 2024 and 5 April 2025 under the new rules. But what about 2023/24?
The profits taxed in 2023/24 would be those for year ended 30 April 2023 plus the period 1 May 2023 to 5 April 2024 - in total 23 months profits!
The good news is that there would be a deduction for “overlap relief” (as much as 11 months) which typically arose when profits were taxed twice at the start of the business - but those will often be much lower than the extra 11 months being taxed in 2023/24.
The transitional provisions provide for the “excess” profits to be spread over 5 tax years (starting with 2023/24) to smooth out the excessive tax bill.
Proposed changes to CGT on separation
In response to a recommendation by the Office of Tax Simplification the Government have introduced draft legislation for inclusion in Finance Bill 2023 that extends the no gain/no loss rule when a couple separate.
Under the current rules the no gain/no loss rule means that there is no CGT on transfers of assets between spouses or civil partners up to the end of the tax year in which they separate. The divorce settlement or court order that transfers assets between the couple often takes place many months after the separation and may lead to CGT being payable.
The main change proposed is that separating spouses or civil partners will be given up to three years after the year they cease to live together in which to make no gain/no loss transfers. Most divorces would be concluded within this period.
No gain/no loss treatment will also apply to assets transferred as part of a formal divorce agreement.
Register of Overseas Entities
In recent years, Parliament has taken a series of steps to create more transparency around the beneficial ownership of UK property. The most recent development is the introduction of the Economic Crime (Transparency and Enforcement) Act 2022 (ECTE Act), which received Royal Assent on 15 March 2022. The Register of Overseas Entities (“ROE”) has been introduced under the new Act and came into effect on 1 August 2022.
The ROE requires overseas entities who want to buy, sell or transfer land or property in the UK to register with Companies House and provide details of beneficial owners and managing officers. It also applies retrospectively to entities who bought land or property on or after:
- 1 January 1999 in England and Wales
- 8 December 2014 in Scotland
- 1 August 2022 in Northern Ireland
Entities that disposed of UK land or property after 28 February 2022 will also need to register.
The deadline to register details of beneficial ownership of the overseas entity is 31 January 2023. Further information on what needs to be registered and how you register can be found as follows - Register an overseas entity and tell us about its beneficial owners.
Please note that failure to register by 31 January 2023 will be considered a criminal offence and could result in daily penalties of up to £2,500 a day and/or imprisonment. It may also prevent you from selling UK land or property as the UK Land Registry will require a unique Overseas Entity ID which will be issued once registered on the ROE.
Once registered on the ROE, the entity will be required to report any changes or confirm there have not been any within 14 days on the anniversary of the date of registration each year.
We will contact any clients we believe will be required to comply with the ROE to discuss your obligations. If you are an existing client with an interest in UK land or property via an overseas entity for whom we do not currently act for, we would advise you speak to your legal adviser to obtain further guidance.
Exam success
We are pleased to announce that Gemma Coates recently passed the exam for the highest level tax qualification in the UK, to become a Chartered Tax Adviser (CTA), to complement her Chartered Accountancy qualification (ACA).
Gemma joined Humphrey & Co as an apprentice in 2012 and she has gone on to achieve several accounting qualifications with the firms support, progressing to a Senior Manager for Senior Partner Anthony Smith.
“I am delighted to qualify as a Chartered Tax Adviser and very proud of all that I have achieved in my time at Humphrey & Co so far. I’m extremely grateful for the support and encouragement received from the Partners and my colleagues along the way. I look forward to using my qualifications to provide the best possible service in assisting our clients with their accounting and tax needs” said Gemma.
Senior Partner Anthony Smith comments “Gemma has worked extremely hard to achieve this qualification and I am delighted she has passed the final hurdle. There are few situations we advise clients on that do not have tax implications, so as a team and a firm, we are even better placed to respond to both the simple and more complex queries. Well done Gemma from all of us at Humphrey & Co!”