Month: February 2022
Tax Year End Considerations
As we approach the end of the current tax year, now is a good time to consider using up any unused annual allowances before you lose them.
ISA allowance
The annual allowance is £20,000 and once we reach the 5th April, this year’s allowance will be gone. There is no provision to use up prior year unused allowances. The advantage of an ISA is that any interest or growth on investments are tax free. You can also withdraw funds from them at any time making them, not only tax efficient for future income, but also accessible. You will however be contributing to them out of net (taxed) income.
Pension Contributions
Pension contributions are another tax efficient way of putting funds away for future income. If you are running a limited company, company contributions are a great way of reducing your corporation tax bill without increasing what you have to report as income on your personal self assessment return. If you are employed speak to you employer about a salary sacrifice arrangement, particularly if you are a higher rate tax payer. This would be of particular relevance if you are marginally in higher rate taxes. You could use this arrangement to avoid losing any child benefit if you have children.
The annual limit on pension contributions is currently £40,000. Unlike ISA’s, you can use up previous years unused allowances up to three years. There are lower limits for high earners. Pension contributions are very tax efficient although the funds are tied up until you reach the minimum retirement age which, for many now will be 57 years old. They do require planning to avoid tax penalties if the lifetime allowance (£1,073,100) is exceeded but good to make regular, annual contributions that will not put too much astrain on personal or company finances.
Annual Tax on Enveloped Dwellings (ATED) return
Do you own residential property through a limited company, a partnership with a company member or a collective investment scheme?
If you haven’t registered to use HMRCs online service, you have until the 1 April 2022 to register. The ATED period is 1 April 2022 to 31 March 2023, where you own a residential property on 1 April 2022 that is contained with a limited company, returns for that period must be filed by 30 April 2022. You can begin populating an online ATED return for 2022 to 2023 from around mid-March, but can’t submit it before 1 April.
This applies to residential properties (dwellings) within the company with a taxable value of over £500k. The taxable value is its value at 1 April 2022, or if acquired after, its cost. This value applies to each individual property and not the value of the portfolio as a whole.
If the value of the property is within 10% of one of the value bands you can request a pre-banding check from HMRC to get a determination as to whether the property will be subject to the charge.
There are exemptions and reliefs. Exemptions mean you won’t need to register the property and so there is no requirement to complete a return. Reliefs need to be applied for so, even if a full relief applies and no charge will be payable, you still need to register and complete a return.
Budget Payment Plan for Self Assessment
Did you know?
If your self assessment payments and returns are up to date you have the option to start a Budget Payment Plan. You can set up and manage a Budget Payment Plan using your HMRC online account and make regular advance payments by Direct Debit payments towards your next Self Assessment tax bill, reducing what they will have to pay on the 31 January and 31 July deadline.
You can decide the regular weekly or monthly amount they want HMRC to collect and choose to:
- amend your regular payment amount
- suspend payment for a period of up to six months
- cancel it at any time
Having a Budget Payment Plan doesn’t mean you can delay payment beyond the due date. You must ensure that any balance still owing (after subtracting your Budget Payment Plan payments) is paid off by the due date. Any balance still owed after the due date will attract interest.
This isn’t for everyone, but those who are taking dividends rather than salary and have their tax deducted through PAYE – this might be a good alternative to avoid the lump sum payments making it more manageable.
Log in to your HMRC online account, follow the link for Self Assessment, Choose “More Self Assessment Details” and then “Direct Debit Payment” from the menu.
Making Tax Digital for Income Tax is coming
Posted on
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will be introduced from 6th April 2024. That might seem like a long time away but it will soon be upon us and early preparation will make it a smooth transition.
Who will be affected?
All sole traders, partnerships and residential landlords (including those with overseas properties) who have a gross income of £10,000 or more will have to register although partnerships get an extra year before registration is required.
What will it mean?
Not all the details are clear as yet but what we do know is that quarterly reports will need to be made to HMRC for each type of income. There will be 4 quarterly returns, an End of Period Statement (EOPS) and a Finalisation Statement that will replace the current Self Assessment Return. That means for a sole trader who also has residential property let out and the gross income from each is over £10,000, they will need to make 8 quarterly returns, 2 EOPS’s and a Finalisation Statement – 11 returns in total from the current single Self Assessment Return!
What other requirements are there?
As with MTD for VAT, it will be mandatory to keep digital accounting records and for there to be a digital link between those records and the submissions to HMRC. This is where early preparation will be invaluable as there will be new penalty regimes in place for non-compliance. We’ll be recommending moving to online accounting software but, like MTD VAT, spreadsheets and bridging software are likely to be acceptable but this is yet to be confirmed.
There will also be a move away from basis period accounting to tax year accounting – only announced in July last year. That means for those whose year end is not between 31st March and 5th April, adjustments will be needed for the returns or a change in the accounting date of the annual accounts – the latter probably being the most straight forward. There will be a transition year in 2023/24 to get prepared.
There are still known unknows but we’ll keep you updated and abreast of developments to ensure compliance.
This entry was posted in News and Comments, Personal Taxes.