Personal Taxes

Dividend Trust and s.455 Rates following the introduction of the Health and Social Welfare Levy

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Following the introduction of the Health and Social Welfare Levy (An increase in the rate of National Insurance to you and me), it is now confirmed that the dividend trust rate will also increase from 38.1% to 39.35%. The change also applies for charging tax under Corporation Tax Act 2010, s 455 on loans to participators in close companies.

Interest Rate Increase on Late Paid Tax

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Current HMRC interest rates

The current late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on are:

  • late payment interest rate — 3.75% from 5 July 2022
  • repayment interest rate — 0.5% from 29 September 2009

HMRC interest rates are set in legislation being linked to the Bank of England base rate. There are 2 rates:

  • late payment interest, set at base rate plus 2.5% (the current base rate is 1.25%)
  • repayment interest, set at base rate minus 1%, with a lower limit of 0.5% (known as the ‘minimum floor’) – until the base rate exceeds 1.5% this rate will remain unchanged and has been since September 2009

Do you have more than one employment?

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If you have more than one employment or are employed and self employed? You could be due a refund of some of your National Insurance Contributions.

If you combined income is over the upper threshold of £50,270 then it would be worthwhile checking what you have paid. The overpayment occurs because National Insurance is calculated on a stand alone method for each employment. This means you could being paying the main rate rather than the upper rate on some of your income over the upper threshold.

The calculations are not straight forward but nonetheless worth the effort to look after those pennies!

COVID Schemes and Provisions coming to an End

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There are a few COVID scheme and provisions that have or are coming to end over the next few weeks. Here are some of the most relevant that might affect you:

  • Statutory Sick Pay (SSP) – Paying and claiming COVID related sick pay from the first day of absence ends today and final claims need to be made by 24th March. From now on we revert to the normal rules of eligibility for SSP starting on day four.
  • Employees’ home-office expenses — end of temporary easement on 5th April now that there is no legal requirement to work from home. https://www.gov.uk/guidance/check-which-expenses-are-taxable-if-your-employee-works-from-home-due-to-coronavirus-covid-19

  • Tax on UK income if you live abroad — easement ends on 5 April 2022. In 2020, HMRC introduced guidance for non-UK resident employees stuck in the UK because of coronavirus travel restrictions. This stated that those employees would not be taxed on earnings for duties performed in the UK after their planned departure date, provided they were taxed in their home state.

  • Cycle to work. Due to the impact of the coronavirus pandemic, in December 2020, the UK government announced a time-limited easement. This was for employees who had joined an employer-provided cycling scheme and received a cycle or cycling safety equipment on or before 20 December 2020. Employees who joined a scheme from 21 December 2020 would need to meet all the normal conditions of the Cycle to Work scheme. Where eligible, employees would not have to meet the ’qualifying journeys’ condition until after 5 April 2022. The rules of the scheme have not changed. From 5 April 2022, all employees on an existing cycling scheme will need to meet the normal conditions, including the ’qualifying journeys’ condition.

 

Making Tax Digital for Income Tax is coming

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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.

 

Tax Year End Considerations

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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.

Budget Payment Plan for Self Assessment

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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.

Tax Planning

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When should you start implementing your tax planning strategy for the current tax year?

  1. Now?
  2. When filing your tax return at the end of January 2022?
  3. When I get last minute reminders in March next year?

Don’t leave it too late. The earlier you start, the better.

You can always make adjustments over the course of the tax year and this is where you get real value from your accountant. Clicking submit on your online accounting software that has “Checked Everything” does not mean that it is the most tax efficient.

Budget 2021 Announcements

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Here are the main provisions

Income Tax
Personal Allowances to increase to £12,570 and the basic rate threshold to £50,270
Rates and allowances will remain the same until 2026

Furlough
The scheme is to be extended to 30th Sep 21 with no change to employees – Employers will have to contribute top ups of 10% in July and 20% in August and September

Corporation Tax
Main rate to increase to 25% in 2023 with a small profits rate of 19% for profits up to £50k and taper relief up to £250k
Loss relief to be carried back 3 years

Self-Employed
Grants 4 and 5 announced covering Feb-Apr 21 of 80% of average profits; 5- May to Jul. Self Employed individuals who have filed a return by midnight of 2nd March will eligible for the grants

VAT
5% reduced rate for the hospitality sector to continue until 30th Jun then a staged return to the full rate in April 2022 by increasing the rate to 12.5% for the period 01/10/2021 to 31/03/2022
Registration limit of £85k to remain unchanged until 2024

SDLT
£500k nil rate band to continue until 30th June then £250k to 30th September returning to the original £125k on 1st October

Investments
Capital allowances for investments in innovation up to £10m will be given relief of 130%
www.gov.uk/helptogrow register for productivity grants
Green Gilts / Bonds – new products to be available in the summer

Capital Gains
Annual allowances remain unchanged until 2025/26 – no mention of a rate hike!

National Living Wage
This is to rise to £8.91 in April
£3k grants for new apprenticeship

Business Rates Holiday
Extended to the end of June

Restart Grants
Non-essential retail to receive grants of up to £6,000 and up to £18,000