By Mel Hackney

The deadline for filing your 2021.22 is fast approaching. If you haven’t gotten round to completing it yet, we might be able to help!

Even if you don’t have any income other than employment income (and therefore do not normally complete a return), if you have allowable employment expenses you may be entitled to a refund of tax. For example, if you drive business mileage as part of your job, and your employer pays you less than the allowable amount you can claim the difference as a deduction against your taxable income, saving tax at up to 45%.

It is also possible to claim certain expenses as a result of working from home.

If you would like to have a chat, please don’t hesitate to give us a call and we can talk through how we can help.

by Steve Wiltshire

After a dizzying few weeks in British politics, which have seen an almost complete reversal of the measures announced in the September mini budget, as summarised in our previous article, we thought it might be helpful to set out what remains of the economic measures announced in September, and how they might affect you.

National Insurance contributions

The government has confirmed that it will reverse the temporary increase in NICs from November as set out in the mini budget.

For employees and employers, these changes take effect for payments of earnings made on or after 6 November 2022, so:

• Primary Class 1 NICs (employees) will reduce from 13.25% to 12% and 3.25% to 2%
• Secondary Class 1 NICs (employers) will reduce from 15.05% to 13.8%.

The effect on Class 1A (payable by employers on taxable benefits in kind) and Class 1B (payable by employers on PAYE Settlement Agreements) NICs will effectively be averaged over the 2022/23 tax year, so that the rate will generally be 14.53%.

For the self-employed, following the same principle, the changes to Class 4 NICs will again be averaged across 2022/23, so that the rates will be 9.73% and 2.73%.

Income Tax

The Government had previously announced that there would be a cut in the basic rate of income tax, from 20% to 19%, from April 2024. This was to be accelerated so that it took effect from April 2023. However, both approaches have now been shelved indefinitely, meaning that the basic rate of income tax will therefore remain at 20%.

In the Mini Budget, the government also announced a plan to abolish the 45% additional rate of income tax from April 2023. However, the government will now not proceed with the abolition of the 45p tax rate.

Dividends

The government has also confirmed that the proposed 1.25% reduction in rates of dividend taxation from April 2023 will not proceed, meaning that the rates will remain as follows:

• dividend ordinary rate – 8.75%
• dividend upper rate – 33.75%
• dividend additional rate – 39.35%

As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%.

These changes will apply in Scotland and Wales as the rules on dividends apply to the whole of the UK.

Corporation Tax

In the mini budget is was proposed that the planned increase in the rate of corporation tax for many companies from 19% to 25% from April 2023 would be cancelled. However, the government announced on 14 October that this increase will now proceed.

This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

Capital allowances

The Annual Investment Allowance (AIA) gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur.

Up to 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from capital allowances, generally referred to as ‘super-deductions’. These reliefs are not available for unincorporated businesses. Interestingly, these allowances were not mentioned in any statement, other than minor amendments to the current rules, so it appears the scheduled withdrawal of them will occur in 2023.

Stamp Duty Land Tax

A number of changes are made to the Stamp Duty Land Tax (SDLT) regime. Generally, the changes increase the amount that a purchaser can pay for residential property before they become liable for SDLT.

The residential nil rate tax threshold is increased from £125,000 to £250,000.

The nil rate threshold for First Time Buyers’ Relief is increased from £300,000 to £425,000 and the maximum amount that an individual can pay while remaining eligible for First Time Buyers’ Relief is increased to £625,000.

The changes apply to transactions with effective dates on and after 23 September 2022 in England and Northern Ireland. These changes do not apply to Scotland or Wales which operate their own land transactions taxes.

IR35 and off-payrolling

The government’s announcement in the mini budget that it would repeal the off-payroll working rules from 6 April 2023 has now been reversed, and it has been confirmed that these will remain in force.

VAT-free shopping areas

The government had announced that it would introduce a modern, digital, VAT-free shopping scheme with the aim of providing a boost to the high street and creating jobs in the retail and tourism sectors. However, this change will not go ahead either.

Alcohol duties

The government had announced that it would freeze alcohol duty rates from 1 February 2023 but this will not go ahead.

If you have any questions about current and proposed tax rules and how they apply to you, please get in touch, we’d be delighted to talk to you.

Photo by Kim Gorga on Unsplash

By Mel Hackney

On Friday, the Chancellor of the Exchequer delivered the government’s so-called ‘Mini Budget’, outlining cuts to income tax, reversal of the NIC increases, and scrapping of the planned increase in corporation tax, to name a few. Those which may be of particular interest to many are as follows:

Changes to income tax rates

Reduction in basic rate

The basic rate of income tax is currently 20% and will be reduced from 6 April 2023 to 19%. This will apply to non savings, non dividend taxable income falling within the basic rate band in England, Wales and Northern Ireland. This had been planned for April 2024, but has been accelerated by this announcement.

Removal of additional rate

This is the big surprise of the mini budget. The additional rate of income tax is currently 45%. From April 2023 this rate will be removed and will no longer apply to the non-savings, non-dividend taxable income of taxpayers in England, Wales and Northern Ireland.

The removal of the additional rate will apply to all taxpayers in the UK in respect of savings, dividends and the default rates.

National insurance contributions

As predicted, the following changes to national insurance contributions (NIC) will be made:

• the increase in the rate of Class 1, Class 1A, Class 1B and Class 4 contributions by 1.25 percentage points that applied from 6 April 2022 will be cancelled with effect from 6 November 2022
• the health and social care levy (HSCL) of 1.25% that was due to be introduced from 6 April 2023 will now not go ahead

Reversal of the dividend tax increase

The government is reversing the 1.25 percentage point increase in dividend tax rates applying across the UK from 6 April 2023. The ordinary and upper rates of dividend tax will be restored to 2021/22 levels of 7.5% and 32.5% respectively (currently at 8.75% and 33.75% respectively).

Due to the abolition of the additional rate of income tax, dividend income that was previously charged at the additional rate (39.35% in 2022/23), will now be charged at the upper rate of 32.5%.

Corporation tax rate

The planned increase in April 2023 to the corporation tax rate (from 19% to 25%) for companies making more than £250,000 profit has been cancelled. The rate will remain at 19% for all companies, so the reintroduction of the concept of a main rate and a small profits rate, and the need for marginal relief, has also been done away with. 

Annual investment allowance

The Annual Investment Allowance (AIA) had been temporarily increased to £1m and was due to revert to £200,000 on 31 March 2023.  The government will now make the £1m AIA permanent.

Stamp duty land tax

The nil-rate band that applies to purchases of residential property in England and Northern Ireland will be doubled to £250,000.  The threshold for first-time buyers will increase to £425,000 and the maximum value of a property on which first-time buyers’ relief can be claimed will also increase to £625,000

If you have any questions about the measures announced in the mini budget, or how they will impact you or your business, please get in touch.

Photo by Alex Gruber on Unsplash

By Mel Hackney

As we approach the end of January, the personal tax return self-assessment deadline is looming. However, for the 2020/21 return due on 31 January 2022, HMRC is waiving late filing and late payment penalties for one month. This means that penalties will not be triggered unless the return is filed, or payment made after 28 February 2022.

Interest is payable on any payments made in February rather than January, and therefore it is preferable still to pay the tax on time if you can.

If you haven’t had the chance to do your return yet for 2020/21, get in touch with us as we may be able to help!

Wishing all of our clients a restful and happy Christmas filled with kindness and contentment.

Instead of sending Christmas cards, we are proud to support the NSPCC and Cancer Research UK. We hope you enjoy our little festive film.

By Steve Wiltshire

Christmas is just around the corner. And – just beyond – is the deadline for filing your 2020.21 self-assessment tax return.

It must be with HMRC by 31 January 2022, but if you haven’t got round to completing it yet, or are concerned about a large liability – don’t worry! You are not alone, and we might be able to help. We might even be able to reduce your liability with some tax planning suggestions.

Also, don’t forget that even if you don’t need to complete a tax return, if you have allowable employment expenses you may be entitled to a refund of tax! For example, if you drive business mileage as part of your job, and your employer pays you less than the allowable amount (45p for the first 10,000 miles and 25p thereafter) you can claim the difference as a deduction against your taxable income, saving tax at up to 45%.

If you would like to have a chat, please don’t hesitate to call us and we can go through what you need and how we can take away that burden hanging over you.

Photo by Rodion Kutsaev on Unsplash

by Steve Wiltshire

We are delighted to announce that our friend and colleague Emma Hooper has deservedly achieved her ambition of qualifying as a Chartered Accountant.  Emma passed her final exams just before Christmas, and in January was formally admitted as a member of the Institute of Chartered Accountants in England and Wales.

Emma joined Frost Wiltshire in the spring of 2018, having begun her career at another practice in Bristol.  Sharing our ethos and values, she quickly became an integral member of our close-knit team, developing strong relationships with our clients who appreciate her warm and supportive approach.

Of her achievement, Emma said ’Receiving the final results saying I’d passed was unlike any feeling I have ever experienced.  The pride of having made it to the end alongside the relief of no more exams meant there were certainly a lot of tears!  I’m very much looking forward to celebrating with everyone when the restrictions are lifted – even if it is 6 months late!’. 

We are very proud of Emma’s achievement and congratulate her on this important milestone in her career.  And we’re looking forward to celebrating with her properly when we’re allowed to. 

Well done Emma!

Photo by Tristan Gassert on Unsplash

by Steve Wiltshire

Will 2021 be the year you do your own thing?

Starting your own business can be an exciting – but daunting – time. One of the first and most important decisions to make is how you are going to structure your business. The reason this decision is so important is that it has a variety of consequences – not only related to tax, but also from a legal and administrative perspective, and how your business will be perceived.

The main options to consider are whether to set up as a sole trader, a limited company, or a partnership. Each has benefits and drawbacks.  As a sole trader, there is significantly less of an administrative burden than setting up as a company.  However, as a sole trader you are taxed on profits as they arise through income tax (at 20%, 40% and 45% depending on your level of earnings).  You also have a class 2 and 4 National Insurance burden.

On the other hand, setting up as a company gives more flexibility over your personal taxation position, as you are personally liable to income tax on income from the company when it is extracted from the company, rather than as profits are earned by the company. There also tends to be more flexibility, and therefore potential available tax planning opportunities, when structured as a company, although these have been mitigated with the recent changes to dividend taxation rules.  The company will be liable to corporation tax as soon as profit is earned, but this is at a lower rate of 19%.

Legally, owning a company offers more protection over personal assets than setting up as a sole trader, as the company is a separate legal entity from the shareholder.

However, there is additional administrative cost and procedures to follow as a company, and any tax saving may not be sufficient to compensate for this additional burden. Also, changes to taxation over dividends from April 2016 reduces the taxation efficiencies of setting up as a company, which makes this a less attractive proposition than previously.

In addition, anti-avoidance legislation (IR35) means that under certain circumstances, profits made through a company will be targeted as ‘earned income’, which means any tax saving will potentially be lost. This is a particularly important area to assess thoroughly before deciding on the right structure for your business.

A third alternative is to set up as a partnership. More and more businesses are setting up as a Limited Liability Partnerships.  With this structure, profits earned are subject to income tax as they arise, but the liability of the individual partners is limited to the capital which they have put into the business (rather than their personal assets), in much the same way as for a company.

When choosing which type of business structure to use, another consideration might be the availability of loss relief. If it is anticipated that the business might be loss making in its early years, this could impact the selection decision.

Capital gains arising on any sale of the business in the future may also be taxed, depending on which structure is chosen.

Overall, this decision is complex, and each individual’s preferences, priorities and circumstances will impact the final outcome. Here at Frost Wiltshire, we can set out the options available to you and give you the information and advice which you need to make an informed decision on what suits you and your business best.

Photo by Terry Vlisidis on Unsplash

By Steve Wiltshire

What a momentous day.

Today we heard the news that so many of us have been hoping to hear for so long – that a vaccination to protect us from Covid-19 is safe and will shortly be available.  At the end of what has felt like a very long tunnel, perhaps we are about to emerge into the light.

And it feels lucky.  “A miracle,” I’ve heard people saying.  But of course it’s not a miracle; whilst some good fortune may have played its part along the way, this breakthrough is down to the hard work and persistence of some extremely clever scientists around the world.  Scientists working in select teams with a dogged determination to achieve their objective.

Every member of a team has their part to play.  Each is a unique part of a jigsaw puzzle which ensures that the team has the qualities and expertise it needs to achieve what it sets out to do.  Whether you’re a research scientist developing a Covid-19 vaccination, a surgeon performing a life-saving operation, or a construction worker building a new supermarket, you rely on the other people around you to do their bit.

In some cases, those people are absolutely critical to achieving the plan.  If Bob is one of the few scientists in the world who has figured out why one course of vaccination research is showing promising results, he is key to the team continuing to move forward.  If Sarah, a Consultant Oncologist, practises a pioneering procedure that not many surgeons know how to perform, she is key.  And if Nicholas is the man who has managed the construction of that new supermarket from the start, he is key to that building being ready on time.

If one of these people were to fall ill – or worse – meaning they are unable to keep working in the team, then the team can’t function as it did before. 

Who’s key to your team? 

Think about each of the people you work with, and ask yourself the question: “what would be the impact if they suddenly weren’t there?”  Covid has shone a light on the risk that those we rely on could be incapacitated and unable to work with very little warning.

As a business owner, you need to know that, if one of your key people suddenly isn’t there, you can bring in someone with precisely the right skillset, to keep your business going without worrying about the cost.  Not just anybody – but the right person.  Key person insurance is an excellent way to achieve this, and it can be tailored precisely according to your risks and budget.

Like a chat?

We have a close relationship with a team of experts who can advise you on this, and other areas of financial protection for you and your business.  We’ve seen first-hand the impact that the loss of a key person can have, and how having appropriate key person cover in place can alleviate the stress for a business owner.  If you don’t have anything in place, or think it may be time to review your current arrangements, please get in touch for a no-obligation consultation. 

Photo by Florian Berger on Unsplash

By Emma Hooper

Once again the rules regarding furlough and how to support your employees have been updated – are you aware of the latest guidance?

On 5 November 2020 the chancellor announced that the original Job Retention Scheme will be extended until March 2021, meaning that employees who have been placed on furlough will be able to receive up to 80% of their normal wages (up to a cap of £2,500 per month).

This latest announcement is intended to protect employment and job security over the winter months. The rules will be similar to those that were in place in August 2020, where the government will pay 80% of unworked hours, with the employer only needing to pay the ER NI and pension contributions.

As part of the scheme, anyone who has been made redundant since 23 September may be rehired and put back on furlough.

If you have any questions regarding the scheme please contact our team who will be more than happy to help by emailing payroll@frostwiltshire.co.uk