9th September, 2021, Henry Pettitt
Henry Pettitt, Partner at Stephenson Smart in Great Yarmouth, explains how the Government’s tax changes and new plan for supporting the UK’S health and social care system will work.
How will the government’s tax changes from next April affect you?
On 8 September we witnessed one of the biggest announcements to date since the beginning of the pandemic, with tax changes agreed to fund £12bn a year to support the NHS and social care backlog across the UK.
From April 2022 National Insurance contributions (NICs) will increase by 1.25pc for one year only for employees, employers and the self-employed.
This will cover both Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) contributions, although State Pension Age are not impacted by the April 2022 changes.
Essentially if you earn more, you will pay more.
From 2022/23, if you earn around £24,100 you will have to pay in the region of £180 extra in National Insurance, while someone earning £67,000 will contribute another £715.
Health and Social Care Levy
From April 2023 the National Insurance contribution rates will decrease back to the levels of 2021/2022, with the introduction of a new Health and Social Care Levy.
The new ring-fenced levy of 1.25pc will apply to those who pay Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) NICs.
It will also be extended to those over State Pension age who are in work, with employment income or profits from self-employment above £9.568.
The levy will be administered by HMRC and collected through the current reporting and collection procedures for NICs – Pay As You Earn and Income Tax Self-Assessment.
The government will also increase the rate of income tax paid by people who receive dividend income from shares by 1.25% from April 2022.
These tax changes are all part of the need for a long-term solution to funding health and social care, allowing everyone to pool and share risks and resources.
You can read the government’s Plan for Health and Social Care here.
Please contact us if we can help you to plan for these forthcoming tax changes to National Insurance contributions and Income Tax.
Profile: Henry Pettitt ACA CTA
7th September, 2021, Melanie Harriss
Landlords: Are you ready for Making Tax Digital?
Making Tax Digital is a new way of working that sees the government calling upon taxpayers to report their income and expenses via digital software.
At present it only applies to VAT registered businesses with a taxable turnover above the £85,000 VAT registration. However, self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for Making Tax Digital for Income Tax from their next accounting period starting on or after 6 April 2023.
This means that any type of landlords, including but-to-let and furnished holiday lets, with an annual turnover above £10,000 will be required to keep income and expense records digitally and submit their tax return directly to HMRC using compatible software.
Cloud accounting software for Making Tax Digital
There are many affordable cloud accounting software options available to individuals and small businesses such as Xero, QuickBooks, Sage Accounting or FreeAgent.
These cloud accounting software solutions are user friendly. They streamline the recording and reporting process and synch with your business bank account – all via an app on your phone or tablet.
Cloud accounting solutions use bank feeds to import live data, this reduces the time needed to undertake manual data entry. They are easy to use on the go and can improve the cashflow of your business. This can, in turn help in making crucial business decisions as there will be a better picture of finances with the real time information.
It is understandable that you may be unsure of these big changes, but businesses must ensure their data is accurate and compliant with the new legislation. There will be a penalty regime introduced by the government for late submissions and late payment of tax.
The deadline for landlords may seem a long way off but it is good to forward plan and may mean you get a better deal from the cloud accounting software provider you choose to use.
We have specialist knowledge and accreditations to support our clients with their Making Tax Digital obligations.
Get in touch with us now if you would like to discuss how to prepare for the digital future.
Related articles: Furnished Holiday Lettings
3rd August, 2021, Henry Pettitt
What is Legislation Day?
Dubbed as ‘Legislation Day’ the announcements made by HM Treasury on 20 July included draft legislation, consultation updates and promises of future tax measures as a build-up to Finance Bill 2022.
Nothing announced will have immediate effect, but the various documents do give a good sense of the direction of travel for future changes to the tax system. The key announcements include proposals to reform income tax basis periods, clamp down on promoters of tax avoidance schemes and introduce a requirement for larger businesses to notify HMRC about uncertain tax treatments.
The full list of tax measures can be found on the Finance Bill 2021/22 page.
Below is a summary of the key areas that I feel may have the potential to bring about the biggest change.
Legislation Day: Sole traders and partnerships
One of the proposals was that sole traders and partnerships will be taxed by reference to profits earned in a tax year, rather than taxed by reference to the profits of an accounting period where that period does not coincide with the tax year ended 5 April, from 2023.
For example, if a business draws up accounts to 30 June every year, currently the income tax for 2023/24 would be based on the profits in the business’s accounts for the year ended 30 June 2023, subject to basis period rules. The proposed reform would mean income tax for 2023/24 would be based on: 3/12 of year end 30 June 2023, plus 9/12 of year end June 2024. So, there is an acceleration in profits being assessed and taxed.
It is felt that setting tax year 2023/24 as the year of change (with year 2022/23 as a transitional year) is very ambitious and it may be that the speed of change is linked to Making Tax Digital for Income Tax Self-Assessment, as this is scheduled to be mandatory from April 2023. Another move towards real-time tax reporting and payment for the self-employed.
We have been anticipating this change to how business profits are quantified and encouraging clients to consider their year ends and utilising overlap profits.
Legislation Day: Pensions
There was draft legislation released relating to pensions.
Of interest is a proposed increase in the normal minimum pension age from 55 to 57 in April 2028.
Where a pension scheme annual allowance charge of at least £2,000 arises, the scheme member can request that the liability is met from their pension fund under the “scheme pays” rule. The deadline for doing this is currently 31 July in the year following the end of the tax year. However, where an annual allowance charge is triggered retrospectively, because of retrospective amendment to their pension input amount (as could be the case with the government’s planned remedy for addressing the age discrimination found in the 2015 public service pension reforms), the taxpayer may be out of time to request that the scheme meets their liability.
To address circumstances where a scheme member is informed of a retrospective change to their pension inputs by the scheme administrator, draft legislation extends the deadline to the earlier of three months following the date that the scheme administrator provides that information and six years following the end of the tax year in question.
Legislation Day: Tax avoidance
HMRC published a summary of responses to its proposals made earlier this year for measures to clamp down on promoters of tax avoidance. Four new measures are being introduced:
- A new power for HMRC to seek freezing orders that would prevent promoters from dissipating or hiding their assets before paying the penalties that are charged as a result of breaching anti-avoidance obligations.
- New rules that would enable HMRC to make a UK entity that facilitates the promotion of tax avoidance by offshore promoters subject to a significant additional penalty.
- A new power to enable HMRC to present winding-up petitions to the courts for companies operating against the public interest.
- New legislation that would enable HMRC to name promoters, details of the way they promote tax avoidance and the schemes they promote, at the earliest possible stage, to warn taxpayers of the risks and help those already involved to get out of avoidance arrangements.
Other areas of note published on legislation day:
An amendment to allowance statement for structures and buildings allowance.
Insurance premium tax
Draft legislation has been published to move the criteria for determining the location of a risk for insurance premium tax into primary legislation.
As announced on 23 March, the government will not be taking forward any changes to VAT grouping but has now published a summary of the responses to the call for evidence on VAT grouping establishment, eligibility and registration.
Legislation Day: Next steps
Once all the consultations have ended in September, there will be a Finance Bill in the Autumn, possibly to accompany an Autumn Budget and a Spending Review.
However, it has been reported in the media that the Budget may be deferred until Spring 2022 to reflect more on the economic impact of the pandemic.
If you would like to discuss how any of the proposed changes may affect you or your business, please get in touch.
Profile: Henry Pettitt ACA CTA
Related Articles: Tax Day: Response by Kayleigh Wilson
7th July, 2021, Melanie Harriss
Well-known local painter and decorator, David King is putting down his brushes and retiring from his business after 53 years.
Throughout that time David has been a client of Stephenson Smart’s, who have supported him with his accounts and tax returns. Having such a long relationship with the firm has meant that David has been looked after by many, now retired partners including Morris Harcourt, Douglas Shinn and Keith Turner. Most recently he has been supported by manager, Neil Gayton alongside current partner, Claire Melton.
As well as Stephenson Smart helping David, David also undertook some decorating at their King’s Lynn site and can even remember passing by the office of one of the firm’s founders, Robert Stanley Smart on one of his very first jobs in 1968.
One of David’s other jobs in his early days was at Park House in Sandringham, which was then still the residence of a young Lady Diana Spencer.
The relationship between decorator and accountant also led to David’s son doing work experience with another retired partner, Peter Lofting. His son went on to train as an accountant and became a finance director of a large firm.
Neil said: “It has been a pleasure to work with David over the last few years. I wanted to mark his retirement, and the end of our working relationship, by presenting him with a hamper, as a token of appreciation for his custom all these years.”
David said: “I have always been looked after very, very well by the whole team. I got to know everyone in my time as a client and they have always been very helpful.
We thank Stephenson Smart for all their help and guidance over the last 53 years – always ready to answer any query with promptness, expertise and patience.”
David is a keen supporter of Narborough Cricket Club and looks forward to spending his retirement with his wife, Hazel visiting their children in Essex and Gloucestershire, gardening, and getting away to Tenerife, when they can.
6th July, 2021, Chris Goad
Chris Goads BSc FCA, partner at Stephenson Smart’s Wisbech, March and Downham Market offices, assesses the impact that Bounce Back Loan repayments might have on businesses and what options there might be to help with making the repayments.
What is a Bounce Back Loan?
The Bounce Back Loan was one of the financial support schemes put in place by the government to support businesses, at the start of the coronavirus pandemic.
Many businesses are now starting to receive the payment schedules for Bounce Back Loans taken out, with their first repayments being due.
Although Covid restrictions are starting to be lifted, we are still seeing different sectors and businesses recovering at different rates. Some businesses are still not functioning at the same level they were before the pandemic hit, and therefore seeing a reduction in income.
Some of our clients are started to be contacted by the bank they took their Bounce Back Loan through with repayment schedules for those loans, often with a high monthly payment. For example, if a business took out a Bounce Back Loan of £50,000, they will be looking at a repayment rate of around £887 per month, to start imminently.
What if I can’t start to repay my Bounce Back Loan?
Our advice is that if your business is facing a repayment figure that is unattainable you may be able to look at a Pay As You Grow option. This allows firms to extend their loan terms, reduce repayments or take a repayment holiday.
The bank you borrowed your Bounce Back Loan from should have been in touch to highlight this option. It is important to contact them as soon as possible, and ideally about a month before your first payment is due, to ask to defer or flexibly manage your repayments.
As Chartered Accountants and Business Advisors, Stephenson Smart are qualified and experienced in helping businesses manage their cashflow and plan financially, even in difficult times. We are keen to support our clients, local businesses and our communities during this recovery period.
If we can support you or your business with this or any other financial help, please get in touch.
Profile: Chris Goad BSc FCA
Related Pages: Covid-19 Business Interruption Guidance
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