Payments on account with HMRC

Henry Pettitt: Payments on account

19th January, 2023, Henry Pettitt

If you are recently self-employed, or in receipt of rental income or other sources of untaxed income, this may be the first year that you will be asked by HMRC to make payments on account to them, and you might be wondering why…

What are payments on account?

Payments on account are payments to HMRC towards your next year’s income tax liability. They are advance payments towards your tax bill (including Class 4 National Insurance if you’re self-employed).

Each payment is half your previous year’s uncollected tax bill. Payments are usually due by midnight on 31 January and 31 July.

Payments on account do not include anything you owe for capital gains or student loans (if you’re self-employed) – you’ll pay those in your ‘balancing payment’.

Do I have to pay the payments on account?

Yes. If you’re a UK taxpayer who pays less than 80% of your income tax at source and your tax bill is over £1,000, you will be asked by HMRC to make payments on account. However, if you expect your tax liability to be less in the following tax year you can make a claim to reduce your payments on account. If your adjusted payments on account are not sufficient to cover your liability, HMRC will charge 6 per cent interest (rate from 6 January 2023). If your payments on account are more than your tax liability, HMRC will pay repayment interest at 2.5% (rate from 6 January 2023).  If you will struggle to make the payments, you talk to HMRC about their Time to Pay scheme.

How are payments on account worked out?

For example:

If your tax liability for the 2020 to 2021 tax year is £3,000, and you haven’t made any payment on account towards this, you would owe HMRC £3,000 by 31 January 2023 to cover 2020/21.

In addition to this you will need to pay HMRC £1,500 towards your 2021/22 tax bill by 31 January 2023 and another £1,500 towards your 2021/22 tax bill by 31 July 2023.

If your tax bill for the 2021 to 2022 tax year is more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2024.

What if my circumstances change and I end up overpaying?

If you end up paying too much in advanced tax payments, HMRC will give you the difference back. This will either be via cheque or bank transfer, or by deducting the difference from your next tax bill.

If you know that you will pay too much on account because your tax bill next year will be lower, if you’re winding your business down, or because you’re passing retirement age and will no longer have to pay class 4 National Insurance, you can apply to HMRC to reduce your payments on account.

If you need help with working out your tax liability and ensuring you are compliant with HMRC please get in touch as soon as possible.

Profile: Henry Pettitt ACA CTA

Useful links: HMRC: Payments on account

Do you need to complete a Self Assessment Tax Return?

Self Assessment tax return advice from Sean Page

12th January, 2023, Sean Page

That time of year is fast approaching where those who are self-employed, a partner or director in a business, or get income from property, may need to complete a Self Assessment tax return.

The deadline for completing this return online is 31 January 2023.

What is a Self Assessment tax return?

A Self Assessment tax return is currently an annual return that demonstrates to HMRC an individual’s annual income, that does not fall into their Pay As You Earn (PAYE) earnings.

So, for example, you may be employed and paying tax via your employer under the PAYE scheme, but also have a property that you rent out.  The additional income from the property should be declared to HMRC by completing a Self Assessment tax return.

HMRC send out ‘notice to file’ notifications.  If you have received one of these, you MUST complete a return by 31 January 2023.

If you have not received one of these, but fall under certain categories, you are advised to complete a Self Assessment return by 31 January 2023, for any earnings that fall into the period 6 April 2021 to 5 April 2022:

  • If you are self-employed (unless this income is within the annual £1,000 trading allowance)
  • If you are a partner in a business
  • If you are a company director and have income on which tax is due that is not taxed under PAYE
  • If you have property income – for example, you are renting out a room, a garage or a whole property to someone else (unless this income qualifies for rent-a-room relief or is within the annual £1,000 property allowance)
  • If you want to claim tax relief on employment expenses over £2,500 in a year
  • If you have to pay a tax charge on your child benefit, known as the high income child benefit charge
  • If you have untaxed savings income. HMRC might be able to collect any tax due on small amounts without you doing a full tax return, but should always tell them about savings income of more than £1,000 a year (or £500 if you pay tax at the higher rate) and dividends of more than £2,000 a year
  • If you have capital gains tax to pay which hasn’t already been paid in-year – this should be paid within 60 days of the sale of the property.

How do I complete a Self Assessment tax return?

There are many reliefs that can be applied to additional, private income.  If you have had a ‘notice to file’ or fall into any of the above categories, it may be worth employing the services of an accountant to help you complete your Self Assessment tax return.

Accountants are experts in ensuring the return is completed correctly and have the knowledge to apply any reliefs that you may be eligible for, such as married couple’s allowance or property allowances.

This is an incredibly busy time of year for us, but we will always help where we can. The earlier you approach us though, the better we can help you.

If you would like our support with your Self Assessment tax return, or any other advice relating to tax or business, please get in touch.

Profile: Sean Page BA ACA

Helpful links: HMRC

Stephenson Smart’s Sporting Accountants

Stephenson Smart's Sporting Accountants

3rd January, 2023, Melanie Harriss

Accountants link to sporting success

An ultramarathon runner, a ladies football team captain, an internationally acclaimed cricketer and a world championship pool competitor is quite an impressive list of sporting credentials.

Especially when it’s revealed they all work at Stephenson Smart accountants.

In fact, these achievements are just a snippet of the sporting success across our firm, leaving us wondering if sport and accountancy have a greater connection than people realise?

Kayleigh Wilson, Tax Manager

“I think there must be a connection,” said Kayleigh Wilson, pool player and Tax Manager for all six offices.

“Accountants are methodical and logical people and most sports require this trait in order to succeed. Pool is definitely quite a strategic game.

“What is it they say? One side of your brain functions better than the other. I would say accountants excel in the use of their left cortex brain function, however the right cortex that controls creativity and artistic skills – not so much!”

Kayleigh began playing pool at the age of seven after her family moved into The Bowling Green Pub in Wisbech and she discovered she could beat many of the regulars.

She started playing for the Wisbech pub leagues at age 10, won the Division Two singles league at 11 and became the only girl on the under 16s England Juniors team at age 12.

By 13, Kayleigh was playing for England Ladies and went on to represent the UK in the World Championships in Germany.

“I’m planning to enter the IPA and the English Blackball Pool Federation ladies tour events in 2023. Ladies pool seems to be getting a lot more publicity at the moment, so now is a good time to see what happens.”

Lexi Waters, Accountants Assistant

Lexi Waters, Accounts Assistant at the March office is captain of the March Town Ladies Football Team.

She started playing football at age five and training with the Outwell Swifts, playing competitively in the Norfolk League.

“My Dad was my football manager at Outwell until age 11, then I started to play for Wisbech Town Acorns on Sundays and Hungate Girls on Saturdays,” she said.

While Lexi was playing for Hungate Girls she had the opportunity to play a tournament against Tottenham Hotspur Girls at the FA’s national centre at St George’s Park, who they beat to come third overall.

Over in the men’s league, Michael Clunan, Manager at the King’s Lynn office, is captain of King’s Lynn Football Club, while Neil Gayton, also Manager at King’s Lynn, is coach for the under 11s West Lynn Football Team, a four times London Marathon runner, triathlon competitor and recently finished a 48-mile ultramarathon.

Neil said: “Sport is good as the job is intense and there’s a lot of sitting in front of a screen. It’s a much-needed release, I think I would go a bit stir crazy if I couldn’t get out and exercise!”

Kirwin Christoffels, Accountants Assistant

With success in football, running and pool under their belts,  the team can also add cricket and hockey to the list thanks to Accounts Assistant Kirwin Christoffels.

Kirwin started playing cricket as a young boy growing up in South Africa.

After an abundance of accolades, which included winning the under 19’s Cricket World Cup, he was chosen as the overseas cricket professional to travel to the UK to play several seasons at North Runcton Cricket Club, which led him to stay and pursue a career at Stephenson Smart.

As well as cricket he has now extended his interests to hockey, which he plays almost every weekend for the Pelican’s Hockey Club in King’s Lynn.

“I definitely think there’s a link between accountancy and sport,” said Kirwin.

“Both require a fair bit of analysis, forecasting and being able to think on your feet.

“The rules in sport and accountancy may change as the game and accounting period go on, so being flexible and adaptable to the changes in one aspect may lend a hand to being alert in the other aspect.”

 

 

 

 

 

Advisory fuel rates for company cars

Chris Goad - overview on advisory fuel rates company car

6th December, 2022, Chris Goad

Advisory fuel rates company car – an overview by Partner, Chris Goad:

New company car advisory fuel rates have been published and took effect from 1 September 2022.

The guidance states: ‘you can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 December 2022 are:

Engine size Petrol
1400cc or less 14p
1401cc – 2000cc 17p
Over 2000cc 26p

 

Engine size LPG
1400cc or less 10p
1401cc – 2000cc 12p
Over 2000cc 18p

 

Engine size Diesel
1600cc or less 14p
1601cc – 2000cc 17p
Over 2000cc 22p

 

HMRC guidance states that the rates only apply when you either:

  • reimburse employees for business travel in their company cars
  • require employees to repay the cost of fuel used for private travel.

You must not use these rates in any other circumstances.

The Advisory Electricity Rate for fully electric cars is 8p per mile. Electricity is not a fuel for car fuel benefit purposes.

If you would like to discuss your company car policy, please contact us.

Autumn Statement 2022

Autumn Statement 2022

18th November, 2022, Kayleigh Wilson

Kayleigh Wilson FCCA CTA, Tax Manager at Stephenson Smart, responds to the Autumn Statement 2022.

It has been a turbulent few months in UK politics, that has impacted hugely on our economy.  On 17 November 2022 the current Chancellor, Jeremy Hunt, announced his Autumn Statement to the Commons; the government’s third fiscal statement in as many months.

This was a statement that was supported by research from the Office of Budget Responsibility and, most evident by his smiling and head nodding when it was delivered, the Prime Minister, former Chancellor, Rishi Sunak.

The Chancellor laid out three core priorities of stability, growth and public services. The government is seeking a balanced path to support the economy and return to growth, partially through public spending restraint and partially through tax rises.

But how does the Autumn Statement 2022 announcement affect you?

Income tax

Income tax rates

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, whilst the government aims to proceed with the cut in due course, this will only take place when economic conditions allow and a change is affordable. The basic rate of income tax will therefore remain at 20% indefinitely.

At the Mini Budget on 23 September 2022 the government announced a plan to abolish the 45% additional rate of income tax from April 2023. It was announced on 3 October 2022 that the government would not proceed with this plan.

From 6 April 2023, the point at which individuals pay the additional rate will be lowered from £150,000 to £125,140.

The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.

Income tax allowances

The income tax personal allowance and higher rate threshold were already fixed at their current levels until April 2026 and will now be maintained for an additional two years until April 2028. They will be £12,570 and £50,270 respectively.

The government will uprate the married couple’s allowance and blind person’s allowance by inflation for 2023/24.

Dividends

The government has also confirmed that, from April 2023, the rates of taxation on dividend income will remain as follows:

  • the dividend ordinary rate – 8.75%
  • the dividend upper rate – 33.75%
  • the 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%.

In addition, the government will reduce the Dividend Allowance from £2,000 to £1,000 from April 2023 and to £500 from April 2024.

These changes will apply to the whole of the UK.

National Insurance contributions

In September 2021 the government published its proposals for new investment in health and social care in England. The proposals were intended to lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government introduced a UK-wide 1.25% Health and Social Care Levy based on the National Insurance contributions (NICs) system but ringfenced for health and social care.

The Health and Social Care Levy Act provided for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates were intended to revert back to 2021/22 levels and be replaced by a new 1.25% Health and Social Care Levy.

However, the government has:

  • reversed the temporary increase in NICs and
  • cancelled the Health and Social Care Levy completely.

According to the government, not proceeding with the Levy will reduce tax for 920,000 businesses by nearly £10,000 on average next year.

For SMEs, the government predicts that the savings will be around £4,200 on average for small businesses and £21,700 for medium sized firms from 2023/24.

In addition, it will help almost 28 million people across the UK save £330 on average in 2023/24, with an additional saving of around £135 on average this year.

More detail for employees and employers

The changes took effect for payments of earnings made on or after 6 November 2022, so:

  • primary Class 1 NICs (employees) generally reduced from 13.25% to 12% and 3.25% to 2% and
  • secondary Class 1 NICs (employers) reduced 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%.

The government hopes that most employees will receive the NICs reduction directly via the payroll in their November pay but acknowledges that some will have to wait until December or January, depending on the complexity of their employer’s payroll software.

More detail for the self-employed

Following the principle detailed above, the changes to Class 4 NICs will again be averaged across 2022/23, so that the rates will be 9.73% and 2.73%.

NICs thresholds

A similar principle to that outlined above for income tax thresholds will be followed in respect of the NICs upper earnings limit and upper profits limit. From July 2022, the NICs primary threshold and lower profits limit were increased to align with the personal allowance and will be maintained at this level from April 2023 until April 2028. The Class 2 lower profits threshold will also be fixed from April 2023 until April 2028 to align with the lower profits limit. They will again be £12,570 and £50,270 as appropriate.

In addition, the government will fix the lower earnings limit and the small profits threshold at 2022/23 levels in 2023/24, namely £6,396 and £6,725 per annum respectively.

The government will uprate the Class 2 and Class 3 NICs rates for 2023/24 to £3.45 per week and £17.45 respectively.

Finally, the government will fix the level at which employers start to pay Class 1 NICs for their employees at £9,100 from April 2023 until April 2028.

Capital Gains Tax

The government has announced that the capital gains tax annual exempt amount will be reduced from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.

Inheritance tax

The inheritance tax nil-rate bands are already set at current levels until April 2026 and will stay fixed at these levels for a further two years until April 2028. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000 and the residence nil-rate band taper will continue to start at £2 million.

Stamp Duty Land Tax

A number of changes were made to the Stamp Duty Land Tax (SDLT) regime earlier this year and these remain. 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 increased from £125,000 to £250,000.

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

There are no changes in relation to purchases of non-residential property.

 

Residential

Band £

Rate

%

Non-residential

Band £

Rate

%

0 – 250,000 0 0 – 150,000 0
250,001 – 925,000 5 150,001 – 250,000 2
925,001 – 1,500,000 10 Over 250,000 5
Over 1,500,000 12

 

Higher rates may be payable where further residential properties are acquired.

However, the government has now confirmed that these changes will be a temporary SDLT reduction. The SDLT cut will remain in place until 31 March 2025 to support the housing market.

Corporation tax rates

It had been previously announced that the expected increase in the rate of corporation tax for many companies from April 2023 to 25% would not go ahead. However the government announced on 14 October 2022 that this increase will now proceed and this has been confirmed.

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.

In addition:

  • bank corporation tax surcharge changes will proceed, meaning that from April 2023 banks will be charged an additional 3% rate on their profits above £100 million and
  • from April 2023 the rate of diverted profits tax will increase from 25% to 31%.

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.

Companies incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow.

The government will also extend the 100% first year allowance for electric vehicle chargepoints to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.

Research and Development

For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20% but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%.

This government states that ‘this reform ensures that taxpayer support is as effective as possible, improves the competitiveness of the RDEC scheme, and is a step towards a simplified, single RDEC-like scheme for all’. The government will consult on the design of a single scheme and consider whether further support is necessary for R&D intensive SMEs. As previously announced at Autumn Budget 2021, the R&D tax reliefs will be reformed by expanding qualifying expenditure to include data and cloud costs, refocusing support towards innovation in the UK, and targeting abuse and improving compliance.

Seed Enterprise Investment Scheme

From April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. To support these increases, the annual investor limit will be doubled to £200,000.

Company Share Option Plan

From April 2023, qualifying companies will be able to issue up to £60,000 of Company Share Option Plan (CSOP) options to employees, twice the current £30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.

VAT

The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2024, staying at £85,000 and £83,000 respectively.

Vehicles

The government will set the rates for the taxation of company car benefits until April 2028 to provide long term certainty for taxpayers and industry. Rates will continue to incentivise the take up of electric vehicles.

In addition, from 6 April 2023 car and van fuel benefits and the van benefit charge will increase in line with inflation.

In addition, from April 2025 electric cars, vans and motorcycles will begin to pay Vehicle Excise Duty in the same way as petrol and diesel vehicles. According to the government, this will ensure that all road users begin to pay a fair tax contribution as the take up of electric vehicles continues to accelerate.

National Living Wage and National Minimum Wage uprating

The government will increase the National Living Wage (NLW) and National Minimum Wage from 1 April 2023 as follows:

  • the rate for 23 year olds and over to £10.42 an hour
  • the rate for 21-22 year olds to £10.18 an hour
  • the rate for 18-20 year olds to £7.49 an hour
  • the rate for 16-17 year olds to £5.28 an hour and
  • the apprentice rate to £5.28 an hour.

Energy

The Autumn Statement 2022 sets out reforms to ensure businesses in the energy sector who are making extraordinary profits contribute more. From 1 January 2023, the Energy Profits Levy will be increased to 35% and extended to the end of March 2028 and a new, temporary 45% Electricity Generator Levy will be applied on the extraordinary returns being made by electricity generators.

The Energy Price Guarantee (EPG) will be maintained through the winter, limiting typical energy bills to £2,500 per year. From April 2023 the EPG will rise to £3,000.

The government is also setting a national ambition to reduce energy consumption by 15% by 2030, delivered through public and private investment, and a range of cost-free and low-cost steps to reduce energy demand.

 

It was predicted that this would be a tough fiscal statement, with tax rises announced.  The government blaming the long-term impact of Covid on the global economy and supply chains, and Russia’s war on the Ukraine.

The Office of Budget Responsibility has now said that we are in recession, this Autumn Statement 2022 designed to bring stability and growth to our economy to lessen the impact. Let’s just hope that the current Prime Minister and Chancellor stay in post long enough to see the announced changes through.

If we can help support you to understand the impact of these announced changes to you and your business, please get in touch.

Page 1 of 28

Stephenson Smart News