Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into the them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
Tax is Boring, Right?
Having worked in and around tax for many years, it has never seemed boring to me. It is constantly changing as one or another Chancellor implements new policy initiatives or tinkers with tax legislation, in order to “simplify” it, even though it was working perfectly well. There have been many times when I could have wished that the Chancellor, when invited to present his budget for the coming year, would stand up and say he had nothing to say.
The last few weeks have pushed tax into the headlines and in a way that no-one can currently predict what the tax rates, allowances and reliefs will be in the near or longer term.
Perhaps we could all do with a period of tax boredom.
There were several breath-taking announcements culminating in the abolition of the 45% tax rate in England. Remember this had no effect in Scotland. But the abolition was quickly abolished which left everyone wondering what other new policies would suffer the same fate.
George Osbourne had similar problems with his pasty tax.
Wouldn’t it be nice to have no headlines after a budget, just good steady, well thought out and costed policy announcements. Nice and boring.
These “rabbits out of the hat” announcements are designed to impress , but they are dreamt up in the corridors of power and once out of the bag, the headlines that follow subject them to the glare of publicity and the scrutiny of people who perhaps have a better understanding of what ordinary tax payers think and feel.
Tax Credits Limited – HMRC Refunds Customers
This company acted as an agent and claimed tax credit refunds on behalf of taxpayers.
There had already been a numerous complaints involving Tax Credits Ltd over their use of customer data and lack of transparency. It was reported that multiple customers of the agent unknowingly signed over authority of their tax refunds to the company.
They advertised online using Facebook etc and their branding mimicked HMRC. People were therefore unclear that it was a company unconnected to HMRC. It has also been reported that the taxpayers never actually signed contracts with the company but HMRC told them that they had given the company permission to claim the refunds.
People felt that they had been fooled by similar tactics used by Tax Credits Ltd.
Some people lost 48% of their tax refund to the company.
Following an investigation by HMRC, taxpayers who have claimed refunds through Tax Credits Ltd since December 2021 will be receiving a repayment from HMRC.
HMRC said that they were “not satisfied that the new process and documentation led to a valid assignment of repayments to Tax Credits Ltd” and so are reimbursing a total of 60,000 taxpayers who have used the scheme. This suggests an acceptance of a failure of HMRC’s own systems.
HMRC has already made moves to better scrutinise tax refund companies such as Tax Credits Ltd with their recent restructuring of the form P87 process earlier this year, which means that these sort of companies can no longer use their own claim forms which frequently incorporate a deed or letter of assignment.
Use Gift Aid
Gift Aid is an important source of additional income for charities and claiming back the tax relief further boost the value of the donation.
Research earlier this year warned that charities are missing out on much needed funds because 23% of eligible donors do not use Gift Aid.
Currently Gift Aid increases the value of the donation by 25%, based on the basic rate of income tax being 20%. The Chancellor announced in September that the government intends to reduce the basic rate of tax in England to 19% from April 2023, which will result a reduction in the Gift Aid claimable.
In England the government has agreed that for donations made until March 2027 an additional transitional relief on Gift Aid will be paid so that Charites will continue to claim the same rebate as at present.
Reminder: VAT filing from 1 November
All VAT-registered businesses must use Making Tax Digital (MTD) compatible software for their VAT returns from 1 November 2022. They will no longer be able to use their existing VAT online account to submit VAT returns.
By law, all VAT-registered businesses must now sign up to MTD and use compatible software to keep their VAT records and file their returns.
So, in less than one month, businesses who file their VAT returns on a quarterly and monthly basis will no longer be able to submit them using their existing VAT online account, unless HMRC has agreed they are exempt from MTD.
Even if a business currently keeps digital records, they must check their software is MTD compatible and sign up for MTD before filing their next return.
Stealth Tax Threshold Freeze
On average UK households will lose more from freezes in tax thresholds over the next three years than they will gain from tax cuts to the basic rate of income tax.
Freezes to personal tax alone will reduce households’ income by £1,250 on average by 2025-26. Adding in freezes to benefits and gradual policy rollouts brings that figure to £1,450.
The combined impact of headline tax changes, policy rollouts, frozen taxes and benefits is broadly regressive, with the poorest seeing income falls of 2.8% and the richest falls of only 1.1%.
This means that headline cuts to income tax and national insurance will benefit higher income households, with the richest 10% gaining £2,290 a year on average, while the poorest gain only £13 per year.
In the 2021 Budget former Chancellor Rishi Sunak announced that income tax thresholds would be frozen for four years from 2022-23 to 2025-26.
So, these freezes more than outweigh headline policies such as the 1p cut to the basic rate of income tax, or the reversal of the health and social care levy, and they are set to drag millions more into the tax system and into higher rates of tax.
Clampdown on Money Laundering
It has become increasingly difficult to bank large amounts of cash into UK accounts, and one way in which the laundering is achieved is to transport the cash to places like Dubai where it is converted into gold, cryptocurrencies etc. through various front organisations.
The introduction of new criminal and regulatory legislation in the UK means cryptocurrencies, gold or dirhams cannot be bought via a UK front organisation or exchange without compliance checks. Strict legal obligations that banks and exchanges must comply with mandate that they seek verification as to the source of cash deposits.
Should they detect any deposits or cash transactions that appear in any way suspicious, confidential reports must be created and sent to law enforcement agencies. There are an increasing number of legal mechanisms available for law enforcement agencies to pull upon in order to frustrate the conversion of or dealing in criminal assets.
This tighter legal framework and new enforcement powers facilitate the seizing of cash and freezing of bank accounts. Asset owners are fully responsible for providing proof that such assets have been lawfully obtained without any criminal investigation or prosecution being necessary.
Another weapon in the legislative armoury is Unexplained Wealth Orders which require the owner of a property to provide proof that it was purchased with legitimate funds.
Preparing for IR35 Changes
In his mini budget the Chancellor, Kwasi Kwarteng, announced the repeal of the Off-payroll working (“OPW”) rules or IR35.
Kwarteng wants growth, and he appears to have listened to private sector businesses who had been forced to trudge through the legislative sludge of OPW since April 2021.
IR35 will remain in its original form. It has not gone away completely.
In future if companies want an employee-like worker, they need to make sure they are on the payroll, and if they want services-based provision, then make sure the contractor takes reasonable care and is protected.
The move back to the old world will certainly not be a free-for-all. Enforcement will be ramped up, and firms would be wise to pay careful attention to compliance matters and revisit tax issues around their contingent workforce strategies.
Accountants: stress amid rising cost of living
Recent research has revealed that accountants feel anxious, stressed and worried about their future as a result of the cost-of-living crisis, with almost half struggling financially.
I am not sure if any of the accountants I know took part but other than a healthy concern for the present uncertainties I would not say that any of them seem particularly stressed, or at least any more stressed than usual.
Apparently over a third (34%) of working accountants were concerned about their future as a result of the cost-of-living crisis. 20% of accountants said their career progression had been affected.
Three quarters (75%) have already made efforts to reduce their essential expenses, such as food shopping (54%), energy bills (52%), or transport costs (45%).
Many accountants apparently are struggling with their finances and this is having significant impacts on their mental health – of those struggling, two-thirds (66%) feel anxious.
Cutting Red Tape
Currently, only small businesses are presumed to be exempt from certain regulations. However, many medium-sized businesses – those with between 50 and 249 employees – still report that they are spending over 22 staff days per month on average dealings with regulation.
The prime minister has announced plans to widen these exemptions to businesses with fewer than 500 employees for future and reviewed regulations, freeing businesses from accompanying paperwork that is both expensive and burdensome for all but the largest firms.
Prime Minister Liz Truss said: ‘By raising the definition of a small business, in terms of regulation, from 250 to 500 employees, we will be releasing 40,000 more businesses from red tape.
‘That will make it easier for them to get on with their business, in turn boosting our economy and creating more jobs to help get Britain moving.
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