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 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.
What does a Budget U-Turn Look Like
Hunt’s unbudget reversed many of the provisions announced by Kwasi Kwarteng.
For individuals
- The basic rate of income tax (in England) will stay at 20%.
- But the health and social care levy will not be introduced as planned from April 2023.
- However the rise in the tax on dividends will remain even though it was brought in alongside the Health and Social Care Levy.
- The additional rate of income tax (in England) will remain at 45%.
- The National Insurance rate rises brought in this year as a precursor to the Health and Social Care Levy will be reversed.
Off-payroll working
Hunt has decided to keep the off-payroll regime in place for both public sector and private sector contracts.
However, the off-payroll rules do not apply for contractors working for small engagers in the private sector. It is expected that the definition of small will be amended to companies with up to 500 employees.
Business taxes
The main rate of Corporation Tax from 1 April 2023 will be 25%. Profits up to £50,000 will continue to be taxed at 19%
There will be a complex marginal tax rate for companies with profits between £50,000 and £250,000. These limits are reduced where there is more than one company.
The cap on the annual investment allowance (AIA) appears to be staying at £1m per year. There was likewise no information about the super deductions of 130% for new plant and machinery, or 50% for new integral features, which are due to cease on 31 March 2023 so it would be reasonable to assume these will end as planned.
Scottish implications
The Scottish Budget for 2023/24 is set to be published on 15 December 2022, which needs to take into account the Barnet formula that allocates money to the devolved regions
VAT Margin Scheme for Horses
You may be familiar with the margin scheme for cars and other assets but you can also use it for horses.
VAT-registered horse dealers can benefit from this scheme by not having to account for VAT on the entire sales price, only the margin between sale and purchase.
The margin scheme is available to a person who is chargeable to VAT (i.e., in business and commercially trading) on the sale of a horse on whose original purchase they did not recover input tax.
This scheme is no longer applicable, when buying horses from private individuals in the EU or where the purchase might have been within an EU margin scheme.
This is because since Brexit, all second-hand goods from the EU have become imports on which VAT is levied on arrival in the UK. The margin scheme is therefore not applicable.
Income Tax take hits £368.9bn
Total tax receipts for the first six months of the year are up by £35bn to £368.9bn.
The increase in NICs rates as a result of the 1.25% social care levy, effective from April 2022, affected HMRC’s NICs receipts from May 2022 onwards. However, this will be removed from 6 November as the levy is reversed..
Part of this increase in Income Tax take is due to the freezing of allowances, a stealth tax.
Hunt has warned of tough times ahead and has trailed the prospect of yet more tax rises.
The Cost of MTD Roll Out
A recent survey suggests that an overwhelming majority small companies and tax agents believe that the move to Making Tax Digital (MTD) for Income Tax will increase the time spent and costs incurred in keeping records. Over half stated that this increase will be significant.
Currently, HMRC plans to introduce MTD for Income Tax from April 2024 for self-employed and landlords with income over £10,000.
A majority also said that the legislative burden regarding tax compliance over the last 12 months had worsened.
HMRC has motives for the continued rollout of MTD. It is also pushing ahead with digitalising more of the tax system and speed up rollout of personal tax accounts as part of efforts to reduce spending and improve efficiencies
On the question of spending cuts HMRC chief executive Jim Harra said: ‘As things stand we still have our budgets based on the 2020 spending review. In June we were challenged to cut the size of the Civil Service; in the case of HMRC our plans bring us back to 2016 levels. We will make efficiencies wherever we possibly can – the main way is to continue digitalising the tax system so customers do not need to contact us by old systems. We’ve been leading work in the meantime on what else we can do. We are looking at whether we can go further by 2025 and we are prioritising how we can automate more of the personal income tax system and what scope there is for us to go further.’
It is clear that digitisation of the tax system is key to improving efficiencies and cutting costs.
18m to 19m people are already actively using online accounts (out of 31m).
The New Buzz Words – Quiet Quitting
Quiet quitting is not new. Quiet quitters have not actually quit their jobs, but they have disengaged and so mentally distanced themselves, only do what’s required of them in their job description. No unnecessary effort, little or no overtime or participating in team socials.
This may be the result of poor leadership especially if working remotely.
So, what is the answer. Here are five tips to keep the team operating as a team, all pulling together:
- Everyday actions: There can be a disconnect between the big ambitious goals and the everyday actions that workers need to take to improve their individual and team performance. The key is to help their people identify and understand what the small everyday actions are that they need to take to make a difference. Once you are clear about what’s expected, employees will benefit from being coached, measured and encouraged to carry out these everyday actions and not be distracted by other calls on their time.
- Be flexible but focused: Employees expect to be able to work in an agile and flexible way. When they are working they need to be focused on results-based activity, on getting the right things done. This is a conversation that leaders need to have with the individuals in their teams to cement the new way of working.
- Be kind: This does not mean you don’t call out poor performance. Nor does it mean you don’t have challenging conversations. But in your overall behaviour as leader, put kindness at the heart of what you do.
- Meet face to face: Working from home can be intensely isolating for many and quite depressing for some. It is essential to meet your people face to face and to use the time well.
- Celebrate the success of all the small victories that your people are achieving out there. Don’t allow them to think their hard work is going unnoticed.
Are Accountancy skills key to successful careers in government? Ask Truss!
Most people think accountancy is all about numbers. Many accountants are not good with numbers, but you don’t need to be.
Accountancy goes far beyond the numbers, and in the case of Michalis Hadjipantela FCA, the skills honed as a chartered accountant have paved the way for a successful career in government in his home country of Cyprus.
“The skills you gain as a chartered accountant help you understand issues, work out how to solve them, judge the risks, and then set out a process to resolve problems,” Hadjipantela explains and . using financial skills gained as a chartered accountant helps you make better decisions
Similarly, the business skills you develop as a chartered accountant are essential to managing in a crisis, he adds. “It also requires strong analytical skills. In short: Identify the problem, what’s the solution, what’s the plan, then have a back-up plan. It is crucial that you know what’s going on, just as you would in a business.”
The people-management skills he has honed as an accountant have also proved invaluable, he says. “As accountants we like to make connections and to network. As Minister for Health, I have visited and talked to many different countries to learn from best practice, so that I can bring that back to Cyprus.”
Cybercrime Changes Tack
Cyber criminals are upping the sophistication of their attacks.
There is a warning that that the current harsh economic environment and rumblings of a global recession will result in an increase in cybercrime. “A rise in phishing attacks always correlates to negative economic or social events and is focused on those that have the most to gain from the socially engineered messaging. At the same time, criminals face financial pressures and presumably are incentivised to work harder when times are tough.”
The most common threat encountered was phishing attempts (83%). Around one in five (21%) identified a more sophisticated attack type, such as a denial of service, malware, or ransomware attack. Despite its relatively low prevalence, respondents to the survey cited ransomware as a major threat, with 56% of businesses having a policy not to pay ransoms.
“Ransomware attacks rank among the most effective cyber-attacks on businesses and often have collateral damage far beyond the ransom itself,” says Ross Brewer, General Manager and Vice President of Europe, Middle East and Africa and Asia Pacific Japan for AttackIQ. “Ransomware incidents not only affect the business’s bottom line through potentially large pay-outs, like the $4.5m CWT Global fee paid by a US travel services company to the Ragnar Locker ransomware gang.
“It can also cause reputational damage, legal consequences, and result in the loss of data and business far beyond the immediate breach.”
Cyber security needs to keep up with advancing cyber criminals
With hybrid working now mainstream, and cybercriminals becoming more sophisticated, so the risk of security breaches is increasing.
Changes to SME limits
Currently, small businesses are exempt from many regulations. On 3 October 2022, the UK government announced an extension in the definition of small business for regulatory purposes to those with fewer than 500 employees (previously set at fewer than 50).
The press release said that this is an initiative primarily designed to “harness the freedoms the UK has since leaving the EU to remove bureaucratic and burdensome regulations.”
However, it is not certain whether this will result in favourable shifts in tax policy for ‘small’ businesses where eligibility for a tax relief or incentive is limited by reference to the number of employees. Time will tell if reliefs become available to an expanded number of businesses as a result of the threshold adjustment or whether this is simply a measure designed to reduce paperwork.
Blackouts – Do You Need to Pay Your Staff?
The National Grid have warned that there is a possibility of pre-planned power cuts across the UK this winter, in order to manage diminished fuel supplies due to a number of factors including the war in Ukraine.
The National Grid have revealed plans for three-hour power cuts across different regions of the UK, at different times, using a system they have called “rota disconnection”.
Should this happen, the advice that we have seen suggests that you could consider agreeing annual leave with them or placing them on paid leave. Alternatively, you could rely on existing contractual provisions, such as a lay-off or short time working clause that allows a reduction in pay when work cannot be provided.
Alternatively, it may be possible, with agreement, to vary employees working hours so that the working day falls before or after a planned power cut, or employees may be offered overtime to catch up on work outside of their usual working hours.
Questions? If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk
