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.
HMRC Time to Pay Arrangements Now Online
If you cannot pay your self-assessment or employers’ PAYE bill on time you can set up a time to pay arrangement with HMRC. In certain circumstances this can now be done online.
Setting up a time to pay arrangement online for self-assessment (SA) has been possible for several years. The limit increased from £10,000 to £30,000 in October 2020. The ability to create an online time to pay arrangement was extended to employers’ PAYE in December 2022.
The criteria for using the online services are:
|Deadline for using the online service||Within 60 days of the payment deadline||Within 35 days of the payment deadline|
|Deadline to avoid late payment penalties||Within 30 days of the payment deadline||n/a|
|Timescale for paying off the debt||Within the next 12 months||Within the next six months|
|Tax return filing||Latest SA return must be filed||Employer PAYE and construction industry scheme returns must have been filed|
|Other liabilities||Must have no other payment plans or debts with HMRC||Must have no other payment plans or debts with HMRC|
If you cannot meet these conditions, you will need to speak to HMRC or use its webchat.
Agents cannot use the online service on behalf of their clients.
From April 2023 associate dentists will have to meet the off payroll working rules (IR35).
HMRC has for many years accepted that associate dentists are almost always self-employed.
However, from 6 April 2023, HMRC will be updating their manuals to remove specific occupational guidance for associate dentists.
The majority of dentists work as associates and appear to fall outside of IR35 rules as they pay to use the facilities at the practice, can choose what hours and when to work, and practices cannot tell them how to do their jobs or what type of work to undertake. In addition, professional development, specialist training, registration and indemnity insurance is self-funded.
They report earnings as trading income .The dentist is liable for Class 2 and Class 4 NICs and not Class 1 NICs. They also do not need to establish IR35 status.
As a result of HMRC’s changes, the British Dental Association is recommending that associate dentists, or those who engage associate dentists, make an assessment of employment status.
The removal of the paragraph from the guidance should not affect the status of associate dentists, but it appears that HMRC is expanding the focus of the off payroll rules for the private sector, although it will not open retrospective enquiries into previous practice.
However, the BDA said that dental practices should review their associate arrangements.
There are an estimated 42,200 dentists registered in the UK
Check Your Tax Code for Errors
Most people do not understand what their tax code means.
In a recent survey many employers and employees found errors in the coding notices with some resulting in catch up tax bills in later years to correct the resulting underpayments.
Each code is made up of a combination of numbers and letters, the numbers relating to the tax-free income to which the employee is entitled while the letters refer to a taxpayer’s personal situation and how it affects their personal allowance.
All that the code can do is to provide a best estimate of tax deductions for the year and it is not infallible.
Codes are not simple with 20 letter combinations listed on the gov.uk website, with further codes (W1, M1 or X at the end) denoting emergency tax.
There is also a K code which denotes that tax due to be collected is worth more than the tax-free allowance and this can arise when there are catch up tax liabilities,
You should always check your tax code, by logging into your HMRC personal tax account. You can check the estimates of how much income you are expected to get from your jobs and pensions which means you can inform HMRC about any changes that are likely to affect your tax code during the tax year.
Airbnb Landlords in the HMRC Headlights
HMRC is looking at short-term property lettings through online property sites such as Airbnb and Booking.com. They are writing to taxpayers who might have earned income from short term property lettings to help them get their tax right’.
If gross receipts from renting rooms is less than £7,500 in a tax year, this does not have to be declared in a self-assessment return as the income is automatically exempt through the rent-a-room tax relief if the rooms are let out in your own home. However, this limit is reduced to £3,750 if two people receive income from the same property.
UK short-term landlords can receive a £1,000 tax free allowance on income earned from hosting. However, this is separate to rent-a-room relief, so only one of the allowances can be used in a tax year.
‘We’re making customers aware that if they’ve earned income from short-term property lettings, they need to let HMRC know because they may need to pay tax on their earnings,’ HMRC said.
HMRC will use information they have about property rental in the UK and abroad and other information they hold on taxpayers to identify people who might not have paid what they owe.
Invoice financing takes various forms but broadly describe ways in which cash can be raised quickly from a debtor portfolio. It is usually more costly than longer term loans, but can be an effective way of improving cashflows.
The two main types are debt factoring and invoice discounting.
The entity transfers its sales ledger to the finance provider (the ‘factor’) in exchange for an immediate cash payment based on the nominal value of the debts, though this will often be received net of the factor’s fee. The factor then takes responsibility for management of the portfolio, including collection and credit control.
Cash is paid to the seller at the outset based on the nominal value of the balances transferred, but in this type of arrangement the seller retains responsibility for collecting the balances. It also takes on a corresponding obligation to pass on all amounts collected to the finance provider, usually within an agreed (and short) period. The seller has the same cashflow advantages but its customers need know that the third party in the arrangement even exists which may help to retain customer confidence.
HMRC Targets R&D Tax Fraud
HMRC is writing to around 2000 companies concerning potential fraudulent and inaccurate research and development (R&D) tax relief claims.
These ‘nudge’ letters are sent to selected businesses to encourage them to check that their previous R&D tax relief claims are complete and correct, and if not, to make appropriate disclosures and corrections.
Letters were issued in January to 2,024 companies including warnings that they may face formal tax enquiries and rejected claims if their returns are found to be incorrect.
The wording includes the following: ‘We’ve seen an increase in fraudulent claims for R&D tax relief. We also believe companies in your sector are being deliberately targeted by third parties to make inaccurate R&D claims as an amendment to their company tax returns. Because of this, we’re increasing our compliance enforcement activity.’
HMRC believes that the relief was subject to large-scale organised criminal attacks and the activities of rogue advisers. It estimated that £469m was lost through fraud and error in its two R&D schemes in 2021-22, equivalent to 4.9% of corporate tax R&D reliefs.
Even if you have not received a “nudge” letter, you should review you past R&D claims to make sure there are no potential skeletons in the company closet. It is better to make a voluntary disclosure for errors before you are nudged by HMRC, as this should be treated as an ‘unprompted’ disclosure which carries a much lower penalty.
Challenging Self-assessment Late Filing Penalties
If you did not submit you 2021/22 tax return online by 31 January 2023 you may be able to get the automatic £100 late filing penalty cancelled.
If you do not meet HMRC’s criteria for self-assessment for a year, you can ask HMRC to withdraw the notice to file a tax return for that year. If HMRC agrees to withdraw the requirement, any late filing penalties for that return will be cancelled automatically.
However it is important to make this request before filing the return, as HMRC cannot withdraw a filing requirement after the tax return has been filed.
You can also appeal the penalty if you have a reasonable excuse for not filing by the deadline or have special circumstances to report.
Around 600,000 customers missed the 31 January 2023 self-assessment deadline.
HMRC define a ‘reasonable excuse’ as something that stopped a taxpayer from meeting a tax obligation which they took reasonable care to meet.
Examples include bereavement, serious illness and IT issues. The taxpayer must file their tax return without unreasonable delay after the excuse ends.
Insufficiency of funds or inability to pay is not, by itself, a reasonable excuse but the underlying causes may be.
The onus is on you to demonstrate to HMRC why it prevented you from complying with your obligations so they can consider whether it is appropriate to cancel the penalties.
Gifts to Children
It has been estimated that parents gift or loan their children an estimated £17 billion each year.
Most transfers come from parents aged over 50 to children in their late 20s and early 30s, although grandparents gift £330m.
It is believed that this wealth distribution is contributing to increasing inequality across the younger generation. These intergenerational transfers are typically mad by richer parents to children in early adulthood who are buying their first home or getting married. While these transfers are important assistance for some, they are very unequally spread.
It has been reported that the children of university educated, homeowning parents receive around six times more in wealth transfers during their 20s and early 30s than the children of renters, while white young adults are three times more likely to receive a substantial gift than Pakistani or Bangladeshi young adults. These transfers’ potential pass on inequalities from one generation to the next.
EU Green Deal Industrial Plan
Brussels’ green plan swiftly follows the US announcement of an increase in subsidies that could put companies in Europe at a disadvantage.
The European Commission (EC) has unveiled its Green Deal Industrial Plan in response to the US government’s Inflation Reduction Act (IRA), easing state aid rules to help Europe compete as a manufacturing hub for green investment and in a bid to ward off an exodus of companies from the EU to the US.
Brussels is concerned that US subsidies will put companies in Europe at a disadvantage.
The Plan is based on four pillars: simplifying regulations; speeding up access to finance; skills development; and open trade to provide a ‘more supportive environment’ to boost the EU’s manufacturing capacity for the green transition to meet its climate targets. Brussels wants Europe to be the first climate-neutral continent by 2050, and to cut its emissions by at least 55% by 2030.
The green initiatives by the US and the EU put the UK in a difficult position. Business investment in the UK has been struggling, with the latest official data showing that business investment fell by 2.5% from July to Sept 2022, revised down from the provisional estimate of negative 0.5%.
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