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.
Pension tax changes
With effect from 2024–25, the lifetime allowance is to be abolished.
The amount of the annual allowance for the year 2023–24 has been increased to £60,000 from £40,000. However, in the case of a high-income individual (broadly adjusted income over £260,000), the annual allowance is tapered down so it does not fall below a minimum of £10,000 (previously, £4,000).
Where the annual allowance for a tax year exceeds the pension input amount for that year, a limited form of carry-forward is available. You can carry that unused allowance forward and use it against excess pension input amounts in any of the next 3 years.
The current lifetime allowance is £1,073,100, which caps the total amount of tax-free savings which can be held in an individual’s various pensions. Its abolition is designed to ensure that highly skilled individuals such as NHS clinicians are not disincentivised from remaining in the workforce because they were suffering excessive tax on their superannuation and other pension contributions.
Now that the limit on the lifetime allowance is being removed, high earners will have the opportunity to save unlimited funds in pensions. In future, pensions could also be used for effective inheritance tax planning as under current rules, most pension pots are inherited tax-free.
The changes are expected to benefit under 10,000 high income individuals a year.
Paper tax returns
There were just 135,000 self-assessment taxpayers who filed on paper last year.
In future, paper tax return forms will have to be ordered by phone as they will not be sent automatically to any taxpayers, regardless of their ability to complete filings online.
There are also a significant number of exemptions where taxpayers have to use a paper return due to IT problems including where complex tax calculations cannot be accommodated online.
In the latest HMRC exemptions list there are a number of issues for higher rate taxpayers who have non-saving income less than their available reliefs and allowances, savings income above the saving rate band, and dividend income above the dividend allowance.
There are also issues with overlap relief when a taxpayer operates more than one trade of a similar kind, which can lead to problems with claims resulting in underpaid tax.
HMRC Late Payment Interest – 6.75%
The late payment and repayment interest rates are changing following the rise in the Bank of England base rate to 4.25% on 23 March. The rates will rise to:
- late payment interest rate — 6.75% from 13 April 2023
- repayment interest rate — 3.25% from 13 April 2023
Late payment interest is payable on late tax bills covering income tax, National Insurance contributions, capital gain tax, stamp duty land tax, stamp duty and stamp duty reserve tax. The corporation tax pay and file rate also increases to 6.75%.
Repayment interest will also be increased from the current 3% rate to 3.25%.
HMRC fines tax evaders £34.4m
The latest HMRC deliberate tax defaulters list showed that just 200 companies and individual taxpayers have been identified for evading taxes totalling £44,617,823.45.
This has resulted in HMRC issuing penalties totalling £34,481,035.85 to 198 companies and individuals.
HMRC Capital Gains Tax Returns Downloadable
HMRC has made the paper version of the Capital Gains Tax on UK Property Return available to download on a limited basis
The downloadable forms are not intended to replace the online capital gains tax on UK property account and are only intended to assist those who cannot report and pay tax using the online service.
HMRC stress that ‘paper returns must only be made in certain circumstances’.
Hike in Retirement Abandoned
Plans to increase the pension age to 68 in 2034 have been dropped.
The current retirement age is 66 and is due to increase to 67 by 2028. The government has been reviewing a plan to bring forward the proposed 2046 introduction date to the early 2030s. However, it now appears that the plans have been shelved.
The rethink seems to be in the wake of a dramatic drop in average life expectancy in the wake of the pandemic.
Inheritance Tax Collects £6.4bn
Total tax receipts for the year April 2022 to February 2023 totalled £722.6bn, which was £66bn higher than the same period last year.
Overall, inheritance tax receipts hit a record £6.4bn for the 2022/23 tax year, up from the £6.1bn a year earlier.
The fact that the nil rate band – unchanged since it was increased to £325,000 from April 2009 – remains frozen until at least April 2028 represents a gift that keeps on giving for the Chancellor.
‘The almost 20-year freeze in the nil rate band, coupled with inflationary growth of asset values, will see many families with moderate levels of wealth having to pay IHT.
Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £5,000.
You can only claim against your employers’ Class 1 National Insurance liability up to a maximum of £5,000 each tax year. However, your employers’ Class 1 National Insurance liabilities must have been less than £100,000 in the previous tax year.
You can claim Employment Allowance for the previous 4 tax years dating back to the 2018 to 2019 tax year although some of the rules in earlier years were different.
If you’re part of a group of charities or companies, the total employers’ Class 1 National Insurance liabilities for the group must be less than £100,000 and only one company in the group can claim the allowance.
You cannot claim
- if you’re a public body or business doing more than half your work in the public sector i.e. performing functions that are wholly of mainly of a public nature, unless you’re a charity.
- If you’re a company with only one employee paid above the Class 1 National Insurance secondary threshold and the employee is also a director of the company
You need to claim Employment Allowance every tax year. You can claim at any time in the tax year, but the earlier you claim the sooner you will get the allowance.
Employment allowance was:
- £4,000 each year between 6 April 2020 and 5 April 2022
- £3,000 each year between April 2016 and April 2020.
Functions are either wholly or mainly of a public nature, if you are carrying out more than 50% of your work in or for the public sector. For example:
- NHS services
- General Practitioner services
- the managing of housing stock owned by or for a local council.
- providing a meals on wheels service for a local council
- refuse collection for a local council
- prison services
- collecting debt for a government department
You do not carry out a function of a public nature, if you are:
- providing security and cleaning services for a public building, such as government or local council offices
- supplying IT services for a government department or local council
Registered charities can claim the Employment Allowance, even if they are wholly or mainly carrying out functions of a public nature. This is subject to the connected rules for charities.
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