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.
VAT at 50!
Saturday 1 April 2013 marked the anniversary of the introduction of VAT to the UK as part of our entry into the EEC club. It has become a major source of government revenue, raising £157.5bn in 2021-22.
VAT is a type of consumption tax, levied on the value added to goods and services at each stage of production and distribution. The standard rate of VAT in the UK is currently 20%, but there are reduced rates (5% or 0%) for certain items including some food, books and children’s clothing.
VAT’s origins can be traced back to France in the 1950s, where it was devised to avoid double taxation and promote economic efficiency. It was adopted by the then European Economic Community (EEC) in 1967 as a common system of taxation for its member states. So, if you want to blame anyone, blame the French.
Over the years, VAT has undergone numerous changes and reforms, reflecting the evolving economic and social conditions of the UK.
VAT must also adapt to the changing patterns of consumption and production, such as online shopping, e-commerce platforms and digital services.
This complicated tax, introduced on All Fools Day in 1973 will continue to evolve and as present governments see no virtue in tax simplification, things can only get more complicated.
Tax changes from 1 April 2023
Businesses with profits below £50,000 will not be affected as the government has introduced a small profits rate for those companies of 19%. A tapered rate will also be introduced for profits above £50,000 so that only businesses with profits of £250,000 or more will be taxed at the full 25% rate. However, the lowest rate band is so small that anyone other than the smallest companies are going to face significant tax rises.’
The 130% super deduction was withdrawn from 31 March. Companies incurring qualifying expenditure on the provision of new plant and machinery on or after 1 April 2023 until 31 March 2026 will be able to claim one of two temporary first-year allowances. These allowances are:
- a 100% first-year allowance for main rate expenditure – full expensing; and
- a 50% first-year allowance for special rate expenditure.
These will be irrelevant to most small businesses. But the annual investment allowance has been set at £1m on a permanent basis from 1 April and this is available to nearly all incorporated and unincorporated businesses, covering expenditure on most plant and machinery including second-hand assets and those acquired for leasing.
The first-year allowance for electric vehicle charge-points has been extended until 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.
Research and development (R&D) tax relief
For accounting periods starting on or after 1 April 2023 companies will have to inform HMRC of plans to make a claim for R&D tax relief using a new digital form. This requirement will apply for claims to relief for accounting periods starting on or after 1 April 2023.
Companies will also have to provide a digital additional information form with their claims. This requirement will apply to all claims made on or after 1 August 2023.
This information will include a description of the R&D undertaken, breakdown of qualifying costs, detail of any agent who has advised on the R&D claim and space for sign off from a senior officer of the company.
Global base rate of 15% tax
During the tax year, the government will also introduce a multinational top-up tax which will require large UK headquartered multinational groups to pay a top-up tax where their operations in a foreign jurisdiction have an effective tax rate of less than 15%.
There will also be a supplementary domestic top-up tax which will require large groups, including those operating exclusively in the UK, to pay a top-up tax where their UK operations have an effective tax rate of less than 15%.
These changes will apply to large groups with over €750m (£660m) global revenues in at least two of the previous four accounting periods.
The rates for theatre tax relief and museums and galleries exhibitions tax relief, which were due to taper to 30% (for non-touring productions) and 35% (for touring productions) on 1 April 2023, will remain at 45% and 50% respectively until 31 March 2025.
From 1 April 2025, the rates will be 30% and 35% and rates will return to 20% and 25% on 1 April 2026.
The rates for orchestra tax relief will remain at 50% for expenditure taking place from 1 April 2023, reducing to 35% from 1 April 2025 and returning to 25% from 1 April 2026.
National Minimum Wage
The national living wage (NLW) increases on 1 April by 9.7% to £10.42 from £9.50. 21 to 22 year olds will see their pay increase by 10.9% to £10.18 per hour from £9.18 while pay for younger workers and apprentices will also rise by 9.7%.
These increases follow recommendations made to the government by the Low Pay Commission (LPC) in the autumn.
From 1 April 2023, the following increases to NMW/NLW came into force:
|National living wage||Rate from April 2023||Rate from April 2022||Increase %|
|23 years old plus||£10.42||£9.50||9.7|
|21-22 year old rate||£10.18||£9.18||10.9|
|18-20 year old rate||£7.49||£6.83||9.7|
|16-17 year old rate||£5.28||£4.81||9.7|
The consequences of failing to pay NMW/NLW can be costly:
- fines at 200% of arrears (reduced to 100% if paid within 14 days, subject to a maximum of £20,000 per unpaid worker);
- repayment of arrears, calculated at the current rate of NMW/NLW;
- criminal proceedings for the most serious breaches.
If VAT Rules are Complex – Blame the legislators!
Are the VAT rules complex and confusing? In a recent survey the majority (71%) of VAT-registered businesses believe that business taxes, including VAT returns, are complex and confusing, as if that was a surprise.
The tax that originated on April Fools’ day in 1973 marks 50 years since it was dubbed ‘a simple tax’ by then Chancellor Anthony Barber. The concept is simple but the legislators seem incapable of passing simple straightforward and logical tax laws.
So, what are they responsible for:
- milkshake powders taxed differently according to their flavour. Chocolate is zero rated but strawberry or banana are standard rated..
- a gingerbread man with chocolate trousers attracts 20% VAT, while it is zero rated if only his eyes are made from chocolate.
- Yoghurt is zero rated unless it is frozen
- Fruit is zero rated unless it is mad into a smoothie when it is standard rated.
- Savoury popcorn is standard rated unless it is microwave corn ‘sold for popping’, which is zero-rated
And then of course there is the age old question of whether a Jaffa Cake is a cake or a biscuit. It may look and be treated as a biscuit but a lengthy and very expensive court battle concluded that it was a cake and therefore xero rated.
Complexity in calculating the right rate of VAT at the point of sale, and then preparing a VAT return are two of the main pain points businesses face, leading to increased stress, time and effort, and ultimately risk of making errors.
Gary Lineker wins IR35 case
The sports presenter and former footballer, who worked for the BBC and BT Sport, was informed by HMRC that he should have been classed as an employee for his presenting work, rather than as a freelancer.
HMRC pursued Lineker for £4.9m it claimed should have been paid on income received between 2013 and 2018.
However, Lineker provided his services via a partnership and this type of arrangement was not covered by the IR35 rules.
In February 2013, Lineker and his ex-wife, Danielle Bux, signed an agreement with BBC for the provision of his presenting services between 1 July 2013 to 30 June 2016.
Later in June 2015, Lineker also entered into an agreement with BT Sport, trading as Gary Lineker Media (GLM), and a further contract with the BBC, running between 2015 and 2018 (BT Sport Contract) and 2015 to 2020 (the Partnership).
The FTT found the IR35 legislation did not apply to GLM because there were direct contracts between Lineker and both the BBC and BT Sport.
Cash Basis for Self Employed
At the Spring Budget 2023, HMRC launched a consultation with a view to expanding the cash basis for self-assessment for small businesses.
The cash basis was introduced in 2013 as a simplified regime for calculating taxable profits for businesses with straightforward tax affairs. It is available to unincorporated trading businesses and some partnerships.
The cash basis has also been the default method of reporting by property businesses carried on by individuals since its introduction in April 2017.
The regime allows businesses to calculate their taxable profit as the difference between income and expenditure when money is received or paid out eliminating accounting and tax complexities such as accruals and most capital allowances, and simplifies reporting.
HMRC’s consultation focuses on four proposals:
- Increasing the turnover thresholds for businesses to use the cash basis.
- Setting the cash basis as the default, with an opt-out for accruals.
- Increasing the £500 limit on interest deductions in the cash basis.
- Relaxing restrictions on using relief for losses made in the cash basis.
The government is primarily considering two proposals for the threshold:
- Aligning the entry and exit thresholds with the VAT cash accounting scheme threshold, thus allowing businesses into the cash basis if their turnover is below £1.35 million, and being required to leave the cash basis if they have turnover above £1.6 million; or
- Removing the turnover threshold entirely, allowing any size of business to use the cash basis as long as they are not otherwise prevented from joining.
The consultation document hints at possible future benefits for businesses using the cash basis.
It seems that the government might make quarterly reporting voluntary for businesses using the cash basis, but compulsory for businesses using the accruals basis.
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