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.
Accountants and Overtime
A recent survey has found that accountants are currently working around 20 hours overtime.
However, the added pressure also meant that more than half (60%) sacrificed having a good work/life balance, and 44% lost a good night’s sleep.
The stress experienced also contributed to burnout among accountants, affecting 50% of those surveyed. It also made it less likely for people to enter the profession (41%).
That is before we start of the next busy tax season.
Another survey has revealed a slight uptick in confidence levels among UK accountants, who are starting to feel cautiously optimistic following the Spring Budget, despite many working overtime to help their clients through the difficult economic climate
Following months of economic turmoil, accounting professionals across the country believe a measure of confidence is returning to the economy.
For the majority recent government measures are not expected to change their recruitment or investment plans.
‘Trading conditions for everyone at the moment are still exceptionally tough, with high inflation and interest rates and the cost of living crisis hitting consumers’ pockets. There is a knock on effect for us as accountants as our clients face the same challenges. it’s going to be tough for a while and it seems unlikely that any single announcement from the government will make any difference. It’s all going to take some time to get back to a more comfortable normal.
Corporation Tax Rates
Before 1 April 2015, there were two main rates of corporation tax. The main rate applied to companies if taxable total profits exceeded an upper limit and the small profits rate applied if total profits fell below a lower limit. Marginal relief was given to companies whose total profits lay between the lower and the upper limits in order to smooth the transition between the two. These rules have been resurrected from 1 April 2023.
Rates of corporation tax are set by reference to a financial year and the rate set applies throughout the whole of that financial year. This means that where a company’s chargeable tax accounting period spans two different financial years, profits must be apportioned to the appropriate financial year.
The way that you are supposed to calculate the small profits rate after the increase in corporation tax to 25% requires a complex calculation. That’s why we keep giving you the simple version.
Profits up to £50000 are taxed at 19%
Profits in the range of £50001 to 250000 are taxed at 26.5%
That part of your profits from 250001 upwards are taxed at 25%
If you have more than one trading company, then the limits are divided by the number of companies and the new reduced ranges applied equally to each of these companies. You cannot spread out the limits unevenly, even though the companies may have different levels of profit.
If possible you want to equalise the profits I all of your companies to make most efficient use of the lower rates of Corporation Tax.
The calculations are simple if your company profits are either below£50,001 or over £250,000, for a standalone company. You either pay 19% on all of your profits or 25% on all of your profits. The complication comes if you have profits above £50,000 but below 250,001.
In that case Corporation Tax is calculated using the main rate as applied to all of the profit, but with the benefit of a deduction for marginal relief.
The amount of marginal relief is equal to F × (U − A) × (N ÷ A) where:
- F represents the standard marginal relief fraction (set at 3/200ths for FY 2023);
- U represents the upper limit of £250,000 divided by one plus the number of associated companies;
- A is the amount of augmented profits; and
- N is the amount of taxable total profits.
I told you it was complicated. We are lucky as our computers do this calculation for us automatically.
More than one company
This is relevant as it determines whether you need to divide the profit range limits between companies.
The basic position is that a company is an associated company of another( and therefore relevant here) at any time when one of them controls the other, or when both of them are under common control.
In determining control you must attribute to a person all the rights and powers of the person’s associates, or of any companies the person (including associates) controls.
There are various other rules that can affect this but we will not go into them here. Suffice to say that a lot of these rules are to stop people setting up multiple companies all with profits under £50000 or to spread out shareholdings amongst family member to sidestep the control rules.
Companies liable for Employee Fraud
Large organisations could face enforcement action, and risk an unlimited fine, for failing to prevent fraud within their business under the new failure to prevent fraud offence.
The proposed legislation plans to encourage businesses to do more to deter offending, to help cut crime and protect consumers from fraudulent practices.
This failure to prevent fraud offence will allow prosecutors to hold big companies to account if an employee commits fraud for the organisation’s benefit.
Businesses will be held accountable for failing to prevent false accounting, fraud or money laundering. It could also hold companies to account for dishonest practices in financial markets.
Businesses that are found to not have ‘reasonable fraud prevention procedures’ in place could face an ‘unlimited fine’ under the new legislation.
The offence will apply to organisations with more than 250 employees, over £36m in turnover and more than £18m in total assets.
Businesses will need to prove that they have reasonable measures in place to deter fraud offences.
The new offence will come into force once the Economic Crime and Corporate Transparency Bill has been passed by parliament.
Opting out of child benefit
Because of the frozen tax thresholds many more families are paying the higher income child benefit charge.
683,000 families opted out of receiving child benefits as a result of the higher income child benefit charge for year-end August 2022, up 5% from the previous year.
The £50,000 qualifying income has not risen since the tax was introduced in January 2013.
The higher income child benefit charge is a tax charge on claimants of child benefit who will be liable to pay some or all of their entitlement if their income (or their partner’s income) is in excess of £50,000 per year. For every £100 an individual earns in excess of £50,000 the tax charge increases by 1%.
This means that if the registered child benefit claim recipient (or the recipient’s partner) earns £60,000 or more, they will be liable to repay their entire child benefit entitlement.
The higher rate tax threshold is now £50,271, which drags thousands into the self-assessment system simply due to the child benefit tax but the government has declined to align the child benefit charge threshold with the higher rate tax threshold.
Not claiming child benefit means that you will miss out on national insurance (NI) credits which are given to child benefit claimants until the child is 12 years old so careful consideration need to be given before opting out of receiving child benefit completely.
Not claiming child benefit will also have a consequence for the child, as they will not automatically be issued with a National Insurance number when they reach 16. This will mean the child will need to actively obtain one and they may need to have a face-to-face interview to do so.
There have been calls on the government to strengthen UK whistleblowing laws to better protect whistleblowers.
The government has launched a review of the laws that support workers who disclose criminal activity, breaches of legal obligations, health and safety concerns and environmental damage in the workplace.
The review aims to investigate whistleblowing protections, the availability of information and guidance for whistleblowing as well as how employers and prescribed persons respond to whistleblowing disclosures, including best practice.
Workers who report workplace wrongdoing are protected through the Public Interest Disclosure Act 1998 (PIDA).
A recent report highlighted that there had been an overall decline in whistleblowers reports across both the public and private sectors but that reports of harassment were increasing, deterring whistleblowers.
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 email@example.com.