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.
Highlights from The Autumn Statement
A lot was said, but despite the obvious cuts in National Insurance, we are all still going to be paying more tax.
The Office for Budget Responsibility (OBR) forecasts minimal growth over the next 3 to 4 years but inflation is expected to fall back to pre-Covid levels.
There was a big fan fare for the full expensing of equipment purchases, but this measure really only affects the largest companies. The rest of us were getting 100% relief in the period of acquisition anyway.
The changes to employee class 1 NI contributions and the changes to class 2 and class 4 contributions tick the box as rewarding work. But it does not compensate for freezing of personal allowances and rate bands.
There will be extra funding for HMRC to help with debt management so, if you thought they were ignoring your unpaid taxes, that could be about to change.
The enterprise investment scheme and venture capital trust reliefs will be extended to 6 April 2035.
Taxpayers with only PAYE income will not in future be required to file a self-assessment (SA) tax return. This will remove around a third of a million taxpayers from SA, though given the accuracy of some PAYE codes this idea comes with a potentially problematic downside.
The cash basis will become the default basis of calculation for all self-employed taxpayers from April 2024 (with an election required for the accruals basis).
Research & Development Reliefs
Small and Medium-sized Enterprise and large company R&D Expenditure Credit schemes will be combined into a single RDEC-style regime.
The planned start date is 1 April 2024. The merged scheme will provide a taxable credit of 20% of qualifying R&D expenditure, although R&D intensive companies will continue to be able to claim a payable credit at the rate of 14.5%.
The concept of an ‘R&D intensive’ company was introduced from April 2023, and applies where at least 40% of the company’s total expenditure relates to R&D.
The knowledge intensive percentage is to be reduced from 40% to 30% from 1 April 2024.
Other things to Look Out For!
- Wages and salaries
The age requirements for the different statutory wage rates are changing for pay periods beginning on or after 1 April 2024.
(Age 21 +)
|Age 18 to 20
|16 and 17 year olds
From April 2024 all employees aged 21 and over will be entitled to the “living wage” i.e. the highest statutory rate, which was previously only paid to those aged 23 and over.
- Employer National Insurance Traps
If you hire an armed forces veteran in their first year of civilian employment, you can benefit from a zero rate of secondary class 1 national insurance contribution (NIC) on the employee’s pay up to veterans upper secondary threshold (VUST). The VUST has been frozen at £50,270 per year since it was introduced in April 2021.
It only applies for the first year of civilian employment for each veteran.
On 6 January 2024 the primary class 1 NIC rate for your employees changes from 12% to 10% on earnings between £12,570 and £50,270 per year. You will need to update your payroll software before you run your January payroll, and check it is deducting the correct rate of class 1 NIC from employees.
The main rate of class 4 NIC you pay will be cut from 9% to 8% on profits up to £50,270 per year, also from the 2024/25 tax year. Profits above this threshold will continue to attract class 4 NIC at 2%.
Class 2 NIC is to be abolished from 6 April 2024, but the NI credits to build up entitlements to benefits such as the state pension will remain.
- Company cars
For some years, it has been tax efficient to purchase new electric cars within a company to provide to the employees or directors. The company receives a 100% first-year deduction, and the employee had little or no benefit in kind.
In the past two years the taxable benefit for a fully electric car has been only 2% of the list price, but this is due to increase to 3% in 2025/26 and will reach 7% for 2027/28. You may need to review how the electric cars are held.
- Selling the business
If you are planning to sell your business in the next year remember that the annual exemption for capital gains tax (CGT) is cut from £6,000 to £3,000 per person from 6 April 2024.
Where the gain qualifies for business asset disposal relief up to £1m of gains per taxpayer can be charged at 10% instead of £20% CGT. Introducing a family member as a shareholder or partner well before a planned sale can help to spread the gain over two allowances.
Cash Basis for Self-employed
Chancellor has announced the expansion of the cash basis of accounting to replace the accruals basis for self-employed taxpayers and partnerships from April 2024.
This is a fundamental change with the potential to create very different profits for a lot of businesses currently under the system that has existed for decades.
Currently, the default position is for businesses to use the accruals basis of accounting to calculate their taxable profit. Businesses with total receipts below the £150,000 entry threshold are eligible to elect to use the cash basis, although many will opt to use the accruals basis. The new measures look to turn that process on its head, making the cash basis the default position for all self-employed taxpayers and partners, with an option to elect for the accruals basis.
The turnover threshold of £150,000 will be removed entirely, so even the higher earning self-employed people will be able to use the cash basis. Under current rules earners over £300,000 are not allowed to use the cash basis.
In addition, existing restrictions on interest deductions and loss relief under the cash basis will be removed.
This move has the potential to tackle one of the biggest stumbling blocks to the implementation of Making Tax Digital for income tax self-assessment (MTD ITSA) by allowing taxpayers to turn the data they have readily to hand i.e. bank statements into the required quarterly reports, rather than having to process accruals-based adjustments to make quarterly data and estimates more meaningful.
Although undeniably simpler, the cash basis is arguably easier to manipulate because you can push profits into the next tax period by paying suppliers early, or delaying collection of debts.
Small self employed traders will therefore not need the services of accountants or bookkeepers, or at least not in the way that they do now.
However, it looks as though a small trader who transfers to a company will still need to use the accruals basis.
MTD Has Lost Sight of Taxpayer Benefits
The Public Accounts Committee (PAC), has released a report on the flagship digital tax transformation project which highlighted that HMRC’s failures in planning, design and delivery of Making Tax Digital had led to costs and delays.
Dame Meg Hillier said: “seven years and £640m into the Making Tax Digital programme, we are concerned HMRC is also succeeding in making tax difficult.”
Taxpayers are being asked to spend more and do more to comply. The PAC flagged concerns about the additional burdens and costs that MTD will impose on taxpayers, despite its initial aim to reduce them.
“HMRC has lost sight of its original aim to reduce the burden on taxpayers and is increasing the burdens it imposes by asking self-assessment taxpayers to pay for third-party software and file tax returns quarterly,” stated the report.
“While Making Tax Digital will substantially benefit HMRC by improving its systems, taxpayers will be asked to spend more and do more to comply.”
Company Expenditure on Director’s Home
What happens when a company moves into premises owned by the directors and pays for the refurbishment. Can the company claim capital allowances.
Free standing equipment is straightforward, and plant and machinery allowances will be available as normal, such as annual investment allowance, first year allowances and written down allowance all possibilities. No structures and buildings allowances will be due, if the building is a fundamentally a residential property.
An ownership issue arises with assets incorporated into the building including such things as the solar panels, wiring and heating system.
Fixtures by law become part of the building they are integrated within or attached to and as a consequence, it is the owner of the freehold that owns the fixtures. The company therefore may not qualify for capital allowances as it is the directors that own the property.
Allowances may be available if the company acquires an interest in the property such as a lease or a licence to occupy before it incurs the expenditure. In these circumstances a licence must be an exclusive licence for the company to have an interest in the property.
Any private use of the assets of the company by its directors will attract a chargeable benefit in kind (BIK) with a class 1A liability on the company. For example, where the solar panels provide a benefit to the non-business part of the premises.
It would be better for a formal lease to be entered into with the company rather than a licence so that the company has a legal interest in the property and is therefore enhancing the value of its own asset – the leasehold interest.
The directors will be taxed on the rental income received in excess of their costs. No NIC will be due on the rent and the company will receive a deduction for the rent providing it is on commercial terms and so wholly and exclusively incurred.
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 firstname.lastname@example.org.