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.

 

Bottoms Up!

The loo roll brand, Who Gives a Crap, in partnership with The Hygiene Bank, is trying to persuade the government to reduce the VAT rating of its product to zero.

The petition banner is “Scrap the roll tax: toilet roll is not a luxury”.

The petition begins: “Every day, people are being hit with a hidden ‘Roll Tax’ because toilet roll is classed as a luxury” which they say is a bum deal for Britain.

Many people struggle to afford essential hygiene products due to the pressure of the cost-of-living crisis so the Chancellor should remove VAT from toilet rolls to support those facing hygiene poverty.

From January 2021, following a high-profile campaign, the 5% rate applied to period products known as the “tampon tax” was cut to 0%.

It is likely that the Spring Budget on 6 March will be the last before the next general election. Reducing the VAT rating of specific products could prove a popular but relatively inexpensive.

 

Minimum Wage Increase

From 1 April 2024, the NMW rate will increase from £10.42 to £11.44 for those aged 21 and over. Those aged between 18 and 20 will see a rise of 14.8% to £8.60.

524 companies have been named by the government for not paying minimum wage failing to pay their workers nearly £16m, according to the government leaving more than 172,000 workers out of pocket.

The NMW calculations can be complex with factors such as deductions from pay and not capturing all working time needing to be considered.

The increase will have a significant impact on sectors already suffering increased costs and tight margins as  the increased wages cannot be avoided and will have a significant impact to overheads. It may also not be possible to pass all of the increase on to customers.

The government’s stated intension is to increase NMW to two-thirds of the UK average pay by 2024.

 

Spring Budget: Speculation

What sort of things might we expect in the forthcoming budget? Here are some of the things we have found in the accounting press.

• A potential reduction of up to 2p in the basic rate of income tax in England, bringing it down to 18%. But what then for Scotland?
• Adjustment to income tax bands.
• A comprehensive overhaul of Maxing Tax Digital (MTD) or perhaps just some tinkering with current plans. There is increasing speculation that HMRC cannot meet its digital reporting deadlines.
• Reduction in the rate of IHT or perhaps this year’s Rabbit out of the hat, abolition
• Could the further reduction in the CGT annual exemption to £3000 and Dividend Allowance to £500 be cancelled.
• Could increasing the VAT threshold stimulate economic growth.
• The capital allowances legislation could be simplified to improve its efficiency.

You’ll just have to wait till 6 March to find out what is in store.

 

HMRC’s April 2026 MTD ITSA Deadline

Jonathan Athow,  director general of customer strategy and tax design at HMRC, recently confirmed that HMRC was firmly focused on hitting the April 2026 delivery date for the first mandation of MTD ITSA for those with turnover above £50,000.

He described the MTD ITSA deadline as a complex and challenging project, but he said that since the announcement of the delay to 2026, HMRC has re-assessed its delivery plans and looked at how to simplify and streamline processes. He was confident about delivery for 2026.

Jonathon Athow also outlined the broad principles HMRC has put in place to enable them to meet their main role to cost-effectively collect the right amount of tax.

• Move to ‘nearly’ real-time data – the quicker they can get information the more accurate it’s likely to be
• Move to more timely payments – the longer the time between liability and payment the more chance there is of debt and that liability not being paid

Recent National Audit Office statistics suggested that MTD for VAT had led to around £190 million increase in the VAT collected in the first full year of implementation.

HMRC sees a lot of errors from individuals and small businesses in Self-Assessment tax returns. They believe a lot of these are down to poor record-keeping which makes complying with your tax obligations harder. The move to digital records makes it easier not to lose receipts and keep on top of your liabilities, making compliance easier.

 

Are You One of the Unrepresented?

Unrepresented sole traders and partnerships with a year-end other than 31 March or 5 April will shortly be getting a letter from HMRC letter saying they may be affected by changes to the basis period rules. For many unrepresented taxpayers this will be their first encounter with it.

From 6 April 2024, a new ‘tax year basis of assessment will apply to trading profits subject to income tax.  Under the tax year basis, businesses will be taxed on the profits arising in each tax year regardless of their accounting period end date.

Effectively, where a business has a year-end other than 31 March or 5 April (or a date in-between), they will need to apportion amounts from two sets of accounts to calculate their profits for every tax year from 2024/25 onwards.

The current tax year 2023/24 is a transitional year, in which we switch over from the current year basis of assessment to this new tax year basis. Specific rules apply in the transitional year, which may result in more than 12 months’ worth of profit being taxed. These can be partly alleviated by offsetting any overlap relief brought forward and spreading the remaining extra profits over up to five years.

 

Do You Want Tax Cuts?

A recent survey has  revealed that 64% of people would prefer taxes to stay how they are, or would support higher taxes, with 31% wanting taxes to be increased to increase public spending, and 33% wanting taxes to stay the same.

Only 16% want taxes to be cut and there to be less funding for the public sector.

As regards capital gains, 33% believe this should be taxed at a higher rate  than income from work while 32% that they should be taxed at the same rate as income from work.

 

Tax Take Up £33bn

The biggest contributors to the huge increase was income tax, capital gains tax (CGT), National Insurance contributions (NICs), contributing an extra £21.1bn.

Tax receipt data shows roughly a 5% increase in tax revenues.

‘The bulk of this increase is additional income tax, NICs and CGT, due to stealth taxes from the freezing of tax bands in the face of inflation, pulling more people into higher and additional rate tax.

The inheritance tax take also continues to grow, with receipts still on track for another record-breaking year, driven in part by long-term house price growth and frozen thresholds drag more families into the net.

The total number of taxpayers has increased from 31m to 35.5m since the Conservatives came to power in 2010, with 2.8m people paying higher rate tax, accounting for 16% of taxpayers.

The number of higher rate taxpayers has soared in the last three years since thresholds were frozen in 2021-22 by then Chancellor Rishi Sunak. In this period an additional 1m people have started paying higher rate tax while 1.1m have to pay basic rate income tax for the first time.

Since thresholds were frozen, the north east, Yorkshire and the Humber and Wales are set to be the UK regions with the largest percentage increases in the total number of people paying income tax.

 

HMRC clarifies – Bais Period Transition Profit

Firstly you need to ascertain your “Overlap Relief”. This can be sourced through HMRC’s online tool with a three-week response time, unless the query is complex.

HMRC will also produce a calculator to work out the transition profit and any other figures required for the 2023-24 tax year.

Businesses will be taxed in 2023 to 2024 on the profits of the ‘standard part’ and the ‘transition part’ of the basis period.

The standard part is the profits on which you would have paid tax but for the tax changes i.e. to your normal accounting date.

The transition part begins immediately after the end of the standard part and ends generally on 5 April 2024.

Profits earned in each part of the basis period need to be reported. You may have to apportion the profits from one of more sets of accounts.

The normal method of apportioning profits is by looking at the number of days in each of the accounting periods in the parts of the basis period.

If you are a farmer or creative artist, transition profit should not be included when calculating your averaging adjustment.

The guidance includes a number of examples of how to calculate the transition profit.

Transition profit after overlap relief will be spread over five years, starting with the tax year 2023/24 and ending with the tax year 2027/28.

At least 20% of transition profit after overlap relief must be taxed in 2023/24.

If a business ceases on or before 5 April 2027, any transition profit after overlap relief that has not yet been taxed must be taxed in the year the business stopped operating.

 

HMRC guidance –  Work out your transition profit  –  issued 19 Feb 2024, is reproduced in full in this weeks Tip of the Week

 

Musicians Overpay Tax

A recent survey found that a significant number of artists do not fully utilise tax-deductible expenses when completing their self-assessment tax returns.

These include music subscriptions, studio time, travel to and from shows, and equipment cost and maintenance.

Only 30% of artists used an accountant to handle their tax affairs, although one in four used an accountancy app.

While 90% incurred expenses on studio time, 40% of them did not record these costs as a business expense. At the same time, 80% spent money on buying or maintaining instruments and equipment, yet 30% of artists did not record this cost.

 

30% Hike in Tax Refund Scams

The latest HMRC figures showed that 79,000 bogus tax rebate scams were reported by members of the public in the last 12 months to end January, accounting for nearly a third of known scams.

It is likely to rise further as fraudsters start using artificial intelligence (AI) to ramp up their criminal behaviour.

There was also a worrying increase in the total number of scams reported with a total of 207,800 instances of suspicious contact in the past year, up 14% from 181,873 for the previous 12 months.

February is seen as a prime month for scammers to prey on taxpayers, as they have just filed their self-assessment returns and a sizeable number are likely to be waiting, or hoping, to receive a tax refund from HMRC.

The scam emails are branded as HMRC and appear to replicate the typical style of an HMRC communication. One of the easiest ways to spot a dodgy email is to check the email address as this cannot be faked.

If you get a suspicious or unexpected phone call, text or email, don’t give out private information or reply, and don’t download attachments or click on links.’

Phone calls are one of the high risk areas as scammers can fake numbers to give the impression the call is coming from an official source. Do not trust caller ID on phones as numbers can be spoofed.

There has also been a huge increase in the number of scam websites posing as official HMRC pages. In the last 12 months. HMRC identified 26,443 malicious web pages.

These fake websites aim to deceive taxpayers and steal their personal information or money. They copy the design and branding of genuine websites so criminals can trick people into giving away their personal details. This information is then used to access people’s bank accounts or sold on the web.

 

Questions?

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 alan.long@thelongpartnership.co.uk.