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.

 

 

The Budget – Our View

This was by no means a giveaway budget. The freezing of personal allowances and rate bands generally, the cutting of tax allowances for CGT and dividends, combined with rate rises in Scotland, mean that everyone is paying more tax. While the rate rises in Scotland were not the doing of the Chancellor, it all adds to the tax burden.

What Hunt did on Wednesday was just to give a little back, but many commentators are highlighting the particular voters he was targeting, presumably with a General Election always in mind. However, I will let you be the judge of his motives.

There were a lot of minor changes so all that we are going to do this week is to pick up on some of the changes that affect us and our clients.

 

CGT complexity

The Chancellor has cut to the top rate for capital gains tax from 28% to 24% but only for residential property. Capital Gains Tax is not a simple tax with different rates depending on your income, the nature of the asset being sold and whether you qualify for the Investment or the Business Asset Disposal Reliefs.

So, from 6 April 2024, CGT will be levied at one of five different rates.

However, on the other side, you will be affected by the halving of the annual exemption from £6,000 to £3,000 on 6 April 2024. This follows the cut from £12,300 to £6,000 in the annual exemption that he introduced from 6 April 2023.

 

Furnished Holiday Lettings Status Abolished

This had become more complex over the last few years but was valuable to those who operated self-catering holiday accommodation.

The change aims to increase long-term rental options for locals and raise tax receipts to help fund national insurance cuts.

The specific tax advantages being lost include:

• Claiming plant and machinery allowances on items of fixtures, furniture, furnishings and equipment. The relief also allowed utilisation of the 100% annual investment allowance and, for corporates, the 130% super-deduction or 100% full expensing for expenditure incurred on such items.
• Capital gains tax (CGT) reliefs for traders such as rollover relief and mitigating CGT on disposal of a property.
• Finance and interest restrictions did not apply to loans and mortgages on FHL properties.

The cliff edge abolition date of 6 April 2025 may prompt a rush to sell such properties to capitalise on the potential 10% CGT tax rate, one of the main attractions of the scheme.

 

Cuts to NICs

Jeremy Hunt announced another 2% cut to national insurance contributions deducted from employees’ earnings. Again, there was no change to the employer’s rate, so no help for small businesses.

These changes are expected to benefit an estimated 29m working people if they do in fact notice given that deductions generally will be rising due to the freezing of allowances and rate bands.

Pensioners get nothing.

For wages paid on or after 6 April 2024, the main class 1 rate of employee national insurance contributions (NICs) is to be cut to 6%.

This reduction including the similar reduction announced last year will only apply to annual earnings between £12,570 and £50,270, meaning that the maximum saving overall is £1508 a year, while the average worker bringing home £35,400 will be £913 better off.

The class 4 NIC rate for the self-employed was already set to move from 9% to 8% with effect from 6 April 2024. Instead, the rate will now reduce to 6% from that date.

The Chancellor was silent concerning contributions on earnings over £50,270. It is therefore assumed that the rate remains at 2%.

There will be no changes to thresholds, meaning that the rate cut is, to a degree, offset by inflationary increases.

 

High-income Child Benefit Charge Threshold Raised

The high-income child benefit charge thresholds go up from April 2024. Wider reform of the tax may happen next year depending on what happens in the General Election.

The threshold will rise to £60,000 from April 2024, with full clawback of child benefit only occurring for those with incomes of £80,000 or more.

The HICBC was introduced with effect from 7 January 2013 and applied to households where one person’s adjusted net income was more than £50,000. At that time, the higher rate tax threshold was lower than this, so the new measure only affected higher rate taxpayers at that time. Recently they have affected basic rate taxpayers.

This has been the case since  2021/22, as inflationary increases in the personal allowance and higher rate income tax threshold meant that basic rate taxpayers found themselves within the scope of the HICBC for the first time.

Meanwhile, the HICBC threshold has remained stubbornly at £50,000 since it was introduced.

Plan to Regulate Tax Advisers

The government is planning to crack down on rogue tax agents with plans to strengthen the regulatory framework and even create an independent regulator.

As part of this process, HMRC has launched a consultation on wide-ranging measures to clamp down on rogue tax advisers, who provide tax advice to clients without any professional qualifications, for example. This would include mandatory registration, strengthening the regulatory framework to establish minimum standards for tax practitioners, improved monitoring, and effective enforcement action against tax practitioners.

There are approximately 85,000 tax advice firms in the UK, but almost anyone can start providing tax advice and services to clients and can do so with limited or no oversight if they are not a member of a professional body.

The latest consultation takes regulation to a new level, setting out the government’s intention to raise standards in the tax advice market through a tougher regulatory framework.

 

 

£140m Hike in HMRC Funding for Debt Work

The Chancellor signalled plans to give HMRC an extra £240m a year to collect more taxes from debtors but not until 2025.

HMRC data shows that delinquent tax debts – those not agreed with HMRC – stood at £39.1bn at the end of 2023.

The Chancellor has set out post-election funding for HMRC debt management of £895m in 2025-26, rising to £1.12bn in 2026-27.

The new £140m in funding will be earmarked to support HMRC’s debt management team to improve its capacity to collect tax debts as part of its work to tackle tax non-compliance from 1 April 2025. It has been earmarked to spend on additional third-party debt collection agencies.

Getting a Time to Pay arrangement if you have tax debt is now much more difficult than it was, simply because talking to someone at HMRC about your debt is now a major challenge. The new funding should make this much easier.

The latest funding announcement is forecast to raise £4.5bn of tax revenue by 2028-29.

 

 

Self-employed NICs Reduced to 6%

The government is also cutting a further 2p from the main rate of self-employed National Insurance on top of the 1p cut announced at Autumn Statement 2023.

This means that from 6 April 2024, the main rate of Class 4 NICs for the self-employed will now be reduced from 9% to 6%.

Combined with the abolition of the requirement to pay Class 2, this will save an average self-employed person on £28,000 around £650 a year.

The latest NIC cut will come into force from the new tax year 2024-25.

 

 

Abolition of Employee’s NIC?

National Insurance (NI) has been around since 1911 and the prime minister is hinting that he would like to remove the tax completely.

All that money ultimately goes to the same pot, to fund the same public services.’

NICs are the second highest contributor to tax in the UK. Employees’ contributions accounted for £65bn of the total amount in 2022/23.

Employers currently pay a rate of 13.8% for every employee in NICs and still pay the contribution if the employee is older than the state pension age. However, the employee is exempt from NICs once past this age.

In November the Chancellor reduced the rate of NICs by 2%, and last week he repeated this, with another 2% cut, reducing the rate to 8% overall.

Any abolition will likely lead to a hike in other taxes, perhaps even income tax, to offset the loss of NICs.

 

 

ISA Allowances

Jeremy Hunt has announced the introduction of a new UK ISA which extends the tax-free allowance to £25,000.

The new British ISA will allow an additional £5,000 annual investment for investments in UK equity with all the tax advantages of other ISAs.

There is no date at which the ISA will become available along with the four current ISAs adults can pay into.

The idea is to promote investing in UK businesses.

Additionally, from 6 April 2024, you will be able to open multiple ISAs of the same type in the same tax year as long as the amount saved is under £20,000.

 

 

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.