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.

 

Privatising HMRC

Under government supervision, HMRC’s  performance could not get any worse.

Do you remember the halcyon days when a phone to HMRC was answered in seconds by a human being rather than a recorded public service announcement followed by a long wait, and of course there is a chance your call will be terminated anyway after you have been on hold for ever. Inspectors of Taxes were also good at answering letters and it was even possible to roll up at a tax office and meet somebody who would understand your issue and assist.

Cutting cats has become an unending theme. Staff numbers have been decimated and we are all supposed to communicate digitally.

It must be pretty bad when it is often a more efficient use of your time to write to HMRC rather than phone them.

The current service is dire and getting worse.

So, what to do? So many of our well known companies (and football clubs) are now owned by foreigners, so why not HMRC?

It might make sense for the Government to sell off HMRC. This could bring in a hefty capital sum.

 

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Windows 8 no longer supported by HMRC

The update to HMRC’s online service, which took place on 9 May, means it is now impossible for payroll packages to make real time information (RTI) submissions or submit other online returns via HMRC’s payroll manager if they are using Windows 8 or 8.1.

There is no workaround other than to update to a supported version of the operating system (OS) i.e. Windows 10 or 11.

Windows 8 was released more than a decade ago, so most businesses will have been using a more current version of Windows for some time. However, it appears that a number of smaller firms are still using Windows 8.

This security change seems to have appeared from no-where with minimal notice given. A small company using an old operating system that logs into its payroll software at the end of the month may well get a nasty surprise.

Microsoft ceased to provide support for Windows 8 in January 2023, meaning devices running these operating systems can no longer receive security updates and if you still use this old software , cyber security must be a concern.

It appears that HMRC told software developers last September, ahead of it coming into effect this month. Clearly, software developers were given plenty of warning, but individual taxpayers and accountants were left out of the conversation.

Any PAYE RTI reports which are reported late due to this issue should be reported using Late Reporting Reason “G”, which indicates a reasonable excuse.

 

MTD for income tax

When it comes to MTD for income tax, it’s fair to say that that it will be “mandated” and not “optional”.

MTD is part of a wider re-platforming at HMRC. MTD for income tax will see self-assessment taxpayers moved over from the creaky old Computerised Environment for Self-Assessment (CESA) platform, which was designed in the 1990s, to the Enterprise Tax Management Platform (ETMP). It’s a lot of work, but important as CESA is no longer fit for purpose.

ETMP should also be able to connect with other parts of HMRC better, so will reduce the issue of different bits not talking to each other as well as (hopefully) allowing greater pre-population (for example, of Construction Industry Scheme (CIS) information).

With all the delays to date it’s hard to believe MTD for income tax will actually happen in April 2026 but HMRC is assuring everyone that it is on track to implement MTD for income tax from April 2026 for self-employed individuals and landlords with income from self-employment or property that totals over £50,000 as planned.

The “qualifying income” for mandation testing will be based on the self-assessment tax return due on or before 31 January 2026. That return will report the 2024/25 figures, the tax year we’re in right now, so mandation status will be determined by income earned this year.

HMRC will check your reported qualifying income when you submit your 2024/25 self-assessment return and if it’s over £50k, you’ll be mandated from April 2026.

Qualifying income is the total gross income you receive from all relevant sources in a tax year. This will usually be income from self-employment and/or property added together.

For example, your gross income (income before you deduct expenses) in 2024/25 could be £25,000 from rental income and £27,000 from self-employment. Your total qualifying income would be £52,000 and you’d be mandated from April 2026.

If you get income from a jointly owned property, only your share of the property income that you report on your self-assessment return will count towards your MTD for income tax qualifying income.

Income from other sources including partnership income, employment income (PAYE), dividends and bank interest will not form part of the mandation test.

 

Election 2024 Tax Promises

With the main parties promising to freeze income tax, NICs and VAT are there other taxes that could be hiked to increase the tax base

So, if rates are fixed, what is happening to reliefs and thresholds?

Given the slow economy, very little sign of growth in productivity, and demands for the funding of public services from schools and hospitals to border force officers and defence, what options does a new Chancellor of the Exchequer have to increase tax revenues, if many tax rates are fixed?

There were announcements on proposed reforms of non-dom taxation in the Budget in March, which will result in the end of the remittance basis of taxation for non-domiciled individuals.

Another way to increase the tax take is through the restriction or erosion of reliefs. The annual exempt amount for capital gains tax was cut from £12,300 in 2022-23, to £6,000 from April 2023, and to £3,000 from 6 April 2024.

The income tax personal allowance reached £12,500 in April 2019, and was frozen at £12,570 in April 2021. Current government plans would see that freeze continue until 2028.

Even in 2024, inflation has eroded the value of that personal allowance by over 20%. The additional rate income tax threshold was lowered from £150,000 where it was set in April 2010 to £125,140 from April 2023, whilst the higher rate income tax threshold of £50,270 has not changed since 2020.

Over 14 years, inflation has risen prices by almost 50%, so the thresholds are about a third lower than they would be with inflationary increases.

Abolishing the VAT exemption for private school fees could increase the tax take by expanding the VAT base (although some would argue that any increase in tax revenues would be substantially offset by parents moving their children to state schools).

If a government were so minded, significant sums could also be raised by changing the way that tax reliefs work. For example, higher and additional rate taxpayers currently claim relief for pension contributions and charitable donations at their highest marginal income tax rates. Would a new government consider capping that tax relief at the basic rate, as was done for mortgage interest relief at source (MIRAS) in 1991 before it was eventually abolished in 2000?

Will capital gains tax remain at 10% and 20%, roughly half the rate of income tax, or could the rates be aligned?

Might there be some movement on the 40% rate of inheritance tax fixed since 1988, or the nil rate band fixed since 2009? And if the rate is cut and the threshold increased, might there need to be movement to cap important inheritance tax reliefs such as agricultural property relief and business property relief?

We’ll find out after the election.

 

Sunak’s £2k tax rise

In the first live debate aired on ITV on 4 June, Sunak repeatedly claimed Starmer, and the Labour party, would hike every household’s tax bill by £2,000 by ‘raising your taxes and raiding your pensions’ to fund its economic plan.

The £2,000 figure has been estimated by officials at the Treasury, predicting the costs of the Labour party’s policies over a four-year period. However, in a letter to the Labour party, Treasury permanent secretary James Bowler said costs had been added by the Conservatives which the civil service had not provided.

Starmer came back fighting after Sunak had made the claim about four times, stating that the calculation was ‘absolute garbage’.

During the debate, Sunak’s repeatedly pledged to reduce taxes and put more money back into peoples’ pockets, as well as stating that his ‘plan is working’ to fix the economy and bring down inflation, after the latest 2.3% inflation figure.

However, Starmer accused Sunak of calling the election earlier than anyone estimated because ‘he knows inflation is going to go back up and he knows energy prices are going to go back up in the autumn’.

However, Starmer listed the taxes his party would raise, such as the tax break on private schools, ending the non-dom status completely as ‘the super-rich should be paying their fair share’, and making private equity investors pay income tax instead of capital gains tax. In addition, he said oil and gas companies would also begin ‘paying their fair share’. ‘We will raise those but will not raise the others’, said Starmer.

 

Only 13% of Bounce Back Loans Repaid

Overall, £76.9bn was lent in the form of three different Covid loans and the banks have flagged £1.91bn of the total as suspected fraud.

So far, while nearly three quarters of bounce back borrowers are on track to pay back their loans, only £6bn worth of the total outstanding loans have been settled in full.

The latest figures show that just over 5% of companies are currently in arrears with their payments.

Across all loans £21.52bn has been fully paid by borrowers out of the total £76.96bn. The outstanding balance of total drawn loans on schedule is £21.44bn.

However, there is £1.88bn worth of loans currently in arrears with a further £580m of loans defaulted which have not been made into a claim. An additional £600m has been claimed but has not yet been classed as settled.

As of 12 April 2024, 831 company directors have been banned due to fraudulent covid loans.

Out of the total 1.6m loans, just 62,380 loans were refused as banks thought they would not repay the loans, preventing an additional £2.2bn loss.

The two schemes for large business, the Coronavirus Business Interruption Loan Scheme (CBILS) accounted for £25.8bn, of which 38% have been paid back and 1.49% are in arrears, while 1.2% have defaulted. The Coronavirus Large Business Interruptions Loan Scheme (CLBILS) lent £4.5bn but there was no fraud in this category.

 

 

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.

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