With a General Election due by January 2025 at the latest, we may have three major ‘fiscal events’ this year: The Budget on 6 March, an early Autumn Statement (possibly in September) and (assuming the Election is in the autumn) a post-Election Budget in November or December. What tax changes might be announced and how might they affect you?
Having cut National Insurance Contributions (NICs) in the 2023 Autumn Statement, the Chancellor and Prime Minister have made it clear that we should expect further tax reductions in the March Budget. The options likely to generate the most political benefit are probably any combination of a cut in the basic rate of tax to 19%, a further reduction in NICs or the unfreezing of the higher rate tax threshold (which has been £50,270 for several years, bringing more and more people into the 40% tax bracket as earnings rise). There has also been talk of changing how the High-Income Child Benefit Charge (HICBC) works, so that fewer people with young children will suffer this additional tax charge.
Given the state of the public finances (which has caused the International Monetary Fund to say that tax cuts are not really affordable at the moment), we may find that there are tax cuts announced but that they are delayed a year in their implementation.
The contents of any post-Election Budget will obviously depend not only on the economic circumstances at the time but also which party is in power. Labour has indicated that it does not intend to raise the main tax rates on income, but may make major reforms to the capital taxes (and in the process increase the tax collected). Either party could follow in the footsteps of George Osborne in 2015, when he raised extra revenue without raising any of the rates of income tax or NICs. This was done by making changes such as restricting top rate tax relief
on pension contributions, restricting tax relief on finance costs for residential landlords and increasing the tax rates on dividends. Jeremy Hunt has already effectively done the latter by cutting the dividend allowance from £2,000 to £500 (which is the new figure for 2024/25).
Scotland has different tax rates and bands for non-savings, non-dividend income (e.g. employment income, business profits, rental income and pension income). The Scottish Budget has already taken place. Among the measures announced for 2024/25 were:
In this newsletter, we make you aware of recent developments that may affect you or your business, irrespective of the tax uncertainties mentioned above. These include the new National Minimum Wage rates, when it might be worth appealing against penalties for failure to pay the HICBC and (believe it or not) how the VAT rules distinguish between biscuits wholly or partly covered with chocolate and other biscuits! Other topics include a discussion of the VAT rules for cars and how a recent case has clarified the manner in which the Capital Gains Tax (CGT) main residence exemption works when you buy a residence, knock it down and then live in the replacement residence you have built.
It should be an interesting year ahead as far as tax is concerned. We will be here to help you navigate any changes announced, so please contact us if you need further guidance, particularly on topics in this newsletter.
In our Autumn 2023 Newsletter, we covered a number of the tax issues associated with business cars, such as capital allowances and employee benefits. As promised, we now highlight some of the key VAT points of which to be aware.
The definition of a car, for VAT, is different to the definitions for capital allowances and employee benefit purposes. It is any motor vehicle of a kind normally used on public roads which has three or more wheels and either:
However, there are some exceptions:
Normally, a VAT-registered business cannot recover the VAT on the purchase of a car. However, you may recover VAT in full on a car which:
Suppose a business owner buys a van or car of cash price £20,000 plus VAT (£4,000); ignore finance costs of the agreement for this example.
Hire purchase
Initial invoice will show £20,000 + £4,000 VAT.
Finance lease
Each instalment will have VAT charged on it, rather than being all on an initial invoice.
Motorbikes are not cars, so input VAT is claimable, subject to any adjustments for partial exemption or non-business use.
An electric car will still be viewed as a car for VAT purposes so, if there is any private use of the car, VAT is not recoverable on the purchase. The VAT can however be reclaimed if there is no intention to make the car available for private use.
If an electric car is leased, where there is any private use of the car, only 50% of the VAT on the leasing charge can be recovered.
This gives HMRC’s views on the VAT liability of charging of electric vehicles and the circumstances in which the VAT charged can be recovered as input tax.
The reduced rate (5%) that applies to “domestic” supplies of electricity does not apply to charging of vehicles in public places. The standard rate will therefore apply when someone uses a public charging point.
You can recover the input tax for charging your electric vehicle if all the following apply:
(i.e. self-employed);
You can recover VAT on only the business use amount, so keep accurate mileage records. The rate for recovery of input tax for charging electric vehicles is the same as the VAT rate charged on the supply of that electricity.
If employees charge an electric vehicle (which is used for business) at home, they cannot recover the VAT. This is because the supply is made to the employee and not to the business.
If employees charge an employer’s electric vehicle (for both business and private use) at the employer’s premises, the employee needs to keep a record of their business and private mileage so that the employer can work out the amounts of business use and private use for the vehicle. The employer can recover VAT on only the business element.
Alternatively, the employer can recover the full amount of VAT for the electricity used to charge the electric vehicle (inc. the electricity for private use). However, they will be liable for an output tax charge to reflect the private use. This is because a ‘deemed supply’ has been made.
If you need any help in understanding the VAT issues of cars for your business, please get in touch.
The Ultra Low Emission Zone (ULEZ) was expanded to all London boroughs on 29 August 2023. From this date, drivers of vehicles that do not meet the emissions standards must pay a daily charge of £12.50 when driving within this area.
HMRC has confirmed that self- employed taxpayers are entitled to claim tax relief on LEZ charges, including London’s ULEZ fee, as long as they have been incurred ‘wholly and exclusively for the purposes of the trade’ (i.e. incurred on a journey that was for business purposes).
The rates of NMW and National Living Wage (NLW) are once again set to rise significantly. The rates that will apply from 1 April 2024 are as follows:
Note that the NLW will apply from the age of 21, rather than from 23 as it currently does. Employers often deduct small sums for uniform, food, childcare vouchers or even for places at the child nurseries where the employee works. All of these sums must be taken into account when calculating the net wage (before tax) which HMRC checks against the relevant NMW rate.
Please talk to us before setting up any form of salary substitution, so that we can check that the NMW rules are not being broken.
Unincorporated businesses are going through their biggest tax change for a generation, with the switch to a tax year basis of assessment for profits, rather than the ‘basis period’ system. Further change is on the way.
For the last ten years, smaller businesses have had the option of preparing their tax computations on a cash basis (i.e. looking at when money is received or paid) rather than the normal accruals basis of accounting. The latter matches income and expenditure to the periods to which it relates, irrespective of when amounts are paid or received.
Legislation is being introduced to expand the cash basis for self-employed taxpayers, including those in partnerships, from the tax year 2024/25. The changes will not apply for property businesses, companies or those entities already excluded from the current cash basis regime (such as farming and creative businesses making a profits averaging election).
The changes will make the cash basis the default method of calculating profits, with businesses able to opt to use the accruals basis instead. Businesses can currently use the cash basis if their turnover is less than £150,000 p.a. and must leave the cash basis when their turnover exceeds £300,000. These restrictions will be removed completely.
Where the cash basis is used, there is currently a limit of £500 on the amount of interest which the business can deduct for tax purposes against the profits for the year. This limit will be abolished, allowing tax relief for full interest costs, as long as they are ‘wholly and exclusively’ for the purposes of the trade.
Lastly, the current restrictions on the utilisation of losses under the cash basis will be removed, so that losses can be set against general income of the same period or carried back to earlier years (as with losses under the accruals basis and subject to the same conditions).
This change will be significant for all unincorporated trading businesses, particularly as regards whether to elect to stay with accruals accounting in 2024/25. We can discuss the pros and cons with you.
People come up with all kinds of ways of trying to avoid tax on income. HMRC will usually challenge anything they see as unreasonable tax avoidance or, worse still, tax evasion. A classic example of this has been heard by the Tax Tribunals recently, involving a lawyer working for the Ecclestone family of Formula 1 fame. The main facts were:
HMRC issued assessments and assessed penalties, some of which were under the provisions allowing them to go back 20 years where there has been fraudulent or deliberate conduct.
The Upper Tax Tribunal upheld the decision of the lower tribunal, finding that all the assessments were properly issued and that the penalties were valid.
This was because all the payments in question in the appeal were clearly income derived from his work for the family. The appellant knew that they should have been disclosed on his tax returns for the tax years in question, but he made a conscious and deliberate decision not to disclose them.
The rules about whether food is standard rated or zero-rated for VAT purposes are notorious for having some provisions that are open to interpretation, as has been shown in a recent case.
United Biscuits (UK) Ltd manufactures McVitie’s ‘Blissfuls’. For the benefit of those of you who have not sampled them, they consist of:
The company zero-rated this product as food. HMRC argued that the product should be standard rated, as it fell within the exception for ‘biscuits wholly or partly covered with chocolate or some product similar in taste and appearance’.
The company claimed that:
The Tax Tribunal agreed with HMRC that the product was standard rated, as the legislation requires the product to be wholly or partly covered with chocolate. The term ‘partly’ should be interpreted in such a way that it could apply to any part of the biscuit that was covered to some extent with chocolate. The key question was what covered the remaining area of the product that was not covered by the biscuit logo lid. The judge felt that the ordinary person in the street would say that the biscuit was covered by the logo biscuit lid and ‘in part’ by a layer of chocolate. Being partly covered in chocolate, it fell within the exception to zero-rating and the standard rate of VAT applied.
Losing a VAT case like this can mean having to pay extra VAT, interest and penalties going back many years.
If you are involved in a food or drinks business, don’t fall into a similar tax trap. Check with us if you are uncertain of how your products should be treated for VAT.
The High-Income Child Benefit Charge (HICBC) was introduced in January 2013. The rules can be quite complex, but it essentially starts to claw back Child Benefit (which remains a tax-free payment) by levying a tax charge on the higher income person of a ‘family unit’, if that person has relevant income above £50,000. By the time income reaches £60,000, the tax charge is enough to claw back all the child benefit received by either parent. Note that the charge can apply even if the couple are not actually married.
The £50,000 threshold at which the charge begins has not been increased since HICBC was first introduced; indeed, as the threshold at which the 40% tax rate begins to apply is now income above £50,270, you no longer even need to be a higher-rate taxpayer to suffer the charge!
More and more people are coming within the scope of the HICBC as earnings rise. Consequently, there have been a lot of tax cases over the last three years where appellants have argued that they have a ‘reasonable excuse’ for not having declared and paid the charge. Most of these cases are won by HMRC.
To be successful at appeal, the appellant would normally need to show that they:
[NB the Child Benefit claim form, since the introduction of HICBC, clearly sets out when the charge applies.]
If you feel you may have unwittingly failed to pay the HICBC, please get in touch to discuss the best way of disclosing this to HMRC, as this will lead to greatly reduced penalties compared to HMRC coming after you for the tax!
Principal private residence (PPR) relief (broadly) applies to gains accruing to individuals on the disposal of (or of an interest in) all or part of a dwelling house that has (or has at any time during their period of ownership) been their only or main residence.
No part of a gain to which PPR relief applies is a chargeable gain if the dwelling house has been the individual’s only or main residence:
Suppose someone buys a dwelling house, has it demolished and builds a new dwelling house on the same land as the old one. For PPR relief purposes, does the ‘period of ownership’ relate to
If the period of ownership relates to the land, there will be a period between the old house being demolished and the new house being built when there was no residence as such (and therefore no occupation as a residence), resulting in a potential restriction on the amount of PPR relief available on a future disposal.
If the period of ownership relates to the newly built dwelling, then if it was occupied as the individual’s only or main residence until its eventual disposal, PPR relief shouldn’t be restricted at all. A recent case at the Upper Tax
Tribunal has confirmed that it is occupation of the newly built dwelling that is relevant and that there should be no apportionment of relief to restrict it for the period when no dwelling existed on the land. This is the case, even if the land was increasing in value while the new property was being built!
The decision ties in with a similar case at the Court of Appeal in 2019, where someone bought a property ‘off- plan’ and occupied it when it was finally completed over three years later. After living in it for two years, the property was then sold for a considerable profit. The gain he made on sale was held to be fully exempt under PPR relief, even though he could have sold the property before the dwelling was completed and, if he had done so, no PPR relief would have applied to any gain.
PPR relief can be a lot more complicated than people think. For example:
Please contact us if you wish to discuss any aspects of PPR relief, but note that it will never be available on a property that you have never occupied as a home.
Windfarms have been much in the news recently and there are certainly lots of start-up companies looking to make money from the switch to green energy. Many of them will be incurring significant costs before, hopefully, starting to make profits.
Unfortunately, the tax rules do not always work in a way that encourages such businesses, as was shown in a recent Upper Tax Tribunal case. The companies were involved in the trade of generating and selling electricity from UK offshore wind farms.
Numerous pre-installation studies were carried out (costing £48m) to assess the best positioning for the wind turbines, for example in relation to wind, ocean and seabed conditions. The appellants included this expenditure, along with expenditure on the actual wind turbines, as part of their qualifying expenditure for capital allowances.
Section 11 of the Capital Allowances Act 2001 sets out that expenditure can be considered qualifying when incurred ‘on the provision of’ plant and machinery. HMRC accepted that the building and installation of the wind turbines and associated cabling (the generation assets) qualified, but rejected the claim regarding the studies.
As earlier case law had held, the key principle here was that expenditure on the construction, transport and installation of plant could be qualifying, provided that the effect of the expenditure was the provision of plant. Expenditure (such as the studies in this case) could be necessary, but not have the effect of providing the plant. Thus, the £48m was not eligible for capital allowances.
An alternative argument, that the expenditure should be regarded as an allowable revenue expense on the basis that it was wholly and exclusively for the purposes of the company’s trade, was also rejected. It was clearly capital expenditure, as it was linked to the installation of capital assets (the turbines), despite not being on the ‘provision of’ them.
As you can see, in our complex tax code, the treatment of expenditure is not always obvious! Failing to attract tax relief increases the effective cost to the business of the expenditure.
Please check the tax treatment with us before your business incurs significant expenditure, as the tax relief available may impact the decision as to whether to proceed or not.
This newsletter is written for the benefit of our clients. Further advice should be obtained before any action is taken.
Category: Monthly Newsletters, Topical Bulletins Comments: None
2023 has been a lot more stable, politically and economically, than 2022. Rather than the multiple fiscal events of the latter, there has been a single Budget plus an Autumn Statement. However, with a pre-election Budget due on 6th March, we wait to see whether there will be major changes announced for 2024/25, particularly tax cuts. Any such changes may affect end of year planning for 2023/24. For example, it may turn out to be advantageous to delay receiving income such as bonuses or dividends until next tax year,
if they would be taxed at lower rates (perhaps because the government decides to unfreeze thresholds).
In this newsletter we set out what you need to know about the tax landscape (as currently known) over the next 12 months, but please check with us before finalising any big financial decisions, just in case the tax treatment has changed after publication.
Almost all the thresholds for both National Insurance Contributions (NICs) and income tax have been frozen until April 2028. With inflation still well above the 2% target, this freeze will pull a lot of earners into the higher tax bands as their salaries or business profits rise; this also has a knock-on effect on the amount of personal savings allowance (PSA) available to set against income such as interest, where rates have of course risen significantly in the last year or so. Income within the PSA is taxed at a nil rate.
Once into the 40% band, the PSA is cut from £1,000 to £500 per year; it disappears completely for anyone who pays income tax at 45%, which applies when income exceeds £125,140.
Individuals who are resident in Scotland pay income tax on earnings and profits at different rates.
The dividend allowance will be cut to £500 from 6 April 2024, having been £1,000 for 2023/24. This means more dividend income will be taxable each year, although the tax rates applicable to dividends are not changing in 2024/25.
The personal allowance has been frozen at £12,570 until April 2028; that allowance is tapered away by £1 for every £2 of income over £100,000 per year.
The annual exempt amount for capital gains tax will be halved from
£6,000 to £3,000 in 2024/25.
The combination of the allowance cuts and threshold freezes will affect the tax and NICs payable by directors and shareholders of family companies.
All employers need to budget for increases in the rates of National Living Wage and National Minimum Wage from 1 April 2024.
We recommend you undertake an annual review of your financial affairs, in order to check that you are not paying more tax than you need to and to see whether any structures you set up in the past are still appropriate. Between now and the end of the tax year (5 April 2024) is a good time to assess whether you have claimed all the relevant allowances and are as well defended against high tax charges as you can be.
Of course, the personal circumstances of each individual must be taken into account in deciding whether any particular plan is suitable or advantageous, but these suggestions may give you some ideas. We are happy to discuss them with you in more detail.
Failure to notify chargeability to tax, to file your self-assessment tax return or pay any tax due on time may result in penalties. Key dates to be aware of over the next year are outlined below. Note how penalties increase with the lateness of the return.
Paper returns for 2022/23 not filed by this date will be three months late and may attract a daily penalty of £10 a day for up to 90 days thereafter.
The balance of your 2022/23 tax liability, together with the first payment on account for 2023/24, is due.
The first automatic 5% late payment penalty will apply to any outstanding 2022/23 tax.
The four-year time limit for certain claims and elections in respect of the 2019/20 tax year expires.
The second automatic 5% late payment penalty will apply to any outstanding 2022/23 tax.
Deadline to notify HM Revenue & Customs (HMRC) of your chargeability to tax if you have not been issued with a return (or a notice to file a return) and you have income or capital gains to report for 2023/24.
Deadline for submitting 2023/24 paper returns.
For paper returns filed by this date, HMRC should be able to:
If your paper return is submitted after this date, you will be charged an automatic £100 penalty.
Paper returns for 2022/23 not submitted by this date will now be 12 months late and subject to a further penalty of 5% of the tax due, or £300 if greater.
Deadline for online filing for 2023/24 if you want HMRC to collect tax through your tax code (where you owe less than £3,000).
Filing deadline for 2023/24 online returns. Payment date for balancing tax payment in respect of 2023/24 and first payment on account for 2024/25.
The third automatic 5% late payment penalty will apply to any outstanding 2022/23 tax.
If you are struggling to pay your tax on time, you should be able to set up a TTP before the tax falls due. This will allow you to pay the tax by instalments and avoid penalties.
Please contact us if you need to set up a TTP – we can help!
Currently, income tax rates and thresholds (except in Scotland) are set to remain unchanged for 2024/25. The Personal Allowance (PA), below which income is not taxed, is £12,570. The higher rate threshold at which 40%
tax kicks in is £50,270 and top rate tax (45%) begins when income exceeds
£125,140.
Scotland has different tax rates and bands for non-savings, non- dividend income (e.g. employment income, business profits, rental income and pension income). In the recent Scottish Budget, the following were announced for 2024/25:
Many Scottish taxpayers will now pay a significantly higher amount of tax than those elsewhere in the UK (although some lower earners pay slightly less than in the rest of the UK).
The PA of £12,570 is progressively withdrawn for individuals earning more than £100,000, leading to a marginal rate of 60% on income between £100,000 and £125,140. This rate is different in Scotland and for those who have dividend income within this band.
This is a valuable relief for gifts to charities: the gift is made out of the donor’s taxed income and the charity benefits by claiming basic rate tax on the value of the gift.
If you are a higher rate taxpayer and you make an £800 donation to a charity, the gross value of the gift to the charity is £1,000, since it can claim back the basic rate tax of £200.
You can claim an additional 20% tax relief on the gross value, reducing the net cost to £600.
In order for a donation to qualify for tax relief, the charity previously had to be located in an EU member state (plus Iceland, Norway and Liechtenstein) and be recognised as a qualifying charity by HMRC. However, as part of the post-Brexit changes to tax legislation in the UK, this is now changing.
The ability to have a non-UK charity qualify has been removed. There is a transitional period though, so that a non-UK charity which had asserted its status before 15 March 2023 will continue to qualify until 1 April 2024 (for company donations) or 5 April 2024 (for individual donations). After that, no relief will be available where donations are made to non-UK charities. This will be the case even if those overseas charities have UK activities.
Note that UK charities that carry out work in other countries continue to qualify for tax reliefs such as Gift Aid.
If you are considering a gift to charity, we can make sure that it will meet the qualifying requirements. It will be particularly tax-efficient if the gross donation reduces income that would otherwise be subject to PA abatement or the HICBC.
If you are looking forward to retirement, it’s a good idea to check out how much state pension you will get. You can do this by logging on to your personal tax account on gov.uk, which contains lots of useful information about how much tax you owe and about your NICs record, among other things.
To receive the full amount of the state pension, your NICs record needs to contain 35 completed years. You need at least ten complete NICs years to receive any amount of the UK state retirement pension.
Contributions within the annual allowance (AA) to pension funds attract relief at your marginal rate of tax. The combination of tax relief on contributions, tax-free growth within the fund and the ability to take a tax- free lump sum on retirement makes a pension plan an attractive savings vehicle. Saving for retirement should always be considered as part of the year-end tax planning process.
This is particularly important for those with an annual adjusted income in excess of £260,000, since the AA of £60,000 (pre-6 April 2023: £40,000) is usually tapered by £1 for every £2 of income in excess of £260,000 (pre-6 April 2023: £240,000), reducing to a minimum of £10,000 for those with income over £360,000. These last two figures were respectively £4,000 and £312,000 pre-6 April 2023. No tax relief is available for contributions exceeding the available AA.
The AA can be carried forward for three tax years to the extent it is unused. Any unused AA for the three previous years can be added to your allowance for 2023/24 and will attract full relief, subject to the level of your pensionable income (‘net relevant earnings’).
The LTA has, in recent years, been frozen at £1,073,100. It puts a cap on the amount of tax-advantaged pension rights that you can build up.
The value of all your pension funds was compared with this limit at certain ‘benefit crystallisation events’, such as when you first draw benefits or reach age 75. An onerous tax charge (the ‘LTA charge’) was incurred on any surplus above the LTA.
£1,073,100) unless the member holds a higher level of protection from when the LTA had previously been cut.
Asif is aged 58. He is employed at a senior level in his company and receives an annual salary of £210,000 (plus bonuses). He has a pension pot worth £990,000 but has no form of LTA protection in place.
In March 2021, he opted out of payments into his company pension scheme, given that he was getting close to exceeding the LTA and was therefore facing an LTA charge.
He plans to retire in early 2024.
Mona is aged 57 and has a personal pension scheme valued at £1.6m. She planned to retire at the age of 60, due to her pension fund being worth more than the LTA limit.
If there is a change in Government, it is almost certain that the Lifetime Allowance will be reinstated (although not retrospectively). What level it would be set at is currently unknown.
This emphasises the importance, especially for those nearing retirement age, of taking action sooner rather than later.
A property that qualifies as a Furnished Holiday Letting (FHL) can benefit from various tax reliefs not generally available to property rental businesses.
To qualify as an FHL, the property must be furnished, located in the UK or another EEA country, and let on a commercial basis with a view to realising profits.
It must also satisfy the following tests:
The annual exempt amount (AEA) is £6,000 for 2023/24, but is reducing to £3,000 in 2024/25. Gains above this level are taxed as follows:
Assets transferred between married couples or civil partners do not normally give rise to a CGT charge; instead, the recipient takes over the CGT cost of the donor. This means that, when the asset is eventually sold by the recipient, the gain or loss will reflect the combined ownership period.
Gifts to other family members will produce capital gains or losses, using the market value at the time of the gift as deemed proceeds. However, where the asset is a qualifying business asset (e.g. unquoted trading company shares), a joint ‘holdover relief’ election will enable any gain to be deferred.
Non-residents are not generally subject to UK CGT. There is an exception to this rule, however, for disposals of UK immoveable property (i.e. land and buildings) and certain indirect interests in UK immoveable property.
David is a basic rate taxpayer (with £7,000 of basic rate band unused) in 2023/24 but expects to be a higher rate taxpayer in 2024/25. His sole disposal in 2023/24 of some non- residential land realises a capital gain of £15,000.
If, instead, the disposal is made in 2024/25:
Domicile status is a difficult legal concept and is very important for IHT. Broadly, it means one’s country of ‘natural or permanent home’.
IHT is payable at 40% where a person’s assets on death, together with any gifts made during the seven preceding years, total more than the nil rate band (NRB). The NRB is £325,000 for 2023/24 and is fixed at this level until April 2028.
Unused NRB can be transferred to a spouse or civil partner, so couples can enjoy a combined NRB of up to £650,000 on the second death. The amount transferable is the percentage of the deceased’s unused NRB at the time of their death, as applied to the NRB in force at the date of the second death.
In addition, a ‘residence NRB’ is available in respect of a property that at some point has been the deceased’s main residence and which is passed on death to a direct descendant (or their spouse).
Consider gifting assets during your lifetime to minimise the IHT payable on your death.
Most importantly of all, make sure you have an up-to-date will, that is not only efficient from an IHT perspective but also distributes your assets based on your current family circumstances. For example, trusts that were due to be set up in your will while your children were minors may no longer be needed.
Tax year 2023/24 is the transition year from the ‘current year’ basis of assessment (which charges tax on the 12-month accounting period ending in the tax year) to the ‘tax year’ basis of assessment, which will tax the profits actually arising in the tax year. Only businesses that already have a year- end between 31 March and 5 April will be unaffected by the changes.
Under the transition year rules:
Capital allowances can be claimed on expenditure on certain types of assets used in your business. You must be careful to distinguish between
The latter attract much slower tax relief.
The rules on capital allowances can be quite nuanced and there are lots of cases where the taxpayer does not get the tax relief they were expecting, so please check the likely tax treatment with us before undertaking any major expenditure. However, we explain below some of the key points of which you should be aware.
Benefits-in-kind
In some cases, an employee can avoid being taxed on a benefit if they ‘make good’ the value of the benefit by reimbursing their employer. There are strict time limits for doing this.
All reimbursements of taxable non-payrolled benefits for 2023/24 must be made by 6 July 2024, which aligns with the date for submitting the P11D forms.
The dates for making good on payrolled benefits provided in 2023/24 are:
The deadlines for making good do not apply to interest payable on beneficial loans and overdrawn directors’ loan accounts. Where such loans exceed £10,000 at any point in the tax year there is a taxable benefit if insufficient interest is paid. This benefit takes account of the loans outstanding throughout the year, not just the days when the balance was above £10,000.
This taxable benefit can be avoided if interest at least equal to the Official Rate is reimbursed, as long as the borrower is legally obliged to pay interest. The Official Rate for 2023/24 is 2.25% p.a.
Despite this exclusion from the reimbursement deadlines, most people should try to pay any interest due on a loan by the 6 July following the tax year, to avoid any doubt as to whether a benefit arises at the time the P11D form is being prepared.
Don’t miss the deadline for ‘making good’ any benefits you have received, if you want to avoid a tax charge.
Category: Business News, Hot Topics, Monthly Newsletters, Tax Rates And Allowances Comments: None
In the weeks leading up to the Autumn Statement, the press was full of speculation about tax cuts. This was a surprise, just over a year after the tax cuts announced by Kwasi Kwarteng were judged imprudent by the international markets, contributing to a fall in the value of sterling and increases in interest rates. Nevertheless, it seemed that a side effect of inflation was that higher incomes and prices had fed through into higher tax receipts; the Chancellor had more in his coffers – more ‘fiscal headroom’ – than had been predicted in the Spring, and commentators were suggesting what he might do with it.
Mr Hunt started his speech by claiming he was bringing forward 110 growth measures to back British business. He did not list them all in the speech, but there is no doubt that the documents released on the internet when he sat down contained a mass of detail – some specific rule changes coming in on particular dates, and some outlines of plans that are being considered for later.
The documents include a table showing the financial effects of the proposals, which highlights what is really significant and what is more marginal. Reductions in National Insurance amount to £9.3 billion in 2023/24 and similar amounts each year after that; changes to tax relief for capital expenditure come to similar amounts in the longer term. On the other hand, HMRC hope to collect £1 billion a year extra from the sinister-sounding ‘investment in debt management capability’.
This document summarises the main tax changes that were announced by Mr Hunt, with an explanation of what they are likely to mean for your business or your family. If you would like to discuss what these measures mean for your individual circumstances, we will be pleased to help.
A year ago, Mr Hunt announced that the tax-free personal allowance and the 40% tax rate threshold will be fixed until 5 April 2028, and lowered the threshold for the 45% rate to £125,140 from 6 April 2023. In spite of some press speculation in advance of the Autumn Statement, there was no mention of changes to these figures in the speech or in the supporting documents. Some commentators have suggested that any good news on income tax will be kept for the Spring Budget, to be fresher in the minds of voters as the next General Election approaches. Although last year’s announcement implies certainty for years to come, the Chancellor could just as easily change the numbers within that period. ‘Freezing the thresholds’ avoided the appearance of a direct tax increase, but it is obvious that the effect of pay rises will bring many more people into the higher rate bands, increasing the average rate of tax that they will pay. It will also bring more very low earners into paying tax when their incomes rise above the personal allowance.
Two other thresholds remain fixed, as they have been since they were introduced: the income levels at which the High Income Child Benefit Charge begins to claw back Child Benefit receipts (£50,000 since 2012/13) and at which the tax-free personal allowance is withdrawn (£100,000 since 2010/11). These measures create a higher marginal tax rate in the income bands £50,000 – £60,000 (for those in receipt of Child Benefit) and £100,000 – £125,140 (as the personal allowance is reduced to nil). The effective marginal rate of income tax for someone earning between £100,000 and £125,140 is 60% (as £1 of allowance is lost for every £2 of income). Income above £125,140 is all taxed at 45%.
These rates and thresholds will not automatically apply in Scotland, where tax rates on non-savings, non-dividend income are set by the Scottish Parliament, which will announce its Budget on 19 December. The Welsh Assembly also has the right to set its own tax rates for non-savings, non-dividend income, but has so far kept to the main UK rates. Savings and dividend income are subject to the same rates throughout the UK, regardless of residence.
No changes were announced to the taxation of dividend income. This means that the dividend allowance, below which no tax is paid on dividends, will fall from £1,000 in 2023/24 to £500 in 2024/25. The reduction in this allowance (which was £2,000 for several years up to 2022/23) will require many more people to file self-assessment tax returns to settle what will often be a relatively small tax liability.
Car benefits remain fixed at rates previously announced until the end of 2024/25. The figure used to calculate the benefit of free use of business fuel for private journeys is also fixed at the current figure of £27,800.
The taxable amounts for the availability of a van for more than incidental private use, and for an employee’s private use of fuel in a company van, normally increase in line with inflation. However, the 2023/24 flat rate figures of £3,960 and £757 for these benefits will remain the same for 2024/25.
Since April 2021, for those who operate via a personal service company (or other intermediary), the decision as to the worker’s tax status has in most cases rested with those contracting with the intermediary. An end-client or agency therefore has PAYE risk, in that they may fail to withhold payroll taxes (and pay employer’s NICs) where the person is in fact deemed to be their employee for PAYE purposes. This can make them liable to unpaid tax and penalties, even if the worker’s company has paid tax on that income.
In such cases, the deemed employer’s PAYE liability will be reduced by an amount of income tax or corporation tax that is estimated to have already been paid by, or assessed on, the intermediary in relation to the engagement. The tax treated as already recovered will be the best estimate that can reasonably be made by an officer of HMRC in respect of the income tax or corporation tax already paid or assessed.
These provisions will apply in respect of PAYE assessed from 6 April 2024 on deemed employment payments made on or after 6 April 2017 (i.e. it is backdated to when the off-payrolling rules were first introduced for public sector engagers).
From 1 April 2024, NLW will apply to those aged 21 or over (currently 23), and will rise from £10.42 per hour to £11.44, with comparable increases to the other rates that apply to younger workers and apprentices.
The largest tax cut announced in the Autumn Statement, amounting to £8.7 billion in 2023/24, is a cut in the rate of employee NICs on earnings between the lower and upper earnings limits from 12% to 10%. This will take effect on 6 January 2024, and will save up to £754 in a full tax year (for an employee earning £50,270 or above).
Self-employed people have for many years had to pay flat rate Class 2 NICs, which have conferred entitlement to State pension, and profit-related Class 4 NICs. These are both cut with effect from 6 April 2024:
The combined saving is up to a maximum of £556.
After the removal of the Lifetime Allowance (LTA) charge on large pension funds in the Spring Budget, there were no further changes to the way in which private and employee pensions will be taxed in the short term. The LTA itself will now be removed from the legislation, but the figure (£1,073,100, or more for those with ‘protection’) will remain relevant for determining how much can be drawn as a tax-free lump sum.
A number of proposals were put forward to reform the structure of pension provision in the UK, including resolving the problem of a person collecting a number of small, separate pension pots from different employments. These do not appear to have an impact on the way pensions are taxed.
State pension
Following some speculation about whether the Conservative manifesto commitment to the ‘triple lock’ on State pension increases was affordable, the State pension will continue to be uprated in line with that commitment. This means that the rate will increase by 8.5% in April 2024 based on the increase in average earnings, rather than the lower figure for price inflation. At the new weekly amount of £221, pensioners will receive nearly £900 a year more than in 2022/23.
The annual investment limits for ISAs remain the same for 2024/25. A number of improvements to the administration of ISAs has been announced to make them more flexible and easier to use.
The Enterprise Investment Scheme and Venture Capital Trusts offer a number of tax advantages to investors in qualifying small and start-up businesses. Both sets of rules were due to expire after 5 April 2025, but an extension has been announced to April 2035.
No announcements were made concerning CGT. This means that the annual exempt amount (AEA), which is currently £6,000 for 2023/24, will be reduced as previously announced to £3,000 for 2024/25.
As well as increasing the likelihood of tax to pay, this reduction in the AEA will mean that many more taxpayers will need to file the CGT pages of the self-assessment tax return. These pages need completing unless both:
As the AEA available to most trusts is half of an individual’s AEA, this will be £1,500 for 2024/25 (£3,000 in 2023/24).
The IHT nil rate band (NRB) has been frozen at £325,000 since 6 April 2009; the residence NRB has been £175,000 since 6 April 2020. It was announced a year ago that these figures would remain fixed until April 2028, bringing more people within the scope of IHT as assets (particularly houses) rise in value.
There have been no changes to the IHT rates, so the main rate remains 40% for transfers on death in excess of the NRBs. After some press speculation in the week before the Autumn Statement that IHT would be cut, the Chancellor made no mention of the tax at all.
For ten years, unincorporated businesses with a turnover of up to £150,000 have been able to use a simpler ‘cash basis’ to calculate their profits for tax purposes. If turnover grew to more than £300,000, the business would have to return to ‘accruals accounting’. The cash basis has a number of restrictive rules, including a maximum deduction of £500 for interest paid.
The Autumn Statement announced that the turnover limits will be removed for 2024/25: unincorporated businesses of any size will use the cash basis as the default method of computing their profits. Interest of any amount will be eligible for deduction, as long as it is wholly and exclusively incurred for the purposes of the business.
It will still be possible for a business to opt to use traditional accruals accounting rather than the cash basis, as is the case at present for rental income.
The Spring Budget included the introduction of ‘full expensing’ of capital expenditure by companies on new plant and machinery (P&M) for a three-year period from 1 April 2023 to 31 March 2026. The Chancellor has now made this ‘permanent’, which makes little difference to government revenue in the short term, but is shown as a £7.5 billion reduction in 2026/27 – nearly as large as the cut in employee NICs.
‘Special rate’ assets, which include integral features in buildings and long life assets, qualify for a 50% first year allowance (FYA). Cars, assets for leasing and second-hand assets are excluded from these FYAs – they only qualify for writing-down allowances.
Where full expensing has been claimed, any subsequent disposal proceeds received for the asset are treated as an immediately taxable ‘balancing charge’. Where 50% FYA has been claimed, 50% of such proceeds are a balancing charge and 50% are deducted from the capital allowance pool. Most smaller businesses would be better off claiming 100% Annual Investment Allowance (AIA) on such expenditure, which does not have these special rules for disposal proceeds. AIA can be claimed on up to £1 million of expenditure on plant a year, is not restricted to companies and is also available on second-hand assets. 99% of businesses spend less than £1 million a year on plant.
New zero-emission cars qualify for a 100% FYA under a separate rule until 31 March 2025.
The CIS requires many businesses carrying out construction work to deduct tax (at either 20% or 30%) before paying subcontractors unless the supplier has gross payment status (GPS), which HMRC will grant to subcontractors who show a good record of tax compliance.
From 6 April 2024, VAT obligations are added to the statutory compliance test for being granted (and for keeping) GPS.
The measure also extends one of the grounds for immediate cancellation of GPS. HMRC is able to withdraw GPS if they have reasonable grounds to suspect that the GPS holder has fraudulently provided an incorrect return or incorrect information in relation to a list of taxes which will be extended to include VAT, Corporation Tax Self-Assessment (CTSA), Income Tax Self-Assessment (ITSA) and PAYE.
Other reforms, also to come in from 6 April 2024, are:
No changes were announced to CT rates, which remain 19% for companies with profits up to £50,000 and 25% for companies with profits over £250,000. Between £50,000 and £250,000 there is a tapering calculation that produces an effective marginal rate of 26.5% on profits within that band. The limits are divided between the number of associated companies (companies under the common control of one or more persons, including both individuals and companies).
Currently, there are two different regimes to encourage research and development (R&D) expenditure in the UK:
The government has confirmed its intention to merge the two schemes for accounting periods beginning on or after 1 April 2024. It was previously announced that the changes would apply for expenditure incurred from 1 April 2024; the revised implementation date will avoid the issue of having to make claims under two different regimes for expenditure in the same accounting period.
The rate of credit under the merged scheme will be the current RDEC rate of 20%. The notional tax rate applied to loss-making companies will be the small profit rate of 19%, rather than the 25% main rate currently used in the RDEC.
The aim of the R&D reliefs is to increase the overall levels of R&D carried out in the UK economy. The government believes it is important that the company making the decision to carry out the R&D and bearing the risk enjoys the relief. Under the new regime, the decision maker is allowed to claim for contracted-out R&D rather than the subcontractor.
Where a company with a valid R&D project contracts a third party to undertake some of the qualifying work connected with their R&D project, the company may claim the relevant qualifying costs of that contract. The company contracted to do that work will not claim for R&D activities which deliver the outcome for its customer’s project.
Contracted R&D carried out by subcontractors who are working for customers who do not pay UK corporation tax, such as overseas companies, will continue to qualify for relief.
If a company, which is contracted to provide a product or service which is not R&D (such as constructing a building or a software product), undertakes R&D in delivering that product or service, they will be able to claim relief even though they are undertaking R&D on an activity contracted to them.
The exact details of who should claim the relief will depend on the specific contract.
The above changes mean that rules relating to subsidised expenditure in the existing SME scheme are no longer relevant. For example, if a company receives a grant that covers part of the cost of its R&D, or if the cost of the R&D is otherwise met by another person, then (subject to the contracting-out rules above) this will not reduce the amount of support available under the merged scheme.
The ‘SME intensive scheme’, for the most R&D intensive loss-making SMEs, took effect for R&D expenditure from 1 April 2023. Qualifying companies are able to claim a payable credit rate of 14.5% for qualifying R&D expenditure instead of the normal 10% credit rate for losses under the SME scheme.
A company is currently considered ‘R&D intensive’ where its qualifying R&D expenditure is 40% or more of its total expenditure. This threshold will be reduced from 40% to 30%.
Another change is that an intensive SME, which has made a valid claim in the intensive regime in one year, can claim the intensive relief in the following year, even if it would not pass the threshold test in that year.
As previously announced, the government intends to ‘modernise and simplify’ the audio-visual creative tax reliefs, namely: Film Tax Relief (FTR); High-End TV Tax Relief (HETV); Animation Tax Relief (ATR); Children’s TV Tax Relief (CTR) and Video Games Tax Relief (VGTR).
Under the current schemes, relief is given by way of an additional deduction from profits or surrendering a loss for a tax credit. The FTR, HETV, ATR and CTR are to be replaced by a new Audio-Visual Expenditure Credit (AVEC) regime and the VGTR by a new Video Games Expenditure Credit (VGEC). Both are similar in principle to the RDEC available for R&D expenditure.
Companies claiming for productions under FTR, HETV, CTR and ATR will be able to claim under AVEC in relation to expenditure incurred from 1 January 2024. New productions must be claimed under AVEC from 1 April 2025, and all productions must claim under AVEC from 1 April 2027. FTR, HETV, CTR and ATR will cease on 1 April 2027.
The same transitional dates apply to the transition from VGTR to the VGEC.
The new expenditure credit regimes will be similar to the existing tax reliefs, for example in terms of eligibility and the definitions of qualifying expenditure, but ‘animation’ will be extended to include animated theatrical films as well as TV programmes.
The animation and children’s TV will qualify for a higher AVEC credit rate of 39%, rather than the 34% available for films, high-end television and under the VGEC.
The level at which a business is required to register for VAT (taxable turnover of £85,000 in the last 12 months, or expected in the next 30 days) has been fixed since 1 April 2017, and no change was announced to the present intention to keep it at the same level until 31 March 2026. The effect of inflation will require many businesses that are trading below the threshold to register and account for VAT. The deregistration threshold is also fixed at its current level of £83,000 for the same period.
The installation of energy saving materials currently qualifies for zero-rating for VAT. This means that the installer can claim back the VAT on the cost of the goods installed, and charge no VAT to the customer. This relief is to be extended with effect from February 2024 to new technologies such as water-source heat pumps, and also to intallations in buildings used solely for a relevant charitable purpose.
Up to 31 December 2020, it was possible for non-EU visitors to the UK to obtain a refund of VAT paid on goods purchased while here and taken out of the country in their personal baggage. This was abolished as one of the consequences of Brexit. The retail industry has lobbied extensively for the restoration of some version of the scheme; the only response so far is that ‘the government will continue to accept representations and consider this new information carefully, alongside broader data’.
On 23 September 2022, the government increased the nil rate threshold (NRT) for SDLT from £125,000 to £250,000 for all purchasers of residential property and from £300,000 to £425,000 for first-time buyers. The maximum purchase price for which the first-time buyer’s threshold applies was increased from £500,000 to £625,000.
These increases in thresholds were later classified as ‘temporary’ and will remain in place until 31 March 2025 ‘to support the housing market and the hundreds of thousands of jobs and businesses which rely on it.’ If history is a guide, such a pre-announced increase in SDLT may well lead to a boom in house prices just below the thresholds as the date approaches.
SDLT only applies in England and Northern Ireland. Decisions about the devolved taxes in Scotland (Land and Buildings Transaction Tax) and Wales (Land Transaction Tax) will be taken by their respective governments.
ATED applies to residential property worth above £500,000 that is owned through companies and other corporate structures, unless the situation qualifies for a relief. The rates increase automatically each year with inflation and will rise by 6.7% from 1 April 2024, in line with the September 2023 Consumer Prices Index.
From 1 April 2023, charges for business rates in England were updated to reflect changes in property values since the last revaluation in 2017. A package of targeted support was announced a year ago to help businesses adapt to the new charges. Further measures announced this year are:
In December 2022, it was announced that the introduction of MTD ITSA for landlords and the self-employed would be staged. Those with incomes over £50,000 will come in first from April 2026, and those with between £30,000 and £50,000 will come in a year later in April 2027.
Although no mention of MTD ITSA was made in the Chancellor’s speech, a number of points have been confirmed in the accompanying documentation, as follows:
At present, taxpayers with incomes over £150,000 are automatically required to file a self-assessment tax return each year. The Autumn Statement included an announcement that those whose tax is all paid under PAYE will be removed from this requirement from 2024/25. However, as mentioned above, increases in interest rates on savings raising interest incomes above the tax-free savings allowance as well as the reductions in the CGT annual exempt amount and the dividend allowance are likely to have the opposite effect – more people will have tax liabilities that have to be reported to HMRC.
In many fiscal statements, the Chancellor of the day announces an allocation of resources to HMRC to bring in more money. This time, it was an investment of £163 million in HMRC’s debt management capability. This is supposed to allow HMRC to better distinguish between those who can afford to settle their tax debts, but choose not to, and those who are temporarily unable to pay and need support. HMRC will also expand its debt management capacity to support both individual and business taxpayers out of debt faster and collect debts that are due. This ‘investment’ is scheduled to produce additional revenues of £515 million in 2024/25 and over £1 billion in each of the following three years.
Investment Zones and Freeports are areas in which numerous tax incentives are available to generate economic growth. The Chancellor announced an extension of both schemes: Investment Zones will run to the end of 2033/34, and Freeport tax reliefs must be claimed by September 2031. In addition, the Chancellor announced a number of new Investment Zones in Manchester, East and West Midlands, South East Wales and Wrexham and Flintshire.
Universal Credit will increase in April 2024 by inflation, measured by the annual rise in the Consumer Prices Index, which is 6.7% to September 2023. There had been speculation that the lower figure for inflation in the year to October would be used, but the Chancellor rejected that suggestion.
*PA will be withdrawn at £1 for every £2 by which ‘adjusted income’ exceeds £100,000. There will therefore be no allowance given if adjusted income is £125,140 or more.
†£1,260 of the PA can be transferred to a spouse or civil partner who is no more than a basic rate taxpayer, where both spouses were born after 5 April 1935.
§ If gross income exceeds this, the limit may be deducted instead of actual expenses.
BRB and additional rate threshold are increased by personal pension contributions (up to permitted limit) and Gift Aid donations.
General income (salary, pensions, business profits, rent) usually uses personal allowance, basic rate and higher rate bands before savings income (mainly interest). To the extent that savings income falls in the first £5,000 of the basic rate band, it is taxed at nil rather than 20%.
The PSA taxes interest at nil, where it would otherwise be taxable at 20% or 40%.
Dividends are normally taxed as the ‘top slice’ of income. The DA taxes the first £500 (2023/24 £1,000) of dividend income at nil, rather than the rate that would otherwise apply.
1% of child benefit for each £100 of adjusted net income between £50,000 and £60,000.
The Scottish rates and bands do not apply for savings and dividend income, which are taxed at normal UK rates. The Scottish rates for 2024/25 have not yet been announced.
Annual relievable pension inputs are the higher of earnings (capped at AA) or £3,600.
The AA is usually reduced by £1 for every £2 by which relevant income exceeds £260,000, down to a minimum AA of £10,000.
The AA can also be reduced by £10,000, where certain pension drawings have been made.
For 2023/24 and 2024/25, there is no Lifetime Allowance (LTA) charge on high pensions savings.
The maximum tax-free pension lump sum is £268,275 (25% of £1,073,100), unless a higher amount is “protected”.
Taxable benefit: List price multiplied by chargeable percentage.
Then a further 1% for each 5g/km CO2 emissions, up to a maximum of 37%.
Diesel cars that are not RDE2 standard suffer a 4% supplement on the above figures but are still capped at 37%.
Where employer provides fuel for private motoring in an employer-owned car, CO2-based percentage from above table multiplied by £27,800.
*Nil rate of employer NIC on earnings up to £967pw for employees aged under 21, apprentices aged under 25 and ex-armed forces personnel in their first twelve months of civilian employment.
Employer contributions (at 13.8%) are also due on most taxable benefits (Class 1A) and on tax paid on an employee’s behalf under a PAYE settlement agreement (Class 1B).
From 6 April 2024, self-employed people with profits above £6,725 are no longer required to pay Class 2 NICs, but will continue to receive access to contributory benefits, including the State Pension.
Those with profits under £6,725 can pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension. The amount is £3.45 per week.
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