Time to Pay tax

If you are having trouble paying your tax on time you may be eligible to receive support from HMRC. An online payment plan for Self-Assessment tax bills can be used to set up instalment arrangements for paying tax liabilities of up to £30,000.

Taxpayers that want to use the online option must have filed their latest tax return within 60 days of the payment deadline and intend to pay their debt within the following 12 months or less. Taxpayers that qualify for a Time to Pay arrangement using the self-serve Time to Pay facility can do so without speaking to an HMRC adviser.

Taxpayers with Self-Assessment tax payments that do not meet the above requirements need to contact HMRC to formally request a Time To Pay arrangement. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.

HMRC will only offer taxpayers the option of extra time to pay if they think they genuinely cannot pay in full but will be able to pay in the future. If HMRC do not think that more time will help, they can require immediate payment of a tax bill and start enforcement action if no payment is forthcoming.

Source:HM Revenue & Customs | 13-11-2023

Hold-over gifts relief

Gifts Hold-Over Relief is a tax relief that effectively defers Capital Gains Tax (CGT) that may arise on a relevant gift. The relief can be claimed when assets are given away (including certain shares) or sold for less than they are worth to help benefit the buyer. The relief means that any gain on the asset is 'held-over' until the recipient of the gift sells or disposes of the gifted item(s). This is done by reducing the donee's acquisition cost by the amount of the held over gain.

The person gifting a qualifying asset is not subject to CGT on the gift. However, CGT may be payable where the asset is sold for less than it’s worth. Gifts between spouses and civil partners do not trigger capital gains. A claim for the relief must be made jointly with the person to whom the gift was made.

If you are giving away business assets, you must:

  • be a sole trader or business partner, or have at least 5% of voting rights in a company (known as your 'personal company'); and
  • use the assets in your business or personal company.

You can usually get partial relief if you used the assets only partly for your business.

If you are giving away shares, then the shares must be in a company that's either:

  • not listed on any recognised stock exchange; and
  • your personal company.

The company's main activities must be of a trading nature, for example providing goods or services, rather than non-trading activities like investment.

Source:HM Revenue & Customs | 13-11-2023

Full expensing

The full expensing 100% first-year capital allowance for qualifying plant and machinery assets came into effect on 1 April 2023. To qualify for full expensing, expenditure must be incurred on the provision of “main rate” plant or machinery. It should be noted that full expensing is only available to companies subject to Corporation Tax. 

Plant and machinery that may qualify for full expensing includes (but is not limited to):

  • machines such as computers, printers, lathes and planers;
  • office equipment such as desks and chairs;
  • vehicles such as vans, lorries and tractors (but not cars);
  • warehousing equipment such as forklift trucks, pallet trucks, shelving and stackers;
  • tools such as ladders and drills;
  • construction equipment such as excavators, compactors, and bulldozers; and
  • fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential property.

Full expensing currently applies from 1 April 2023 until 31 March 2026 although this may be extended. The super-deduction that was introduced during the pandemic ended on 31 March 2023. Under full expensing, for every pound a company invests, their taxes will be cut by up to 25p.

For “special rate” expenditure, which does not qualify for full expensing, a 50% first-year allowance (FYA) can be claimed. The 50% FYA was introduced alongside the withdrawn super-deduction and was due to end on 31 March 2023, but this 50% FYA has now been extended until 31 March 2026.

Businesses can also continue to use the Annual Investment Allowance (AIA) to claim a 100% tax deduction on qualifying expenditure on plant and machinery of up to £1m per year. This includes unincorporated businesses and most partnerships.

Source:HM Treasury | 13-11-2023

Tax relief on pension contributions

Taxpayers can usually claim tax relief for their private pension contributions. There is an annual allowance for tax relief on pensions of £60,000 for the current 2023-24 tax year. The annual allowance was £40,000 in 2022-23.

There is a three year carry forward rule that allows you to carry forward any unused amount of your annual allowance from the last three tax years if you have made pension savings in those years. There used to be a lifetime limit for tax relief on pension contributions, but this was removed with effect from 6 April 2023.

You can qualify for tax relief on private pension contributions worth up to 100% of your annual earnings, subject to the overriding limits. Tax relief is available on pension contributions at the highest rate of Income Tax paid by the person making the contributions.

This means that if you are:

  • a basic rate taxpayer you get 20% pension tax relief;
  • a higher rate taxpayer you can claim 40% pension tax relief; and
  • an additional rate taxpayer you can claim 45% pension tax relief.

The first 20% of tax relief is usually automatically applied by your employer with no further action required if you are a basic-rate taxpayer. If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs on your Self-Assessment tax return.

The above applies for claiming tax relief in England, Wales or Northern Ireland. There are regional differences if you are based in Scotland.

Source:HM Revenue & Customs | 13-11-2023

Marriage allowance entitlement

The marriage allowance applies to married couples and those in a civil partnership where a spouse or civil partner does not pay tax or pay tax above the basic rate threshold for Income Tax (i.e., one of the couples must currently earn less than the £12,570 personal allowance for 2023-24).

The allowance works by permitting the lower earning partner to transfer up to £1,260 of their personal tax-free allowance to their spouse or civil partner. The marriage allowance can only be used where the recipient of the transfer (the higher earning partner) does not pay more than the basic 20% rate of Income Tax. This would usually mean that their income is between £12,571 and £50,270 in 2023-24. For those living in Scotland this would usually mean income between £12,571 and £43,662.

Making a claim, could result in a saving of up to £252 for the recipient (20% of £1,260), or £21 a month for the current tax year. In fact, even if a spouse or civil partner has died since 5 April 2018, the surviving person can still claim the allowance (if they qualify) by contacting HMRC’s Income Tax helpline.

If you meet the eligibility requirements and have not yet claimed the allowance, you can backdate your claim to 6 April 2019. This could result in a total tax break of up to £1,256 if you can claim for 2019-20, 2020-21, 2021-22, 2022-23 as well as the current 2023-24 tax year. If you claim now, you can backdate your claim for four years (if eligible) as well as for the current tax year. Even if you are no longer eligible or would have been in all or any of the preceding years, then you can claim your entitlement.

HMRC’s online Marriage Allowance calculator can be used by couples to find out if they are eligible for the relief. An application can be made online at GOV.UK.

Source:HM Revenue & Customs | 13-11-2023

Tax credits top-up

The Cost of Living support package has been designed to help over 8 million households in receipt of mean tested benefits. The details for Cost of Living Payments due in the 2023-24 tax year were published earlier this year and have recently been updated.

Eligible recipients will receive up to three Cost of Living Payments of £301, £300 and £299 during the course of the current tax-year. This includes those receiving pension credit, and these payments will be made separately from other benefit payments. The first payment of £301 was made between April-May 2023.

HMRC has confirmed that around 840,000 families, who receive tax credits and no other qualifying benefits, will receive their £300 autumn Cost of Living second Payment between 10 and 19 November 2023. These payments are made automatically. Any individuals who expected a payment but did not receive one are asked to wait until after 20 November to contact HMRC. This is to allow time for their bank, building society or credit union to process the payment. 

In addition, more than 7 million eligible UK households are receiving £300 directly from the Department for Work and Pensions (DWP) between 31 October and 19 November 2023.

Pensioner households will also receive £300 which will be paid as a top up to those eligible for the Winter Fuel Payment in November and December. Combined with the one-off Cost of Living Disability Payment earlier this year, relevant households will receive £1,350 in total.

The third Cost of Living Payment of £299 is due to be paid in spring 2024.

Source:HM Revenue & Customs | 13-11-2023

Tax Diary December 2023/ January 2024

1 December 2023 – Due date for Corporation Tax payable for the year ended 28 February 2023.

19 December 2023 – PAYE and NIC deductions due for month ended 5 December 2023. (If you pay your tax electronically the due date is 22 December 2023).

19 December 2023 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2023. 

19 December 2023 – CIS tax deducted for the month ended 5 December 2023 is payable by today.

30 December 2023 – Deadline for filing 2022-23 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2024-25.

1 January 2024 – Due date for Corporation Tax due for the year ended 31 March 2023.

19 January 2024 – PAYE and NIC deductions due for month ended 5 January 2024. (If you pay your tax electronically the due date is 22 January 2024).

19 January 2024 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2024. 

19 January 2024 – CIS tax deducted for the month ended 5 January 2024 is payable by today.

31 January 2024 – Last day to file 2022-23 self-assessment tax returns online.

31 January 2024 – Balance of self-assessment tax owing for 2022-23 due to be settled on or before today unless you have elected to extend this deadline by formal agreement with HMRC. Also due is any first payment on account for 2023-24.

Source:HM Revenue & Customs | 13-11-2023

Why breakeven analysis can be illuminating

If you focus your energy on sales, there is a chance that your efforts will produce losses. Which is why we always encourage our business clients to keep their accounting records using software that automatically produces monthly management accounts that reveal profitability as well as turnover and costs.

But there is another useful indicator that you can compute once you have these monthly trading results. It is the level of turnover you need to achieve – based on current costs – in order to breakeven, make no profit, but importantly, no loss.

If you provide services, rather than process goods for resale, the amount of turnover you need to create each month to breakeven will be your total monthly costs plus any remuneration you take from the business.

For example, if your costs are £35,000 and your monthly remuneration not included in those costs (dividends perhaps or drawings if self-employed) a further £5,000, then your current breakeven turnover is £40,000 a month.

The calculation is slightly different if you process or buy and sell goods for resale as each £1 of sales will need to cover the direct costs – of buying and processing goods – as well as other fixed overheads that do not change with the level of turnover achieved. To calculate a breakeven figure, you will need to divide your fixed costs by the gross profit percentage and multiply by 100. So, if fixed costs are £40,000 a month and your gross profit percentage (sales less direct costs as a percentage of sales) is 25%, your breakeven turnover would need to be (£40,000/25 x 100) £160,000. At this level of trading, you would produce £160,000 times 25% – £40,000 of gross profit which would exactly cover your fixed costs.

Obviously, to make progress financially, you would need to achieve sales in excess of your breakeven turnover. Never-the-less, this is a useful indictor to have as when you achieve this target you will know that any additional sales will be creating profits for your business.

If you have the data, we can help you produce a realistic breakeven figure for your business. Please call to organise.

Source:Other | 13-11-2023

Closing the door on tax planning

When the end of a tax year passes, the 5 April 2024 for the current year, or the end of an accounting year if a company, any opportunity to take advantage of tax planning strategies closes.

For example, if the purchase of plant or other qualifying equipment is made the day before the cut-off date, tax relief will be secured a year earlier than if the payment was made a month later.

For individuals and the self-employed there is still an opportunity to review personal tax issues before the tax year ends 5 April 2024.

Every person tends to have different circumstances and so it is important to review those circumstances on a case by case basis rather than adopt a more generic approach.

Currently, there are cases where 2022-23 self-assessment tax returns have still not been filed. And if you are in that grouping, and we act for you, could you please let us have your records as soon as possible. But when the deadline passes, 31 January 2024, we will have two months to take a look at tax planning options for 2023-24 and take appropriate action if there are opportunities to reduce your tax footprint for 2023-24.

There is nothing worse than looking back, after the tax year end or company accounting period end and reflecting that if certain actions had been taken before those cut-off dates, savings or cashflow could have been protected.

So please, if your business or personal tax affairs warrant a review, can you call to organise a meeting – or set up an online meeting – such that we can brainstorm your options before these planning deadlines close.

Source:Other | 13-11-2023