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Tax Efficiency in London: Insights for Additonal Rate Earners

Tax Efficiency in London: Insights for Additonal Rate Earners

Welcome to CIGMA Accounting, your premier partner for tax efficiency solutions in London. Whether you’re based in Wimbledon, Farringdon, or the surrounding areas, our dedicated team of experts is here to guide you through the intricacies of tax planning. In this post, we’ll explore key concepts such as Additional Rate tax, capital gains, and foreign income, offering insights tailored to the unique financial landscape of London, Wimbledon, and Farringdon.

Understanding the additonal rate of tax

Navigating Additional Rate Tax in the Heart of London
As a resident or business owner in London, you may face unique challenges related to the Additional Rate tax. CIGMA Accounting understands the local nuances and will work with you to develop bespoke strategies to optimize your tax position while considering the specific requirements of the London tax environment.

Expert Guidance for Wimbledon and Farringdon Residents
If you’re situated in Wimbledon or Farringdon, our specialists are well-versed in addressing the tax implications specific to your area. We’ll tailor our advice to align with the local tax landscape, ensuring you benefit from the most relevant tax planning strategies.

Require accounting services?

Get in touch with our expert accountants today! Contact us via WhatsApp for personalized financial solutions.

Capital Gains Planning

Strategic Capital Gains Planning for London Residents
Capital gains planning is essential for London residents seeking to maximize tax efficiency. Our team at CIGMA Accounting will create a customized plan that reflects the unique property and investment landscape of London, Wimbledon, and Farringdon.

Local Insight: Capital Gains in Wimbledon
For residents in Wimbledon, where property values may fluctuate, our experts provide insights into optimizing Capital Gains Tax through property transactions and investment decisions.

Managing Foreign Income in London

Global Income Management for London-based Individuals and Businesses
In the international hub of London, managing foreign income requires a nuanced approach. CIGMA Accounting specializes in guiding London clients through the complexities of reporting foreign income, taking into account local and global tax implications.

Tailored Foreign Income Solutions for Wimbledon and Farringdon
Residents and businesses in Wimbledon and Farringdon can rely on CIGMA Accounting to develop tailored solutions for reporting foreign income, ensuring compliance with local regulations while optimizing tax efficiency.

Need Assistance from an Accountant?

We’d be more than happy to help you with your accounting needs in London, or anywhere else in the UK!

Reach out to us by completing this form and one of our staff members will get in touch within one business day. 


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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

What is a business repair?

HMRC’s internal manuals provide some useful information on the definition of a business repair. This is important because it is required to identify the asset on which work has been carried out.

This is because:

  • the cost of repairing a worn or dilapidated asset is normally an allowable expense;
  • the cost of replacing the whole or the ‘entirety’ of an asset is not a repair; it is capital expenditure and not an allowable expense.

HMRC’s guidance goes on to explain that what forms the asset or entirety is a question of fact. It is important to ascertain whether the ‘asset’ is in fact a separate asset or is part of a bigger asset.

The basic starting point is to establish the facts about the specific asset you are considering and then to ask the question; does this look like a separate asset? Is it something that stands apart from other assets, is it freestanding or is it something that is removable? This is a question of fact and degree; there are no ‘tests’ that can be applied.

With buildings and structures, the question is whether the item replaced appears to be a free-standing asset. The fact that it is connected to another structure, for example by a flue, does not make it part of that larger asset.

It also needs to be considered whether something has become part of something else. If something is a ‘fixture’ then it has become part of the building and not an entirety in its own right. 

Source:HM Revenue & Customs | 06-11-2023

Reminder of not-so-trivial tax-free benefits

There is a benefit-in-kind (BiK) trivial exemption that applies to small non-cash benefits like a bottle of wine, or a bouquet of flowers given occasionally to employees or any other BiK classed as 'trivial' that falls within the exemption. By taking advantage of the exemption employers can simplify the treatment of BiKs whilst at the same time offering a tax efficient way to give small gifts to employees.

The trivial benefit rules provide a great opportunity to give small rewards and incentives to employees as long as the gifts are not provided as a reward for services performed or as part of the employees’ duties. However, gifts to employees on milestone events such as the birth of a child or a marriage or other gestures of goodwill would usually qualify.

The employer also benefits as the trivial benefits do not have to be included on PAYE settlement agreements or disclosed on P11D forms. There is also a matching exemption from Class 1A National Insurance contributions.

The tax exemption applies to trivial BiKs where the BiK:

  • is not cash or a cash-voucher; and
  • costs £50 or less; and
  • is not provided as part of a salary sacrifice or other contractual arrangement; and
  • is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

The rules also allow directors or other office-holders of close companies and their families to benefit from these gifts but with an annual cap of £300. The £50 limit remains for each gift subject to the £300 of non-cash benefits to be withdrawn per person per year. The £300 cap does not apply to employees. If the £50 limit is exceeded for any gift, the value of the benefit will be taxable.

Source:HM Revenue & Customs | 06-11-2023

Company tax return obligations

After the end of its financial year, a private limited company must prepare full annual accounts and a company tax return. In most cases a company’s tax return must be submitted within 12 months from the end of the accounting period it covers. Online Corporation Tax filing is compulsory for company tax returns. Company tax returns must be submitted using either HMRC’s own software or third-party commercial software approved by HMRC and in the required format.

The accounting period for Corporation Tax is normally the same 12 months as the company financial year covered by the annual accounts. There is a separate fixed date for the payment of Corporation Tax which is 9 months and 1 day after the end of the relevant accounting period. This means that a company is usually required to pay any Corporation Tax due in advance of the filing deadline of a company tax return.

A company has a right to amend its company return within 12 months from the statutory filing date. Examples of when a return may be amended include claims for group relief and elections rebasing for capital gains.

There are penalties for late submission of company tax returns. There is a standard penalty of £100 for a late submission of the return within 3 months of the due date and a £200 penalty if the return is over 3 months late. Companies that submit late returns for 3 or more accounting periods in a row are subject to increased penalties. There are further tax based penalties for companies that do not file a return within 18 months of the end of the relevant accounting period and which have not paid the tax due. These penalties can be either 10% or 20% of the unpaid tax depending on the lateness of the filing.

Company owners with the popular 31 March year end date, will have a Corporation Tax payment date – for the year to 31 March 2023 – that will be due for payment on or before 1 January 2024.

Source:HM Revenue & Customs | 06-11-2023

Due a student loan refund?

Student Loans are part of the government's financial support package for students in higher education in the UK. They are available to help students meet their expenses while they are studying, and it is HMRC’s responsibility to collect repayments where the borrower is working in the UK. The Student Loans Company (SLC) is directly responsible for collecting the loans of borrowers outside the UK tax system.

The main finance package elements available to students include loans for tuition fees and maintenance loans (to help with living costs). The maximum loan amounts are capped with the maximum amount depending on a student’s circumstances. Maintenance grants are also available under certain circumstances. The grants do not have to be repaid but do reduce the amount of available maintenance loan a student can claim.

Students that have finished their studies and entered the workforce must begin to make loan repayments from the April after they have finished their studies or when their income exceeds an annual threshold.

Since 6 April 2023, the thresholds and rates are as follows: Plan 1 – £22,015, Plan 2 – £27,295 and Plan 4 (Scottish student loans) – £27,660. The terms of loan repayment for courses of study started before 01 September 2012 are referred to as 'Plan 1', and those started after 01 September 2012, are referred to as 'Plan 2'. Repayments will be deducted at a rate of 9% of income over the threshold. The threshold for postgraduate loans is £21,000 and repayments are deducted at a rate of 6%

Taxpayers that have made repayments but whose total annual income was less than the respective thresholds can apply for a student loan refund. An application cannot be made until after the relevant tax year has finished. Taxpayers can also apply for a refund from the Student Loans Company if the loan debt has been repaid in full.

The Student Loans Company repayment call waiting times are currently far longer than usual due to exceptionally high volumes of refund requests. Taxpayers should first check if they are due a refund by looking at https://www.gov.uk/repaying-your-student-loan/getting-a-refund

Source:Other | 06-11-2023

Childcare support from HMRC

Parents may be eligible to receive childcare support from HMRC using the Tax-Free Childcare (TFC) scheme. The TFC scheme can help parents of children aged up to 11 years old (17 for those with certain disabilities) to pay for approved childcare.

The TFC scheme assists working families with their childcare costs. There are many registered childcare providers including childminders, nurseries, breakfast and after school clubs and approved play schemes signed up across the UK. Parents can pay into their account regularly and save up their TFC allowance to use during school holidays. 

The TFC scheme provides for a government top-up on parental contributions. For every £8 contributed by parents an additional £2 top up payment will be funded by Government up to a maximum total of £10,000 per child per year. This will give parents an annual saving of up to £2,000 per child (and up to £4,000 for disabled children until the age of 17) in childcare costs. 

The TFC scheme is open to all qualifying parents including the self-employed and those on a minimum wage. The scheme is also available to parents on paid sick leave as well as those on paid and unpaid statutory maternity, paternity and adoption leave. In order to be eligible to use the scheme parents will have to be in work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. If either parent earns more than £100,000, both parents are unable to use the scheme.

Source:HM Revenue & Customs | 06-11-2023

Help to Save bonus payments

The Help to Save scheme is intended to help those on low incomes to boost their savings. Eligible users of the scheme can save between £1 and £50 every calendar month and receive a 50% government bonus. The 50% bonus is payable at the end of the second and fourth years and is based on how much account holders have saved. The bonus is paid directly into the account holder’s chosen bank account.

This means that account holders on low incomes can receive a maximum bonus of up to £1,200 on savings of £2,400 for 4 years from the date the account is opened. The scheme is open to most working people who receive Working Tax Credits or Universal Credit.

Almost 450,000 people have opened Help to Save accounts since the scheme was launched in September 2018 and March 2023, with nearly £372.5 million paid into accounts during that time. This has seen the government award £146 million in bonus payments.

The scheme had been due to end in September 2023 but was extended by 18 months, until April 2025. The extension was announced at Spring Budget on 15 March 2023.

Source:HM Revenue & Customs | 06-11-2023

Cost of living payments

You may have been entitled to a Cost of Living Payments of £301 (paid April/May 2023) and should be about to receive £300 (payable early November 2023) and a further £299 due spring 2024. Payments are limited to persons claiming the following benefits.

  • income-based Jobseeker’s Allowance (JSA)
  • income-related Employment and Support Allowance (ESA)
  • Income Support
  • Pension Credit
  • Universal Credit
  • Child Tax Credit
  • Working Tax Credit

The payments will be made separately from your benefit payments.

You will not get a payment if you are only receiving New Style ESA, contributory ESA, or New Style JSA.

If you have a joint claim on the qualifying dates, a single payment of £301, £300 and £299 will be sent using the same payment method used between these dates if you are eligible.

If you are getting both Child Tax Credit and Working Tax Credit, you will receive a Cost of Living Payment for Child Tax Credit only, which will be paid by HMRC.

If you are getting tax credits from HMRC and a low income benefit from the Department of Work and Pensions (DWP), you cannot receive a Cost of Living Payment from both HMRC and DWP. You will usually be paid by DWP.

Your payment might come later, for example if you’re awarded a qualifying benefit at a later date or you change the account your benefit or tax credits are paid into. You will still be paid the Cost of Living Payment automatically.

If you have received a Cost of Living Payment, but later it is found that you were not eligible for it, you may have to pay it back.

Source:Other | 05-11-2023

Taxable gains on gifts

Gift Hold-Over Relief is a tax relief that effectively defers Capital Gains Tax (CGT). 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 them. 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 when 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 claim partial relief if you used the assets partly for your business.

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

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

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

Source:HM Revenue & Customs | 30-10-2023

Trusts and Income Tax

A trust is an obligation that binds a trustee, an individual or a company to deal with the trust assets, such as land, money and shares, and which form part of the trust. The person who places assets into a trust is known as a settlor and the trust is for the benefit of one or more 'beneficiaries'.

The trustees make decisions about how the assets in the trust are to be managed, transferred or held back for the future use of the beneficiaries. They are also responsible for reporting and paying tax on behalf of the trust. A trust needs to be registered with HMRC if it pays or owes tax.

Different types of trust income have different rates of Income Tax. For example, in respect of accumulation or discretionary trusts the trustees are responsible for paying tax on income received. The first £1,000 is taxed at the standard rate. For trust income over £1,000, the rate is 39.35% for dividend-type income and 45% for all other income.

With reference to interest in possession trusts, the trustees are also responsible for paying tax on income received. The rate is 8.75% for dividend-type income and 20% for all other income.

There are also different rules for bare trusts, settlor-interested trusts and other types of trusts. It is therefore important that the Income Tax rules are considered at the outset as well as the CGT implications of the various types of trusts.

Source:HM Revenue & Customs | 30-10-2023

Do you need to pay tax when you sell your home?

In general, there is no Capital Gains Tax (CGT) when you sell your home. This applies to a property which has been used as the main family residence. An investment property which has never been used as your own home does not qualify for relief. This relief from CGT is commonly known as Private Residence Relief.

Taxpayers are usually entitled to full relief from CGT where all the following conditions are met:

  1. The family home has been the taxpayers only or main residence throughout the period of ownership.
  2. The taxpayer has not let part of the house out – this does not include having a lodger.
  3. No part of the family home has been used exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use).
  4. The garden or grounds including the buildings on them are not greater than 5,000 square metres (just over an acre) in total.
  5. The property was not purchased just to make a gain.

If a property has been occupied at any time as an individual’s private residence, the last 9 months of ownership are disregarded for CGT purposes – even if the individual was not living in the property when it was sold. The time period can be extended to 36 months under certain limited circumstances. There are also special rules for homeowners that work or live away from home.

Married couples and civil partners can only count one property as their main home at any one time.

Source:HM Revenue & Customs | 30-10-2023

Current State Pension age

The second review of the State Pension age has been published by the Department for Work and Pensions. The State Pension age is currently 66. The review has stated that a further increase in the State Pension age to 67 for those born on or after April 1960 will take place as planned between 2026 and 2028. Following this announcement, the government has confirmed the State Pension age will rise to 67 by the end of 2028.

The Pensions Act 2014 requires the Secretary of State for Work and Pensions to regularly review the State Pension age. There had also been plans for a further gradual rise in the State Pension age to 68 between 2044 and 2046 for those born on or after April 1977. The government plans to have a further review within two years of the next Parliament to reconsider the rise to age 68.

This will ensure that the government is able to consider the latest information to inform any future decision on the State Pension age. This will include life expectancy and population projections, the economic position and the impact on the labour market. 

The government has said they remain committed to the principle of providing 10 years notice of changes to State Pension age, enabling people to plan effectively for retirement. All options for the rise to the State Pension age from 67 to 68 that meet the 10 years notice period will be in scope at the next review.

Source:Department for Work & Pensions | 30-10-2023

Filling gaps in National Insurance record

National Insurance credits can help qualifying applicants to fill gaps in their National Insurance record. This can assist taxpayers to build up the number of qualifying years of National Insurance contributions and which can increase the amount of benefits a person is entitled to, such as the State Pension.

This could happen if someone were:

  • employed but had low earnings;
  • unemployed and were not claiming benefits;
  • self-employed but did not pay contributions because of small profits; and
  • living or working outside the UK.

National Insurance credits are available in certain situations where people are not working and therefore, not paying National Insurance credit. For example, credits may be available to those looking for work, who are ill, disabled or on sick pay, on maternity or paternity leave, caring for someone or on jury service.

Depending on the circumstances, National Insurance credits may be applied automatically or an application for credits may be required. There are two types of National Insurance credits available, either Class 1 or Class 3. Class 3 credits count towards the State Pension and certain bereavement benefits whilst Class 1 covers these as well as other benefits such as Jobseeker’s Allowance.

Taxpayers may also be able to pay voluntary contributions to fill any gaps if they are eligible.

Source:HM Revenue & Customs | 30-10-2023

Paying tax by direct debit

One of the many ways that payments can be made to HMRC is by using a direct debit. The direct debit can be set up online.

You can pay your tax bill using direct debit if you have an online account with HMRC for:

  • Self-assessment
  • Employers’ PAYE and National Insurance
  • Construction Industry Scheme (CIS) deductions
  • VAT
  • Corporation Tax
  • Machine Games Duty
  • Soft Drinks Industry Levy

You can also make miscellaneous payments (if your payment reference begins with ‘X’) if you have an online account with HMRC for one of these taxes.

In addition, you must be the authorised signatory on the account you want to make payments from, and it must be a UK bank account.

When making a payment for Self-Assessment you should use your 11-character payment reference. This is your 10-digit Unique Taxpayer Reference (UTR) followed by the letter ‘K’.

It is also possible to pay HMRC by other methods including bank transfer, cheques, corporate credit cards, corporate debit cards and personal debit cards. The use of corporate cards is subject to a fee. Payment by personal debit cards is currently fee-free. There is also no charge for payment by direct debit, bank transfer or cheque. HMRC has not accepted personal credit cards since January 2018 when credit card surcharges on personal credit cards were banned.

Source:HM Revenue & Customs | 30-10-2023

Cash flow v supplier credit limits

In a recent article we explained how granting lengthy credit limits to customers was as good as letting them keep your money in their bank account.

In this post we describe the opposite situation, where you are granted longer terms to pay bills from your suppliers.

If you take delivery of goods and services and are granted – say 60 days before you are required to pay for those purchases – then you have the use of the purchases for almost two months before your bank account balances are reduced.

If you can process and resell goods purchased, within the 60 days, and be paid by your customers at point of sale, then your purchase will be fully-funded – from a cash flow point of view – before you are required to pay your supplier.

Obviously, many businesses are unable to sell on a COD basis (like retailers) but taking advantage of generous payment terms from your suppliers can have a positive impact for all concerns from a cash flow perspective.

Effectively, you suppliers are providing you with valuable working capital.

To make the most of this cash flow boost, reduce (when you can) the payment terms you offer your customers and take advantage of any extended payment terms on offer from suppliers.

But beware, if customers want discounts for shortening credit terms or if you lose supplier discounts for longer payment terms, then you will have to crunch the numbers to see how changing credit terms will affect your profitability as well as easing cash flow.

Source:Other | 31-10-2023

Back of an envelope

If you run a business and manage your planning by scribbling notes on the back of an envelope, you might be advised to read the contents of this article.

When the economy is vibrant, effectively when there are an abundance of buyers in your marketplace, cash flow and profitability tend to look after themselves; as long as you are selling your goods or services at a price that covers your overheads and drawings/dividends.

Unfortunately, since Brexit and COVID disruption and the current upward pressure on energy and raw material costs, buyers are more circumspect about purchasing and business profits and cash flow are under pressure.

In which case your business planning cannot, and should not, be restricted to a few notes scribbled on the back of an envelope.

Your current management accounts should show you what your current situation looks like:

  • are you making profits;
  • are you keeping within your overdraft limits; and
  • are you still solvent.

To answer these questions the use of low-cost, cloud based accounts software is the minimum you should be utilising.

A belts and braces approach should include forward planning, what will be your likely profitability, cash flow position and solvency look like in a year’s time?

If you need help maximising the use of software to achieve these basic planning objectives, or if you would like advice on business planning issues, please call. We can help you be prepared to deal with and survive the UK’s present economic challenges.

Source:Other | 31-10-2023

Loss of personal tax allowance

If you earn over £100,000 in any tax year your personal allowance is gradually reduced by £1 for every £2 of adjusted net income over £100,000 irrespective of age. This means that any taxable receipt that takes your income over £100,000 will result in a reduction in personal tax allowances and can result in your personal Income Tax allowance being reduced to zero if your adjusted net income is £125,140 or above.

Your adjusted net income is your total taxable income before any personal allowances, less certain tax reliefs such as trading losses, certain charitable donations and pension contributions.

For the current tax year if your adjusted net income is likely to fall between £100,000 and £125,140 you would pay an effective marginal rate of tax of 60% on your income above £100,000 as your £12,570 tax-free personal allowance is gradually withdrawn.

If your income sits within this band, you should consider what financial planning opportunities are available to avoid this personal allowance trap by reducing your income below the £100,000 threshold. This can include gifts to charity, increasing pension contributions and participating in certain investment schemes.

A higher rate or additional rate taxpayer who wanted to reduce their tax bill could make a gift to charity in the current tax year and elect to carry back the contribution to 2022-23. A request to carry back the donation must be made before or at the same time as the 2022-23 Self-Assessment return is completed i.e., by 31 January 2024.

Source:HM Revenue & Customs| 23-10-2023

Replacement of domestic items relief

The replacement of domestic items relief enables landlords to claim tax relief when they replace movable furniture, furnishings, household appliances and kitchenware in a rental property. The allowance is available for the cost of domestic items such as free- standing wardrobes, curtains, carpets, televisions, fridges and crockery.

The amount of the deduction is based on:

  • the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent); plus
  • the incidental costs of disposing of the old item or acquiring the replacement; and
  • less any amounts received on disposal of the old item.

There is an important distinction between deciding whether or not a new item represents a replacement or an improvement. Where the new item is an improvement on the old item the allowable deduction is limited to the cost of purchasing an equivalent of the original item.

HMRC’s internal guidance provides an example highlighting the fact that a brand new budget washing machine costing circa £200 is not an improvement over a 5 year old washing machine that cost £200 at the time of purchase (or slightly less, taking inflation into account).

However, if a replacement item is for a reasonable modern equivalent for example a new energy efficient fridge replacing an old fridge this is not considered an improvement and the full cost of the new item is eligible for relief.

Source:HM Revenue & Customs | 23-10-2023

Tax free annual party

The cost of a staff party or other annual entertainment is generally allowed as a deduction for tax purposes. If you meet the various criteria outlined below, then there is no requirement to report anything to HMRC or pay tax and National Insurance. There will also be no taxable benefit charged to employees.

  1. An annual Christmas party or other annual event offered to staff generally is not taxable on those attending provided that the average cost per head of the function does not exceed £150.
  2. The event must be open to all employees. If a business has multiple locations, then a party open to all staff at one of the locations is allowable. They can also have separate parties for separate departments, but employees must be able to attend one of the events.
  3. There can be more than one annual event. If the total cost of these parties is under £150 per head, then there is no chargeable benefit. However, if the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt and the others taxable. Note, the £150 is not an allowance and any costs over £150 per head are taxable on the full cost per head.
  4. It is not necessary to keep a running total by employee but a cost per head per function. All costs including VAT must be considered. This includes the costs of transport to and from the event, food and drink and any accommodation provided.

It is highly recommended when planning a staff party or other annual event to try and stick to the tax rules above. This should ensure that your party does not have an extra tax cost for you or your employees.

Source:HM Revenue & Customs | 23-10-2023

Self-Assessment scam warning

Fraudsters are continuing to target taxpayers with scam emails in advance of the deadline for the submission of Self-Assessment returns for the 2022-23 tax year. In the 12 months to September 2023, HMRC received more than 130,000 reports of suspicious contact of which almost 58,000 related to bogus tax rebate referrals. 

A number of these scams purport to tell taxpayers they are due a rebate / refund of tax from HMRC and ask for bank or credit card details in order to send the fake tax refund. The fraudsters use various means to try and scam people including making contact by phone calls, texts or emails. Fraudsters have been known to threaten victims with arrest or imprisonment if a bogus tax bill is not paid immediately.

HMRC operates a dedicated Customer Protection team to identify and close down these scams but continues to advise taxpayers to identify fraud and avoid becoming victims themselves. For example, HMRC only make contact with taxpayers due a refund by post and never use emails, text messages or external companies for this activity. Genuine organisations like HMRC and banks will never contact customers asking for their PIN, password or bank details.

If you think you have received a suspicious email claiming to be from HMRC you are asked to forward the details to phishing@hmrc.gov.uk, Suspicious texts to 60599 and calls can be reported on GOV.UK. If you have suffered an actual financial loss, you should contact Action Fraud on 0300 123 2040 or use their online fraud reporting tool.

HMRC’s Director General for Customer Services, said:  

'HMRC is reminding customers to be wary of approaches by fraudsters in the run up to the Self-Assessment deadline. Criminals are great pretenders who try and dupe people by sending emails, phone calls and texts which mimic government messages to make them appear authentic.'

Source:HM Revenue & Customs | 23-10-2023

Scottish council tax frozen

Humza Yousaf, Scotland's First Minister, has announced that council tax rates will be frozen in the next financial year to support people struggling with the effects of high inflation. 

First Minister Humza Yousaf said that the:

“Announcement will bring much needed financial relief to those households who are struggling in the face of rising prices. Council tax is already lower in Scotland than elsewhere in the UK, and some 2.5 million households will now benefit from this freeze.

Of course, the public sector across the UK is facing budget pressures as a result of UK Government austerity, and we know councils are facing financial challenges themselves. That’s why the Scottish Government will be fully funding this freeze to ensure they can continue providing the services on which we all rely. This is on top of the real-terms increase to local government revenue funding this financial year.

The Scottish Government remains wholly committed to the Verity House Agreement, and as part of that are continuing work with COSLA on a new fiscal framework for local authorities. We are also working on longer term reforms to the council tax system, which are being considered by the working group on local government funding that we are chairing jointly with COSLA.”

The council tax freeze will be fully funded by the Scottish government and will mean that council tax rates in Scotland will remain the same in the 2024-25 council tax year. This means that households will not see any increase in council tax rates until April 2025 at the earliest.

Source:The Scottish Government | 23-10-2023