Learning Ecommerce Accounting: Guide for UK Businesses

Ecommerce Accounting: Introduction for UK Businesses

Are you an ecommerce entrepreneur in the UK looking to navigate the complex world of accounting? Managing the financial aspects of your online business can be daunting, but with the right knowledge and support, you can streamline your processes and ensure compliance while focusing on growing your venture.

At CIGMA Accounting, we understand the unique needs of ecommerce businesses, and we’re here to help you master ecommerce accounting from purchase orders to tax management. Let’s delve into what ecommerce accounting entails and how it can benefit your UK-based online enterprise.

Understanding Ecommerce Accounting

Ecommerce accounting is more than just tracking sales and expenses; it’s about meticulously recording, organizing, and managing all financial transactions specific to your online business. From purchase orders to sales tax management, here’s a breakdown of key components to simplify your understanding:

1. Purchase Orders and Sales Orders:
These documents form the foundation of your ecommerce transactions. Purchase orders detail what your customers want to buy, while sales orders outline the specifics of each sale, including payment information and delivery details.

2. Accounts Payable and Receivable:
Stay on top of outstanding bills and invoices, ensuring timely payments from customers while managing your own financial obligations.

3. Cost of Goods Sold (COGS):
Calculate the total cost of production and distribution of your products, including shipping, warehousing, and other direct expenses. Understanding COGS is crucial for accurately assessing your profitability.

4. Ecommerce Sales Tax:
Navigating tax regulations can be challenging, especially for online businesses with customers across different states. Ensure compliance by tracking and remitting applicable state and local taxes, understanding sales tax nexus, and fulfilling tax obligations accordingly.

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Ecommerce Tax Management

Tax management is a critical aspect of ecommerce accounting, and overlooking it can lead to costly consequences. Here’s how CIGMA Accounting can support your UK-based ecommerce business:

1. Comprehensive Tax Planning:
Our experts help you develop a strategic tax plan tailored to your ecommerce operations, ensuring compliance with UK tax regulations while maximizing tax efficiency.

2. Accurate Tax Filing:
From quarterly estimated taxes to year-end filings, we handle all aspects of tax preparation, keeping you updated on deadlines and obligations to avoid penalties.

3. Sales Tax Compliance:
With our in-depth knowledge of UK tax laws, we assist you in determining when and where to charge sales tax, minimizing the risk of non-compliance and associated fines.

4. Proactive Tax Advice:
Stay informed about changes in tax legislation and how they impact your ecommerce business. Our proactive approach ensures that you’re always ahead of the curve when it comes to tax matters.

Partner with CIGMA for Ecommerce Success

At CIGMA Accounting, we’re dedicated to helping UK ecommerce businesses thrive. From expert tax management to comprehensive accounting services, we’re your trusted partner every step of the way.

Let us handle the numbers so you can focus on growing your online venture with confidence. Reach out to us today to learn more about how we can support your ecommerce accounting needs.


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handling late filing penalties with hmrc; wimbledon accountant; london accountant

Handling late filing penalties from HMRC

How should you handle late filing penalties?

Are you one of the 3.8 million individuals who have yet to file their 2022-23 self-assessment return? With the 31 January 2024 deadline already passed, it’s essential to understand the consequences of missing this crucial date, especially if you’re in the UK.

Consequences of Missing the Filing Deadline

If you’ve missed the filing deadline, you’re subject to penalties imposed by HM Revenue & Customs (HMRC). Here’s what you need to know:

  1. £100 Fixed Penalty:
    For returns up to 3 months late, HMRC imposes a fixed penalty of £100, regardless of whether you owe tax or not.

  2. Daily Penalties:
    After 3 months, daily penalties of £10 per day, up to a maximum of £900, are added to your outstanding balance.

  3. Further Penalties:
    If your return is still outstanding after 6 months, a penalty of 5% of the tax due or £300 (whichever is greater) is applied. The same penalty is levied after 12 months.

  4. Late Payment Penalties:
    In addition to filing penalties, there are penalties for paying outstanding tax late. These penalties accrue at 5% after 30 days, 6 months, and 12 months, respectively.

  5. Interest Charges:
    HMRC also applies interest charges on any tax paid late.

Require accounting services?

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What can you do?

If you’re facing penalties due to missed deadlines or late payments, it’s crucial to take action promptly. Here’s how CIGMA Accounting can help:

  1. Appeals Process:
    If you have a reasonable excuse for missing deadlines, you can appeal against HMRC penalties. CIGMA Accounting can assist you in preparing and submitting your appeal, ensuring it meets HMRC’s requirements.

  2. Payment Assistance:
    If you’re unable to pay your tax bill in full, CIGMA Accounting can help you negotiate a Time to Pay arrangement with HMRC, allowing you to repay the amount owed in manageable instalments.

  3. Proactive Approach:
    Rather than ignoring the issue, CIGMA Accounting advises clients to be proactive and contact HMRC as soon as possible if they’re unable to meet their tax obligations. Ignoring the problem can exacerbate the situation, leading to further penalties and interest charges.

Why Choose CIGMA Accounting?

At CIGMA Accounting, we understand the complexities of UK tax regulations and the importance of timely compliance. By partnering with us, you gain access to:

  • Expert Guidance:
    Our team of qualified accountants provides personalized advice tailored to your specific circumstances, ensuring you understand your tax obligations and rights.

  • Compliance Assurance:
    We keep abreast of changes in tax legislation and deadlines, ensuring you remain compliant and avoid unnecessary penalties.

  • Strategic Support:
    Beyond tax compliance, we offer strategic advice to help you optimize your financial position and achieve your long-term goals.

Take Action Today

Don’t let missed deadlines and tax penalties derail your financial health. Contact CIGMA Accounting today to discuss your situation and explore your options for resolving outstanding tax liabilities. With our expert guidance and proactive approach, you can regain control of your finances and avoid future penalties.


Wimbledon Accountant

165-167 The Broadway

Wimbledon

London

SW19 1NE

Farringdon Accountant

127 Farringdon Road

Farringdon

London

EC1R 3DA

cigma accounting guide to carer's credit; london accountant; wimbledon accountant; farringdon accountant

A Guide to Carer’s Credit from CIGMA Accounting

Unlocking Financial Support: A Guide to Carer's Credit

Are you tirelessly caring for someone for at least 20 hours a week? If so, you might be eligible for Carer’s Credit, a National Insurance credit designed to bridge gaps in your National Insurance record. This credit not only supports your caregiving responsibilities but also plays a crucial role in enhancing your State Pension.

What is carer's credit?

Carer’s Credit is a valuable resource for those dedicating a substantial amount of time to care. It’s a National Insurance credit that aids in filling gaps in your National Insurance record, ensuring your State Pension is based on a comprehensive record.

Notably, eligibility is not impacted by your income, savings, or investments, making it a versatile financial support option.

If you qualify for Carer’s Credit, you receive credits that contribute to filling gaps in your National Insurance record. This means you can fulfill caregiving duties without compromising your eligibility for the State Pension.

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Eligibility Criteria for carer's credit

To be eligible for Carer’s Credit, you must:

  • Be aged 16 or over
  • Be under State Pension age
  • Care for one or more people for at least 20 hours a week

The person you’re caring for must receive one of the following benefits:

  • Disability Living Allowance care component at the middle or highest rate
  • Attendance Allowance
  • Constant Attendance Allowance
  • Personal Independence Payment daily living part
  • Armed Forces Independence Payment
  • Child Disability Payment (CDP) care component at the middle or highest rate
  • Adult Disability Payment daily living component at the standard or enhanced rate

Even if the person you care for doesn’t receive these benefits, you may still be eligible. In such cases, a signed ‘Care Certificate’ from a health or social care professional can demonstrate the appropriateness of your caregiving level.

Carers not qualifying for Carer’s Allowance may still be eligible for Carer’s Credit.

Breaks in Caring and Eligibility

Carer’s Credit remains accessible even during breaks in caregiving, allowing for interruptions of up to 12 weeks. Whether it’s a short holiday, hospitalization of the cared-for person, or your own hospital stay, you’ll still receive Carer’s Credit during these periods.

If your break in caring extends beyond 12 weeks, it’s essential to inform the Carer’s Allowance Unit promptly.

 

You do not need to apply for Carer’s Credit if you:

  • Get Carer’s Allowance – credits are automatic
  • Receive Child Benefit for a child under 12 – credits are automatic
  • Are a foster carer – apply for National Insurance credits instead

Need Assistance from an Accountant?

CIGMA Accounting takes pride in offering holistic financial advice, so you can take of both your business and those close to you. Become a CIGMA partner today and find out how we secure your family’s financial future.

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


Wimbledon Accountant

165-167 The Broadway

Wimbledon

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127 Farringdon Road

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financial strategies for 2024; london accountant; farringdon accountant; cigma accounting

Navigating Turbulent Times: Smart Financial Strategies for 2024

Navigating Turbulent Times: Smart Financial Strategies for 2024

As we step into a fresh new year, it’s the perfect time for business owners to engage in some essential business planning, particularly in the realm of protecting business capital. With the ongoing downturn in global trade – influenced by geopolitical tensions and economic challenges – it’s crucial to adopt a proactive approach in safeguarding your financial resources. CIGMA Accounting, a leading UK-based accounting firm, is here to guide you through these tumultuous times with expert advice and tailored solutions.

Understanding the Current Economic Climate

The business world is currently facing a myriad of challenges. The war in Ukraine, tensions in the Middle East, and disruptions in the Red Sea have significantly impacted global trade.

Additionally, the persistence of inflation, soaring interest rates, and escalating costs are creating a challenging environment for businesses. In such a scenario, it’s vital for business owners to implement strategies that protect their capital base, ensuring they’re well-positioned to re-engage with the market as consumer spending starts to rebound.

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Strategic Steps to Protect Your Business Capital

1. Analyze and Adjust Fixed Costs:
Begin by listing all your fixed costs – the expenses that incur regardless of your income. Scrutinize these costs and identify which ones can be temporarily eliminated or reduced. While some costs might be tied to contracts, exploring options for flexibility is crucial.

2. Negotiate with Stakeholders:
Reach out to suppliers, landlords, and service providers to negotiate possible moratoriums on payments, reduced payment terms, or even contract cancellations. Open communication in these times can lead to mutually beneficial arrangements.

3. Revise Your Business Plan:
After addressing your immediate expenses, it’s time to rework your business plan. This should include strategies for navigating potential cash flow dips and a clear action plan for the upcoming year.

4. Prepare for a Market Rebound:
Anticipate and plan for the resurgence of consumer interest. How will your business adapt to meet the increased demand for your goods or services? This foresight is key to staying ahead in the game.

The CIGMA Accounting Advantage

At CIGMA Accounting, we understand the nuances of your business. Our expertise is not just in number crunching, but in comprehending the journey you’ve embarked on – the late nights, the hurdles you’ve overcome, and your aspirations for growth. Partnering with us means you’re not just getting accounting services; you’re gaining a strategic ally who’s invested in your success.

Why Choose CIGMA Accounting?

  • Personalized Advice: We know that each business is unique. Our tailored advice is designed to suit your specific needs and circumstances.
  • Expert Knowledge: Our team is equipped with the latest knowledge in finance and tax regulations, ensuring you’re always one step ahead.
  • Proactive Support: We don’t just react to problems; we help you anticipate and prepare for them.


Wimbledon Accountant

165-167 The Broadway

Wimbledon

London

SW19 1NE

Farringdon Accountant

127 Farringdon Road

Farringdon

London

EC1R 3DA

business asset disposal relief guide by cigma accounting; london accountant; farringdon accountant

Navigating Business Asset Disposal Relief for UK Entrepreneurs

Navigating Business Asset Disposal Relief for UK Entrepreneurs

For UK entrepreneurs and business owners considering the sale of their business, shares in a trading company, or an interest in a trading partnership, understanding Business Asset Disposal Relief (BADR) is crucial. At CIGMA Accounting, we’re dedicated to guiding you through the intricacies of BADR to ensure you maximize your financial benefits.

What is Business Asset Disposal Relief?

Previously known as Entrepreneurs’ Relief prior to 6 April 2020, BADR offers a significantly reduced Capital Gains Tax (CGT) rate of 10% on qualifying assets, as opposed to the standard rate. This relief is available when exiting a business under specific conditions, providing substantial tax savings.

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Eligibility Criteria for BADR

To qualify for BADR, certain conditions must be met, including:

  1. For Business Owners:

    • You must be a sole trader or a business partner.
    • The business must have been owned by you for at least 2 years up to the sale date.
  2. For Shareholders:

    • You need to be an employee or office holder in the company.
    • The company must primarily be involved in trading activities.
    • For non-EMI shares, you must hold at least 5% of the shares and voting rights.
  3. Special Considerations for EMI Shares:

    • Shares must be acquired post-5 April 2013.
    • The option to buy them should have been granted at least 2 years before their sale.

The Financial Aspect: Calculating Your Tax

When claiming BADR, the calculation of your tax liability involves:

  • Summing up gains on qualifying assets and deducting any losses.
  • Applying the 10% tax rate to the remaining amount after your tax-free allowance.
  • For higher rate Income Tax payers, different rates apply for gains not covered by BADR (28% for residential property and 20% for other assets).
  • Basic rate taxpayers have varied rates based on their total taxable income and the nature of the gains.

Lifetime Limit and Claiming Process

An essential aspect of BADR is its £1 million lifetime limit, which can be higher for assets sold before 11 March 2020. Claims for BADR are made either through self-assessment tax return or by completing Section A of the Business Asset Disposal Relief helpsheet.

Professional Assistance from CIGMA Accounting

Navigating the complexities of BADR can be challenging.
At CIGMA Accounting, we offer expert guidance and support to ensure you meet all the qualifying criteria and maximize your relief. Our team is equipped to handle all aspects of your claim, from initial assessment to filing the necessary paperwork.

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


Wimbledon Accountant

165-167 The Broadway

Wimbledon

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Duty free limits if you are travelling abroad

DUTY FREE LIMITS WHEN returning from ABROAD

Looking to understand the ins and outs of UK duty-free allowances? At CIGMA Accounting, we’re committed to delivering the latest, most accurate information to help you enjoy your international travel stress-free.

When returning to Great Britain (England, Wales, Scotland) from abroad, here’s a rundown of what you can bring back duty-free for personal use.

You are permitted to bring back:

  • 200 cigarettes, 100 cigarillos, 50 cigars, 250g of tobacco, or 200 sticks of tobacco for electronic heated tobacco devices. Feel free to divide these allowances; for instance, 100 cigarettes and 25 cigars are perfectly fine.
  • 18 litres of still table wine.
  • 42 litres of beer.
  • 4 litres of spirits or strong liqueurs exceeding 22% volume or 9 litres of fortified wine (like port or sherry), sparkling wine or other alcoholic beverages under 22% volume. A split is possible here as well; for example, 4.5 litres of fortified wine and 2 litres of spirits meet the limit.
  • Other goods, including perfume and souvenirs, up to the value of £390. For those arriving via a private plane or boat for leisure, the limit is £270 tax-free.

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Returning to northern ireland from the eu

For those returning to Northern Ireland from an EU country, no limits are imposed on tobacco or alcohol, provided you can prove that the goods are for your personal use, and all relevant taxes and duties were paid at purchase. However, HMRC suggests these maximum guidelines:

  • 800 cigarettes
  • 200 cigars
  • 400 cigarillos
  • 1kg of tobacco
  • 110 litres of beer
  • 90 litres of wine
  • 10 litres of spirits
  • 20 litres of fortified wine (like port or sherry)

Exceeding these numbers may trigger additional inquiries from HMRC.

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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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the best way to pay yourself as a company director in the UK; london accountant; dividends taxation; income tax

How to best pay yourself as a UK company director

As a new company director in the UK, you are likely wondering how to best pay yourself through your company. You have several options for transferring company profits into personal income, including salaries, dividends, and investments. This post outlines the pros and cons of each, and gives you the information you will need to make your income as tax efficient as possible.

 

How can a company director pay themselves?

Company directors are considered employees of the company and so take a salary which is subject to income tax. Directors can also pay themselves using dividends, which are a common method of distributing profits to shareholders (which includes directors).

Salaries and dividends are subject to different tax rates, tax-free allowances, and National Insurance obligations, which we break down below.

 

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What is the difference between salary and dividends?

Dividends are a way for companies to distribute a portion of their profits to their shareholders. As a director, you can choose to pay yourself through dividends instead of a salary. Dividends are typically paid out after the company has paid its taxes and can be a tax-efficient way to receive income.

However, there are some basic rules to follow. Firstly, your company must have sufficient profits to pay dividends, and you should keep records of these profits. Secondly, dividends must be declared and approved by the company’s shareholders. Lastly, dividends cannot be paid if the company is insolvent or if the payment would render it insolvent.

When it comes to tax purposes, it’s important to find the right balance. Dividends are subject to lower tax rates than salaries. You also do not need to pay National Insurance Contributions on dividend income, which you would have to do so on any salary income.

Lastly, as is also the case with personal income tax, a certain amount of dividends you receive is tax-free.

You can read our full guide to dividends to learn more.

 

What is the most efficient way for a company director to pay themselves?

From the explanation above, it should be clear that paying yourself efficiently as a company director involves balancing tax-free personal allowances and differing tax obligations.

The table below should be very helpful in outlining these differences between salary and dividends.

company director pay; dividends tax; income tax; london accountant

At the most basic level, directors clearly want to use all of their available tax-free personal allowance. That means taking at least £12,570 as salary and £1,000 as dividends.

It is important to note that once you reach the Higher Rate income bracket, your personal allowance amount begins to decrease. And in the Additional Rate bracket, there is zero tax-free personal allowance.

An important factor that is left out of the above table is the added cost of National Insurance Contributions on salary income. National Insurance Contributions must be paid both by the employee and employer. The basic NIC rate for employees is currently 12% of earnings, and an additional 13.8% of earnings to be paid by the employer. These are basic figures, see our guide to National Insurance for a detailed understanding.

As a company director, you will effectively bear both of these costs, making salary income even less appealing when compared to dividends. A common strategy is to take enough of a salary that the director qualifies for state benefits such as the State Pension, but that does not incur NIC payments.

Under most circumstances, dividends will be more tax efficient than salary income, though how easy it is to distribute dividends will depend on the structure of your company and its shareholders.

Using investments as tax-efficient income sources

It is also important to take advantage of any other tax free allowances that HMRC makes available. An example of this would be transferring company profits into investments, rather than personal salary. In that way, you could take advantage of the tax-free capital gains allowance of £6,000.

Trusts are another way of accomplishing this, and which have their own tax-free capital gains allowance of £3,000.

It is also essential to consider how increased income may push you into a new tax band, and create much higher tax liability. For example, the dividend tax rate jumps from 8.75% in the first income bracket to 33,75% in the second.

As such, it may be more profitable in the long term to reinvest money into business (tax-free), or into other investments, rather than taking extra personal income that pushes you into a higher tax band.

 

Need Assistance from an Accountant?

Our CIMA-certified Management Accountants specialise in working with businesses to form companies, create financial strategies and take care of regulation compliance.

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. 


Wimbledon Accountant

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Wimbledon

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top 5 reasons to register trusts with HMRC; london accountant; farringdon accountant

The Top 5 Reasons to Register Trusts for Your Assets

If you are looking to protect your assets and minimise your tax liability, you will likely want to register trusts to hold them. In some cases, you may have to register trusts with HMRC. Trusts offer a range of benefits, from shielding your assets from creditors to providing a clear plan for distributing your wealth after you pass away. In this post, we’ll explore the top 5 benefits of registering trusts and why they may be a wise investment for your financial future.

 

1. Protect Your Assets from Creditors and Lawsuits

One of the biggest benefits of registering trusts for your assets is the protection they offer from creditors and lawsuits. When your assets are held in a trust, they are no longer considered your personal property and are therefore shielded from any legal action taken against you.

This can be especially important for business owners or individuals in high-risk professions, as it provides an added layer of protection for their hard-earned assets. Additionally, trusts can also protect your assets from being seized by the government in the event of a lawsuit or bankruptcy.

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2. Register trusts with HMRC to Minimize Estate Taxes and Probate Costs

Another major benefit of registering trusts for your assets is the potential to minimize estate taxes and probate costs. When assets are transferred through a trust, they are not subject to the same taxes and fees as assets transferred through a will. This can save your beneficiaries a significant amount of money and hassle in the long run.

Additionally, trusts can help ensure that your assets are distributed according to your wishes, without the need for lengthy and costly probate proceedings.

3. Register trusts to Maintain Control Over Your Assets

Registering trusts for your assets allows you to maintain control over them even after you pass away. With a trust, you can specify exactly how and when your assets will be distributed to your beneficiaries. This can be particularly important if you have minor children or beneficiaries with special needs who may not be able to manage their inheritance on their own.

By setting up a trust, you can ensure that your assets are used in the way you intended and that your beneficiaries are taken care of according to your wishes.

 

4. Ensure Privacy and Confidentiality

Registering trusts for your assets can also provide privacy and confidentiality. Unlike wills, which become public record after your death, trusts are private documents that are not subject to public scrutiny. This means that your personal and financial information will remain confidential and only be shared with your chosen beneficiaries and trustees.

Additionally, trusts can protect your assets from potential creditors or legal disputes, providing an added layer of privacy and security.

 

5. register trusts to Provide for Your Loved Ones After You're Gone

One of the top reasons to register trusts for your assets is to ensure that your loved ones are provided for after you pass away. By setting up a trust, you can designate specific beneficiaries to receive your assets and ensure that they are distributed according to your wishes. This can be especially important if you have minor children or family members with special needs who may require ongoing financial support.

A trust can provide for their needs and ensure that they are taken care of even after you’re gone.

 

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. 


Wimbledon Accountant

165-167 The Broadway

Wimbledon

London

SW19 1NE

Farringdon Accountant

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Farringdon

London

EC1R 3DA

Autumn Finance Bill published

The government published the Autumn Finance Bill 2022 on 22 November 2022. The Bill is officially known as Finance Bill 2022-23. The Bill contains the legislation for many of the tax measures announced in the recent Autumn Statement.

The Autumn Finance Bill will be followed by the main Spring Finance Bill 2023 which will be published after the spring Budget and will cover any remaining tax measures needed ahead of April 2023. Summary of most important changes to the UK Finance Bill is summarised in the following infographic. 

UK Finance Bill Updates

Some of the many measures included within the Bill are:

 

  • The Energy Profits Levy (EPL) will increase to 35% (from 25%), effective 1 January 2023. The investment allowance will be reduced from 80% to 29% for qualifying investment expenditure thereby maintaining its existing cash value.

The government introduced the Energy (Oil and Gas) Profits Levy in May 2022 to respond to exceptionally high prices that mean oil and gas companies are benefiting from extraordinary profits.

European and UK wholesale gas prices reached record highs this year and are expected to remain significantly elevated for the foreseeable future. This is driven by global circumstances, including resurgent demand for energy post COVID-19 and the invasion of Ukraine by Russia.The proposed changes are not expected to have any significant impact on individuals, households and families. In contrast, around 200 companies operating in the UK will pay more tax, however, they will be able to claim additional tax relief through the Energy Profit Levy's investment allowance.

 

  • The Income Tax additional rate threshold will be reduced from £150,000 to £125,140 with effect from 6 April 2023

This change will be implemented to support the government's objective of putting the public finances on a sustainable path in a way that is fair, with those on the highest incomes taking on a larger burden. These changes will apply on all income including non-savings, non-dividend income, for taxpayers in England, Wales and Northern Ireland. This will also apply to the savings rates, dividend rates and the default rates which apply for taxpayers across the UK. These changes will not affect Scottish taxpayers. These changes will affect around 792 000 UK taxpayers in April 2023, with more men than women being affected by the changes. 

 

  • The current £2,000 dividend tax-free allowance is to be reduced to £1,000 from April 2023 and to £500 from April 2024.

The dividend allowance is not always an addition to the personal allowance. Sometimes it uses up part of the personal allowance. It should always be remembered that the personal allowance applies to all income. If the taxpayer has income from other sources, only one personal allowance may be claimed.  For a detailed explanation, yuo can visit the HMRC website.

  • Vehicle Excise Duty (VED) will become payable on new electric cars, vans and motorcycles from April 2025 in the same way as it currently applies to petrol and diesel vehicles. This change will apply to new and existing zero emission cars.

​​​​​​​

  • The Income Tax thresholds will be maintained at their current levels for a further two years until April 2028. The higher rate threshold will remain frozen at £37,700 and the personal tax allowance will remain at £12,570 through to April 2028.

 

  • The Research and Development Expenditure Credit (RDEC) rate will increase to 20% (from 13%) with effect from 1 April 2023.
  • Small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% effective from 1 April 2023.
  • The SME credit rate will decrease from 14.5% to 10% effective from 1 April 2023.
Source:HM Treasury| 28-11-2022

Gifts paid out of disposable income

It is possible for wealthier taxpayers to make tax exempt gifts and payments that are funded as normal expenditure out of income. This is a very flexible exemption from IHT as there are no specific requirements, for example by making fixed regular gifts to the same person. With proper planning this can be a very useful tool including enabling grandparents to help pay school fees for their grandchildren.

However, careful consideration has to be given to ensure that these payments form part of the transferor’s normal expenditure and is made out of income and not out of capital. The person gifting the money must also ensure that they are left with enough money for them to maintain their normal standard of living out of their regular income after making the gift.

HMRC’s internal manual states that although the normal expenditure gifts must have left the transferor with ‘sufficient income’ to maintain their usual standard of living, they do not need to have actually used this for living expenses. The transferor may in fact choose to use capital to meet their living expenses and use the income remaining, after making the gifts, for some other purpose. It is enough, for the exemption to apply, that the income was enough to meet both the normal expenditure gifts and the usual living expenses.

If the income that is left after making the gifts is not enough to meet the usual living expenses, the exemption is not available in full, but part of the gifts may still qualify for the exemption.

Source:HM Revenue & Customs| 14-11-2022