You might have received an Employment Allowance letter in the post this month and be left wondering what is it is.
If you’re feeling unsure as to what it is, why you’re eligible and what it involves, we can help.
Our quick guide gives you all the information you need on the £5,000 Employment Allowance for small business owners.
What is Employment Allowance?
Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £5,000.
The allowance was put into place to support small businesses with their employment costs.
Each time you run your payroll you’ll pay less employers’ Class 1 National Insurance until the £5,000 allowance has gone, or the tax year ends. It is not a lump sum amount paid to an employer or business.
How do I know if I’m eligible to claim?
In order to be eligible for Employment Allowance you’ll need to tick a few boxes:
You must be registered as an employer
Specifically, a sole trader, limited company or partnership that has employees
You can also be registered as a limited company that employee only directors, where two or more directors earn more than the secondary threshold for Class 1 NI contributions
Employers’ Class 1 National Insurance liabilities need to be less than £100,000 in the previous tax year
Don’t include off-payroll workers in your calculations, they don’t count towards the £100,000 threshold
Firstly, you need to note that the £5,000 allowance applies to your business, not to individual employees.
If you have more than one payroll, you can only claim against one of them. Similarly, in groups of companies or where there is common control across multiple companies, the allowance can only be claimed in one company.
You can claim at any point during the tax year as part of your Real Time Information submission to HMRC and you can start utilising your allowance as soon as you submit the claim.
Note, claiming Employment Allowance isn’t an automatic process – you’ll need to tell HMRC that you qualify and want to claim. You’ll also need to claim every tax year to ensure you’re still eligible.
Tip – you can backdate claims for four previous tax years. So, if you haven’t claimed and think you’re entitled to claim, it’s worth doing now.
Seeking support?
Here at Shenward we help our clients with claiming their Employment Allowance where it is tax efficient to do so. If you want assistance on making your claim please contact us today:
+44 (0)1274 722666
hello@shenward.com
In April 2024, following on from the Spring Budget announcement, National Insurance (NI) contributions for employees were reduced, with cuts also made for the self-employed.
Keeping up with tax updates can often feel like a minefield, so we’ve put together a few tips to help you work out how these changes apply to you and what difference it could make to your income.
What is National Insurance?
Let’s start at the beginning. National Insurance is a component of the welfare state in the UK. It acts like a form of social security, since NI contributions entitle you to certain state benefits such as sick pay, a state pension, jobseekers allowance and more. It also helps to fund the NHS. It was established in 1911 and is collected each month by the HMRC.
Spring Budget updates
On 6th March, Chancellor Jeremy Hunt announce changes in National Insurance to include:
The NI insurance rate for employees is now 8% reduced from 10%
Self-employed Class 4 NI contributions have decreased from 9% to 6%
Self-employed Class 2 NI contributions have been scrapped entirely
Whilst this all sounds positive, the general gist being that you should keep more of your earnings in 2024, it’s important to consider these cuts in the context of tax rises and wage growth (more on that shortly).
Why has National Insurance changed?
With the general election looming and the Conservatives behind in the polls, it was expected that Jeremy Hunt was going to cut taxes in the Spring Budget.
There are rumors that the government has chosen to reduce NI because it costs the Treasury less, and benefits employees at the same time. It also provides incentives for people to work.
What are the new NI rates, and what does that mean for you?
The amount you pay in National Insurance is determined by whether you are employed or self-employed, and how much you earn. Employers also have to pay NI for each of their staff.
Employed
NI contributions are calculated based on your earnings
No NI is payable on your first £12,570 earned
New NI rate of 8% on income of £12,570-£50,270 a year, this equates to between £1,048-£4,189 a month before tax
2% on income over £50,270 a year, approximately £4,189 a month.
Self-employed
Your NI contributions will be calculated using your annual profits.
From 6 April 2024, those with profits above £12,570 aren’t required to pay Class 2 National Insurance.
Class 4 National Insurance contributions will see you paying 6% on earnings between £12,570 and £50,270 and 2% on profits above £50,270.
Changes in NI will save £350 each year for the average self-employed worker earning £28,000
Still feeling a bit lost? The BBC (and many other financial businesses) have built a calculator tool that helps you work out what savings you might receive with the new NI cuts (note, this only works for those who receive a salary).
But, why are we still paying more tax?
Whilst cuts in NI seem like a step in the right direction, millions of us across the UK are still paying more tax overall due to changes in tax thresholds.
Tax thresholds are the income levels at which we start paying NI or income tax, they used to rise year on year in line with inflation. However, the NI threshold has been frozen at £12,570 until 2028. Freezing thresholds means that more people will begin to pay tax and NI as their wages increase each year.
According to the Office for Budget Responsibility this will create 3.2 million extra taxpayers by 2028 and 2.6 million more people will pay higher rates.
Moving forward
Like most changes in the economy there will be winners and losers from this NI change, and this is all dependent on how high your income is.
Do your research, make sure you’re on top of your take home income and find a way to budget effectively so that you don’t get caught out with changes in tax.
With the UK general election on the horizon a new Government may come into power. This will lead to updates in policy and might well affect tax, VAT, business operations, wages and more.
A survey of the accountancy firms in the Corporate Finance Network (CFN) at the end of 2023 found that 80% expect the general election will have some impact on the economy and the confidence of business owners to conduct deals.
In the aftermath of the Spring Budget many businesses are expecting changes to take place, with the election thrown into the mix it’s not surprising that many businesses are feeling uncertain about how their businesses might be affected.
How can a general election affect businesses?
Changes to regulatory frameworks: As a new government enacts new laws, businesses might need to adjust to stay compliant. This could mean changes in operations, investments and other areas.
Adjustments to government contracts: A new government may have different budgetary priorities or ideologies from the old one. This could result in changes to government contracts, as a result businesses with existing contracts would be affected.
Uncertainties in trade: Changes in leadership could impact diplomatic relations between countries, leading to changes in trade relations, tariffs, and other policies.
Fluctuations in stock price: The stock market could also be impacted. Stock prices have a direct impact on market valuations of public companies. A change in the stock market could also affect retail investors, who may adjust their investment and spending habits impacting other businesses.
What are the Labour and Conservative party promising?
The UK political parties have started to release their manifestos, here’s some of the key takeaways that could affect businesses.
Tax
• Corporation Tax
Labour plan to keep Corporation Tax at its current rate of 25% and will look to lay out a plan for future business taxation.
The Conservatives are promising to ‘back businesses with lower taxes’.
The good news is – it’s likely that Corporation Tax won’t get any higher in 2024.
• Personal Tax
The Conservatives have a plan to cut personal tax should they win the election. There are also rumours that they would get rid of National Insurance all together too.
• VAT
Labour have announced that they want to add VAT to private school fees and to end tax breaks for independent schools. We’re yet to hear what regulations they plan to put into place surrounding VAT for other businesses.
The Conservatives don’t want to raise VAT if they stay elected and have been quite vocal in their response to Labour’s plans.
Sustainability
Many parties are looking into ways to encourage businesses to be more sustainable.
If Labour are elected they want to create a plan for green energy including windfall tax on oil and gas companies on their excess profits to assist with the cost of living.
The Liberal Democrats will be investing in renewable power and want 80% of the UK to be generated from renewables by 2030.
The High Street
Both Labour and Conservatives want to bring growth back to physical high street shops.
The Conservatives have put together plans and budget towards saving UK shops. Their plan includes giving life to empty buildings, supporting high street businesses, making sure there are clean and safe spaces and more.
Business Rates
If you have a non-domestic property, you may be paying business rates.
The Labour Party are looking to make big changes to business rates. This is part of their wider plan to support small businesses.
The Conservatives also want to reduce business rates, and they plan to start with the retail industry.
Get your business ready
There’s no hiding from the impending election – your business will be affected in one way or another by policy changes.
It’s crucial for businesses to be aware of new policies and to adapt accordingly. Stay on top of the general election and have a plan in place to respond.
Remember, even though elections can bring about risk and uncertainty, there can also be exciting opportunities for growth. Feeling uncertain? Drop us an email or a call and we can provide advice and support during this time of change.
Did you know…?
In 2024 there will be 65 elections across the world, that means 40% of the global population has a chance to vote. We will have to wait until 2048 for this many elections to happen in a single year again.
March 6th 2024 saw the delivery of the 2024 Spring Budget by Chancellor Jeremy Hunt, who outlined a significant change to the current non-domicile tax status in the UK.
As of 6th April 2025, the non-domicile – or non-dom as it’s affectionately known – tax status will be scrapped and replaced with new rules for those whose permanent home is overseas.
There will be a transitional period where the current rules will be phased out over 2 years, to allow for a softer transition.
Here we take an in-depth look at how the rules are changing.
What is non-dom status?
The non-dom tax regime has formed part of the UK’s tax system in varying capacities since 1799.
Non-dom status can be granted to UK residents whose permanent home remains outside of the UK, allowing them to benefit from the remittance basis which exempts their foreign income and gains (FIG) from UK taxation.
A non-dom is only required to pay tax on money earned in the UK. Any money made outside of the UK is only required to be taxed by the UK government if the money is paid into a UK bank account.
What are the current non-dom rules?
The current rules if you’re non-domiciled means you are not required to pay UK tax on your foreign income or gains if said income is less than £2,000 in the tax year and the money is not transferred into a UK bank account.
If your foreign income exceeds £2,000, you must report foreign income or gains, or any money brought into the UK.
This can be done in two ways. You can either pay UK tax on your earnings or claim the ‘remittance basis’, meaning you only pay UK tax for any income brought into the UK.
If you claim the remittance basis, you lose tax-free allowances for income tax and capital gains tax and must pay an annual charge if you have been a UK resident for a certain period:
If you have been a resident for at least 7 years of the previous 9 tax years the annual charge is £30,000.
If you have been a resident for at least 12 of the previous 14 tax years, the annual charge is £60,000.
The remittance basis is a complicated process which requires help from professional tax advisors and accountants to ensure compliance. Many financial professionals welcome a simpler system for those eligible for the non-dom status.
How are the non-dom rules changing?
As laid out by Chancellor Jeremy Hunt in the 2024 Spring Budget, the non-dom tax regime will be scrapped, being replaced by a new four-year FIG regime.
As of April 2025, those who move to the UK, or return after at least 10 years overseas, will not be required to pay tax on any earnings made outside of the UK for the first four years. However, after that time, they will be subject to the same tax as all UK residents should they continue to live in the UK.
Individuals who currently claim remittance basis in the UK and have been in the UK for less than 4 tax years are also eligible for the new FIG regime for the remainder of the first four years of UK residence.
Those who have already resided in the UK for 4 or more tax years as of April 2025 will be subject to UK taxation on their income no matter where in the world it is earned.
Transitional measures for current non-doms
Due to the stark changes from the current to the incoming FIG regime, the chancellor announced a transitional period with a number of alleviations to make the process smoother for those affected.
Reduced rates subject to tax
For the 2025/26 tax year, those who were previously claiming the remittance basis moving to the arising basis and who are ineligible for the new 4-year FIG regime will be subject to a reduced rate of tax for one year.
For the individuals described above, only 50% of their foreign income in the 2025/26 tax year will be subject to tax. This will only apply for one tax year and is not applicable to foreign chargeable gains.
Capital Gains Tax Rebasing
Individuals who previously claimed the remittance basis and are neither UK domiciled nor deemed domiciled by April 2025 are able to dispose of personally held foreign assets, which they can elect to rebase to its 5th April 2019 value.
The government has explained that rebasing will be subject to a number of conditions, which have not yet been outlined. This relief is only relevant to non-UK situs assets held personally, not those within non-UK resident trusts.
Temporary Repatriation Facility (TRF)
Those who previously claimed the remittance basis will be able to bring income and gains to the UK earned previously to April 2025 during the 2025/26 and 2026/27 tax years at a reduced tax rate of 12%. This is under the Temporary Repatriation Facility, which will not apply to foreign income and gains earned within trusts.
Trust Protections for non-doms
As of April 2025, tax protections on income and gains earned within “settlor-interested” trust structure will not be available for non-domiciled and deemed domiciled individuals who do not qualify for the new FIG regime.
Any foreign income and gains arising in the trust as of April 2025 will be taxed the same as UK domiciles, unless eligible for the new FIG regime.
Inheritance Tax
The chancellor confirmed the government’s plans to move the Inheritance Tax (IHT) to a residence-based scheme during the Spring Budget announcement.
The IHT provisions are subject to government consultation which are likely to apply from 6 April 2025.
The new IHT scheme proposes individuals will be subject to UK IHT on their worldwide assets once they have been a UK resident for 10 tax years. The new scheme also proposes that once an individual meets the above residence terms, they fall within the scope of UK IHT unless they become and remain a non-UK tax resident for a period of 10 years.
Further details concerning IHT will be settled after consultation.
How do I prepare for non-dom being scrapped?
This announcement is one of the biggest changes to how non-UK domiciled individuals are taxed in the UK. More details will be released in advance of April 2025 to allow ample opportunity for those involved to make the necessary preparations.
With a general election looming within the UK, there is a chance further changes may be implemented, especially if a new government comes into power. In the meantime, however, proper planning and preparation are paramount, and we at Shenward recommend consulting early with tax advisors to ensure proper adjustments and considerations are made to your non-UK earnings well in advance of April 2025.
Everything You Need to Know About Claiming Tax Relief for Research and Development
R&D Tax Credits are a form of tax relief set up by the UK government to encourage businesses to aid growth of the UK economy by investing in research and development. The idea behind the scheme is that businesses get rewarded for their innovation efforts, finding new solutions to their biggest challenges and improving/enhancing their products and processes. The desired result is that this will then accelerate growth, creating more job opportunities and increasing the value of the UK economy.
How R&D Tax Credits Work
R&D Tax Credits work by allowing businesses to make a claim to HMRC to obtain a tax relief for the money they have spent on qualifying research and development projects. However, R&D Tax Credits are more than just a standard tax relief – the amount of your approved claim can be paid to you in three ways:
cash payment,
deduction applied to your year-end Corporation Tax bill,
or a mixture of the two.
It is worth noting that the way in which you receive the relief is based on whether you are profit-making or loss-making. If you have made a loss, you can claim a cash payment. If you’ve made a profit, you can offset the value of your approved claim against your Corporation Tax bill. If the value of your claim is more than the CT due, then you can opt to receive the unused claim funds as a cash payment.
Benefits of R&D Tax Credits
The most obvious benefit of being able to make an R&D Tax Credit Claim is if you qualify, you are in effect, reclaiming some of the cost of your qualifying project. However, there are plenty more benefits which are often not realised:
You can make a claim every year – yes, that’s right. Every tax year, as long as you meet the criteria and your project qualifies, you can submit a claim.
You receive a cash payment if you make a loss – if, when your accounts are completed, you have made a loss for the year and there is no Corporation Tax due, you can opt to receive the value of your claim as a cash payment into your business bank.
You can reduce your tax liability – if your accounts have resulted in Corporation Tax based on profits made during the corresponding financial year, you can use the value of the approved claim to reduce the amount you pay. And, what’s more, you can also use the funds to settle any outstanding tax debt with HMRC.
You receive contributions towards vital innovations – most businesses are aware of what needs to change within their business and have ideas on how to do this. With R&D Tax Credits, businesses receive a contribution as such towards making these changes.
Grow your business due to the cash incentive to innovate – your business can continue to grow because the overall cost of the original project will be reduced when a claim is satisfied. This results in more cash available to invest in other areas – or indeed future R&D projects.
More freedom to test and research without wasting money – with R&D Tax Credits, you have a bit of a safety net. You can almost test the project first to see whether it will make a difference. For example, imagine you want to launch a new version of an existing product. You could just go straight in and invest in the development of loads of these products and the funds to bring them to market. But, thanks to the help of Tax Credits, you can invest in extensive research, testing and prototyping of the product and be rewarded with a tax relief for doing it. This is therefore stopping you from potentially making a costly mistake.
Basic Eligibility Criteria
Like most forms of Tax Relief and Government incentives, R&D Tax Credits comes with its own set of eligibility criteria.
To be eligible to make a claim, you must first ensure you are:
A limited company based and registered in the UK which is subject to Corporation Tax.
Not in receipt of state aid totalling more than £7.5million.
Not in receipt of grants totalling the full amount of your project.
Involved in projects which seek to resolve either a scientific or technological issue/uncertainty.
That being said, even if all of these criteria are met, you may not have your R&D Tax Credits Claim approved. Your project has to meet a specific set of criteria too.
R&D Project Criteria
Definitions
As we’ve already touched upon, for a project to be considered an R&D project, it must be part of a specific project designed to “make an advance in science or technology” and solve an uncertainty in either of this fields. This means not only does it help your business, but it aims to have a positive impact on your entire industry. This is why all projects you intend to claim for must relate to your own industry/trade or one which you intend to start up based on the results of your project.
For a project to qualify as R&D, it must also have results that haven’t been discovered already by a professional working within the same field. It’s fine if a competitor has done something similar, but if you have developed something which is significantly better and solves scientific or technological uncertainty, then the chances are your project qualifies for R&D.
Note, your project will not qualify if it relates to an advance within Arts, Humanities or Social Sciences – including economics.
Project Types
The government deliberately made the definition of R&D quite broad to allow for true innovation, but despite it being broad, there are generally two circumstances where a project becomes R&D:
Creating a new product, process or service – or attempting to
Making an existing product, process or service better – or attempting to
We note ‘attempting to’ as a project does not need to have a successful outcome to qualify as R&D, as long as there is justification as to how it tried to solve an uncertainty/make an advance.
Project Scopes
One of the most common difficulties we see arising is figuring out where R&D begins and ends. Often, people consider the start of a project to be when the idea is brainstormed and generated, but in fact, it doesn’t become R&D until the process of determining whether it could be successful has commenced. Similarly, the point at which R&D ends is commonly thought to be when the product or service is launched, however, the end point usually occurs just after testing, when the project is determined a failure or a success.
Project Activities
When we look at specific activities, the most commonly occurring in approved R&D Tax Credit claims are:
Prototyping
Testing
Production Trials
Process/Design/System development or evaluation
Planning – specific to the R&D project
Admin and support – specific to the R&D project
R&D project training
Market research, feasibility studies, research
Design analysis, adaption and optimisation
If you think back to the points on where R&D begins and ends, it will help you to decide whether a project activity you are undertaking will qualify.
Qualifying Project Costs
An important thing to note is that even if your project as a whole meets the criteria to be classed as R&D, it doesn’t mean every single cost associated with it can be claimed as R&D Tax Credits.
The table below lays out some of the most common costs you can claim for.
Software
The software you use during your R&D projects can be included in your claim. However, if this software is used normally within the business, you’ll need to make an adjustment and calculate how much of the software cost would cover the R&D specific usage.
Consumables
There are certain consumable items that you are allowed to claim for, such as power, water, hardware and materials etc. However, attributing these correctly to your R&D projects can be quite tough. HMRC has created an advice article detailing the rules surrounding consumables claims. Have a read!
Prototypes
Actual prototypes – not prototypes made for sale or commercial purposes – but prototypes made purposefully to try and resolve your scientific or technological uncertainties can be claimed for. It’s worth noting though that they can never in any circumstances be sold at a later date.
EPWs
Sometimes you may need to a enlist the help of a third-party company which supplies workers to you that can work specifically on your R&D project. If these workers only work specifically on the project, you may be able to claim up to 65% of the costs paid to the provider.
Costs for volunteers of Clinical Trials
Those in the pharmaceutical sector are usually required to conduct clinical trials as part of their R&D efforts. Obtaining volunteers for these trials can be costly, especially when it comes to first attracting the volunteers and then compensating them for their involvement.
Subcontractors
If you’re applying under the SME scheme, you can usually claim for 100% of the payments made to subcontractors. However, HMRC determines that to get 100% the subcontractors must be a connected party, otherwise, you can only claim 65%.
Staff costs
If you have employees who are directly involved with the R&D project, then you may be able to claim some of their costs. This includes their salaries, pension fund contributions, NI etc.
Research contributions
If you’re a large company which uses a third party to conduct research on your behalf which is directly related to R&D, then you may be able to claim for the cost of it. There are certain criteria that the third-party researchers must meet, so it’s worth checking the guidance beforehand.
NEW FOR 2023 – From April 2023, the government has announced it will be allowing for claims to include the cost of Pure Mathematics and Cloud computing and data. Further information can be found here.
Making a Claim
Choosing the Right Incentive
Before you begin to make a claim, you’ll need to establish the incentive that is right for your business. There are currently two incentives:
SME Tax Credit Incentive: An incentive for SMEs with less than 500 employees, a turnover of less than £100million or £86million in gross assets.
Research and Development Expenditure Credit: For those who do not meet the criteria for the SME Tax Credit incentive. Or those who do but they have other excluding factors such as grants and subcontracting.
In most cases, claims are made through the SME Tax Credit Incentive, so it’s likely that’s where you’ll fall if you’re making a claim. However, it’s worth consulting a specialist who can confirm before you proceed with making a claim to ensure unnecessary rejection is prevented.
Forms to Make a Claim
Claims for R&D Tax Credits are made on an annual basis via your Company Tax Return, but an additional file called the single iXBRIL computations file also needs to be completed. If you are claiming a payable amount instead of a tax deduction, you will also need to complete the supplementary form CT600L.
If your accounting period begins on or after 1 April 2023, you may need to also submit a notification to HMRC in advance of making a claim that you will be submitting one. You can check if this applies to you here.
From 1 August 2023, new rules come into effect stating that for every claim, additional information must be provided about the claim before a Corporation Tax Return is submitted. There’s a lot of information which needs to be provided, including details of each project and what makes them qualify as R&D. As an overview, you’ll need to:
Explain how your project looked for an advance in your field.
Explain how your project had to overcome the uncertainty.
Explain how your project tried to overcome uncertainty.
Explain how your project couldn’t have been easily done by another professional in the same field.
From 1 April 2023, the amount that businesses in the UK can claim as R&D Tax Credits has changed due to a decrease in the rates used in calculations.
Previously, under the SME scheme, there was a 130% deduction rate on costs for profit making SMEs against their tax liability, and loss-making SMEs could claim tax credits to the value of 14.5% of their R&D losses. Now, the deduction rate has dropped to 86% and the loss rate to 10%.
Those claiming via the RDEC scheme could previously claim 11p tax credits on every eligible pound they spent on R&D due to the rate being 13%, but now they will be able to claim more due to the rate increasing to 20%.
Expenditure
There are two types of expenditure you’ll need to calculate when making a claim. The first is qualifying expenditure, which is the amount which you are eligible to claim for based on the criteria and rules around what can be claimed. The second is enhanced expenditure, which is the enhanced amount of relief that you will be entitled to, based on how much you spent on R&D.
To calculate enhanced expenditure, you’ll need to:
Work out the costs directly associated with the R&D project you’re claiming for
Reduce any costs that were for subcontractors or external worker providers by 65%
Add the costs together and multiply by 85%
Add the 86% figure to the original amount of qualifying costs.
The final figure will be the value of your claim.
Making a claim is a complex process and one which must be correct at every stage. Any errors or attempts of fraud will result in an investigation by HMRC. That’s why we recommend always using a professional who has experiencing in the entire process of making an R&D Tax Credits Claim.
If you’d like assistance from our specialist team, please reach out to hello@shenward.com.
Frequently Asked Questions
How far back can I make an R&D claim for?
The current guidance states that R and D Tax Credits can be claimed up to two years after the end of the relevant accountancy period.
Is there a limit to how much refundable R&D Tax Credits I can claim?
From 1 April 2021, there is a cap on the amount of payable R and D Credit you can receive as an SME, which is £20,000 plus 300% of your total staff related tax liability in the same accounting period.
Can I claim if my project has not finished or has failed?
In short, yes. If you meet the eligibility criteria and your costs fall into the financial year you want to claim for, then a claim can be made. The scheme rewards innovation and the investment companies make for technological advancements therefore the intent matters and not the outcome.
Can a sole trader of charity claim R&D tax credits?
No, only limited companies liable to UK corporation tax can claim through the scheme.
Can I make a claim for an overseas project?
If the company is paying UK corporation tax the location of the qualifying R&D activity does not matter.
Chancellor Rishi Sunak’s Budget continues emergency support for the UK economy ravaged by the Covid-19 pandemic – and the figures are eye-watering.
In the short-term, the emergency support – most notably the Coronavirus Job Retention Scheme – has been extended as the Government starts to unlock the economy over the coming months.
The Chancellor opened his battered briefcase to reveal an additional £65 billion for the Coronavirus response taking the total fiscal support over the last 12 months to a staggering £407 billion.
Government debt has risen to an historic peacetime high – forecasts show Government borrowing reaching £355 billion in 2020-21, 17% of national income – and it will have to be paid back eventually.
The start time for that pay back formed the second part of Wednesday’s Budget with largest and most profitable companies bearing the load with an increase in Corporation Tax from 19% to 25% from April 2023.
That is expected to raise £50 billion but the Chancellor has pledged it will only impact profitable businesses. What these tax rises mustn’t do, however, is discourage innovation, job creation, R&D and inward investment. That would be counter-productive to hopes of a sustained recovery.
The large companies impacted by this – those with profits over £50,000 – are also likely to have capital repayment obligations, such as loans, which are paid after Corporation Tax. What we don’t want to see is companies retrenching.
Everyone will share the debt repayment burden to some extent, however, as Income Tax will also rise in future years. Personal allowances will be frozen which will eventually lift people into higher tax brackets.
The Chancellor had little choice other than to continue to shore up the economy and finish what he’d started in supporting businesses, families and jobs.
He was buoyed by forecasts that the economy is expected to return to pre-Covid levels by the middle of next year – six months earlier than thought – but nothing is certain as we take tentative steps out of the pandemic. Unemployment fears still loom large as furlough is unwound.
What the Chancellor has done this week is leave the public in no doubt about the scale of the crisis. We’ll be paying off Coronavirus debts for decades and that, ultimately, means higher taxes for everyone.
Here are some of the main points of the Budget and what it might mean for you:
Furlough and support for the self-employed extended
The Coronavirus Job Retention Scheme – or furlough – has been extended until the end of September with the Government paying 80% of salary, though employers will be asked to put in 10% from July and 20% from August.
The Self-Employed Income Support Scheme (SEISS) continues with a fourth grant from the three months to April 2021, paid at 80%. A fifth and final grant will be based on extent of reduction in turnover. A greater than 70% reduction in turnover will enable self-employed people to claim the full 80%. A reduction of less than 70% in turnover will mean a grant of 30%.
There was good news for those who have previously missed out on SIESS because they are relatively new to self-employment. The scheme is now available to around 600,000 people with 2019-20 tax returns taken into account. Previously anyone who hadn’t filed a 2018-19 tax return and who became self-employed after April 6 2019 was ineligible.
Help for businesses
The Coronavirus Business Interruption Loan Scheme ends on March 31, 2021 and is replaced by a new Loan Recovery Scheme.
There will also be Business Restart Grant worth up to £18,000 for larger businesses such as pubs, hotels, gyms and restaurants while grants of up to £6,000 will be available to small non-essential retail shops.
The 100% Business Rates holiday will end on June 30 2021 but bills will be discounted by up to 66% for the remaining nine months of 2021-22.
VAT relief for leisure and hospitality businesses will continue with the 5% VAT rate not due to end until September 30 2021. It will then increase to 12.5% from October 1 2021 and run for another six months.
Support for homebuyers
There was good news for homebuyers as the Stamp Duty holiday is extended to June 30 2021. After that the nil rate band will be doubled from £125,000 to £250,000 until the end of September 2021. The Government also announced Government-backed 95% mortgages to help people get on the property ladder.
Corporation Tax
This was the most significant change announced by the Chancellor as the rate of Corporation Tax rises from 19% to 25% from April 2023. This will apply to larger companies with profits over £50,000.
The 19% will remain for companies with a profit of less than £50,000 – said by the Chancellor to be 70% of businesses – meaning they would be “completely unaffected” in his words.
There will be a taper for profits above £50,000 meaning only companies with profits above £250,000 would pay the full 25%, around 10% of companies.
Income Tax and National Insurance
The Income Tax Personal Allowance will remain at £12,500 but will increase to £12,570 in April 2022 and then be frozen until 2026.
The basic rate threshold will stay at £50,000 but will increase to £50,270 in April 2022. Then it will be frozen until 2026. National Insurance remains unchanged.
National Minimum/Living Wage
The National Living Wage will increase by 2.2% from £8.72 per hour to £8.91 per hour from April 1 2021 and will be extended to 23 and 24-year-olds for the first time. The increases are lower for younger workers and are as follows: Aged 21 to 22 the increase is from £8.20ph to £8.36ph; aged 18 to 20 – £6.45ph to £6.56ph; and under 18 – £4.55ph to £4.62ph. The apprentice rate will rise from £4.15ph to £4.30ph.
Any other changes to note?
While Corporation Tax will rise in 2023 the Chancellor has offered an incentive to businesses to invest now. A ‘super deduction’ of up to 130% will be available to encourage investment in new plant and machinery.
That will be especially welcome in the infrastructure sector and it is only meant to be a ‘quick fix’ or a short-term injection to help restart the economy. The super-deduction is not available on used or second-hand assets.
Elsewhere, there’s no change on the likes of Capital Gains Tax nor Inheritance Tax.
As with every Budget the devil is in the detail and more detail will emerge in the coming days.
For expert advice, please email a member of the team at hello@shenward.com
Taxes are a fact of life. No-one likes paying them but if we didn’t there would be no NHS, no welfare state and no public services.
As the saying goes ‘Money Makes the World Go Around’ and without people paying taxes the world would stop turning. Not literally, but you know what we mean!
Given that tax is intrinsically unpopular, it’s no surprise that the Government prefers them to be…less obvious. We won’t say “hidden” because that suggests skulduggery but if they are not quite so blatant, all the better.
So what are these, ahem, “less obvious” taxes and how can we spot them?
National Insurance – it’s just another tax
National Insurance – or “paying your stamp” – comes off your wages. It’s right there, it’s a big chunk and it doesn’t make happy reading on your pay slip. The impression given is that it’s going towards your pension. It actually isn’t. It’s paying for today’s pensions.
So NI isn’t hidden. Or at least YOUR part of it isn’t hidden. What’s not so obvious is that your employer also pays a contribution on your wage. So your boss pays for the privilege of employing you! Critics would call it a tax on jobs. In total NI can be more than the Income Tax on your wage.
Excise Duty – it’s a tax on a tax!
The tax we pay on petrol has become more obvious in recent years but we’ve still come to accept high prices at the pumps.
You only have to fill up a hire car abroad or do a double-take at the prices at the filling stations to see a huge discrepancy in fuel prices in the UK and Europe, for example. Oil is oil. The difference is tax.
The UK has excise duty on fuel and we see the Chancellor often tinker with it at Budget time. The oil company and the retailer calculate their costs and then add the excise duty. Then they add VAT on top. So we end up paying a tax on a tax. I’ll leave you to digest that one…
Air Passenger Duty – a holiday tax
When you’re all packed and ready to go on holiday the last thing you want to think about is tax. But in 1994 the UK Government introduced Air Passenger Duty and it costs up to £176 per flight from UK airports. It was brought in as a revenue raiser and had little to do with cutting the environmental impact of flying.
Insurance Premium Tax – a tax on something else we don’t like to pay out for
This was another tax introduced in the 1990s when the Government decided the insurance industry was “under-taxed” because it wasn’t subject to VAT. Car insurance, home insurance and pet insurance are taxed at 12% while travel insurance, electrical appliance insurance and some vehicle insurance is 20%.
Tariffs – don’t mention Brexit!
Consumers may be blissfully unaware of import tariffs and excise duty on goods coming in from overseas. With negotiations over a Brexit deal underway these are the kind of issues that prove very thorny indeed and we all have to pay.
You can’t avoid most of these taxes if you want to live a “normal” life and we all do need to pay our fair share to help society and protect those less fortunate. So what can we do minimise our tax burden?
Five simple ways to reduce your tax bill and not feel guilty about it
1. Salary Sacrifice
Take a portion of your gross salary and put it into a pension, childcare vouchers or a bike-to-work scheme. The cost comes off your gross salary before the taxman takes his cut, meaning you pay less tax.
2. If you’re self-employed pay into a pension and claim all your allowable expenses
Paying into a pension is a great way to save for the future. For every £100 invested by a basic rate taxpayer the Government adds another £25. Every business can claim expenses against its tax liability but those allowance expenses will be different for each business. Claim what you are entitled to. If you’re not sure, take advice.
3. Marriage Tax Allowance
The marriage allowance lets you transfer £1,250 of your Personal Allowance to your husband, wife or civil partner, reducing their tax by up to £250 in the tax year. It can also be back-dated to 2016. Marriage has a financial perk but you must have tied the knot!
4. Working From Home Tax Relief
If your employer requires you to work from home you’ve always been able to claim for extra costs. That’s become a big issue in 2020 with most people told to work from home during the pandemic. Even if you’ve worked from home for just one day you can claim a whole year’s tax relief. You can claim £1.20 a week if you’re a basic-rate (20%) taxpayer, £2.40 a week if you’re a higher-rate (40%) taxpayer or £2.70/week if you’re an additional-rate taxpayer (45%). So over the year, that’s £62.40 for basic-rate taxpayers, £124.80 for higher-rate taxpayers, and £140.40 for additional-rate taxpayers.
5. Work Clothes Allowance
From hair nets for catering to steel toe-capped boots for builders, if your employer requires you to wear protective clothing at work you can claim an allowance, even if your employer provides the gear for you. It’s not a fortune but every little helps. Basic rate taxpayers can claim back £12 a year, higher-rate taxpayers twice that.
There’s no getting away from tax but you shouldn’t have to pay more than your fair share. It pays to be tax savvy.
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