Category: Tax

Our Top Tax Planning Tips to Help You Reduce Tax Liability Legally and Compliantly

The Spring Budget has left many business owners feeling the pressure of navigating tax changes in 2023. In fact, in the most recent ONS Business Insight Report, Taxation was reported as the 3^rd biggest concern for business owners in 2023. With various increases to taxation and reductions to allowance, it really comes as no surprise.

In true supportive Shenward style, we want to help you feel more in control of your taxes in 2023. That’s why we’ve gathered tax planning tips from our expert team to help you reduce your tax liability both legally and compliantly.

Quick Access Menu

• Tax Changes – Personal
• Tax Changes – Business
• Tax Changes – Investment and Expenditure Allowances
• What is Tax Planning?
• Tax Planning for individuals
• Tax Planning for businesses

Tax Changes in 2023

We’ll first recap the tax changes occurring in 2023 which were announced in the recent budget and in late 2022 budget, covering both personal and business taxation, and Investment and Expenditure taxation and the associated allowances.

Personal

• Reduction of Additional Rate Income Tax Threshold – those earning over £125,140 will be taxed at 45% on anything over that figure, 40% on anything between £50, 271 and £125,140, and 20% on income between £12,570 and £50,271.
• Capital Gains Tax – the tax-free allowance reduces in April 2023 from £12,300 to £6,000. In April 2024, this allowance will further reduce to £3,000. The tax rates for property sales will remain at 18% for basic-rate and 28% for higher-rate. The tax rates for other asset sales will remain at 10% for basic-rate and 20% for higher-rate.
• Private Pension Tax Thresholds – the amount that you can save in your pension before it becomes subject to tax is increasing from £40,000 to £60,000. It applies to all private pensions only.
• Vehicle Excise Duty – The VED rates for cars, vans and motorcycles will increase from 1 April 2023, but not for Heavy Goods Vehicles – the VED rate will remain frozen for 1 year for these vehicles.
• Income Tax Repayments – under new legislation from 15 March 2023, applications to assign a due tax repayment to a third party will be rejected because it is now illegal to transfer a tax repayment to someone other than the taxpayer or their spouse/civil partner.

Business

• The main rate of Corporation Tax for taxable profits over £250,000, will increase from 19% to 25%.
• Companies that have profits between £50,000 and £250,000 will pay corporation tax at rate of between 19% and 25%.
• Dividend Allowances are being cut significantly. From 6^th April 2023, the amount of dividends you can take tax free is £1,000 per annum. In April 2024, this will be reduced further to £500.
• Multinational top-up tax and domestic top-up tax – Large global groups with over £750 million in global revenue and who have an effective tax rate of less than 15% will be subjected to new tax rules for accounting periods beginning on or after December 31^st, 2023. Read the full rules here.
• Plastic Packaging – the rates of tax on plastic packaging have increased from 1 April 2023, meaning UK manufacturers of plastic packaging, importers of plastic packaging, business customers and consumers who buy plastic packaging or goods in plastic packing will be exposed to higher prices.

Investment and Expenditure Allowances

• Capital Allowances – from the 1 April 2023 to 1 April 2026, if a company invests in qualifying plant, machinery or technology, these can be deducted from taxable profits through full expensing. This means a 100% deduction for assets in the general pool and a 50% deduction for assets in the special rate pool.
• The Annual Investment Allowance – the qualifying expenditure amount has been capped at £1,000,000 from April 2023, meaning that this is the maximum amount you can deduct from your taxable profits.
• Electric Vehicle Charge Points – the first-year allowance has been extended for an additional two years. This means that people or businesses who invest in a charging point for the first time can deduct the cost from their corporation tax or personal tax bill within the next two years.
• Research and Development – a complete R and D tax relief reform is now in effect as of 1 April. Changes to the legislation, eligibility and claim process should be reviewed in depth here.
• Seed Enterprise Investment Scheme – the amount of investment a company can raise via the SEIS is to increase to £250,000 in 2023 – up from £150,000. What’s more the annual investor limit is to be doubled to £200,000 as to support the new raise amount and encourage investors to invest.
• Company Share Option Plan – those who qualify to offer CSOP to employees will be allowed to issue up to £60,000 of CSOP options to their employees which has doubled from £30,000 last year.
• Real Estate Investment Trust – changes will be made to enhance the REIT regime and its rules from April 2023. One; the requirement for an REIT to have a minimum of three properties where one commercial property worth $20m or more is present has been removed. Two; the tax deduction rule from property income distributions paid to partners is set to be removed.
• Charitable Reliefs – UK charity reliefs will now be restricted to UK-based only charities and CASCs. Those not in the UK who have already been approved for reliefs will have a year transition period. The taxes affected are income tax, Capital Gains Tax, corporation tax, inheritance tax, Stamp Duty, SDLT, Stamp Duty Reserve Tax, Annual Tax on Enveloped Dwellings (ATED) and Diverted Profits Tax.
• AETD and SDLT – temporary reliefs from AETD and the SDLT 15% rate will apply to those with dwellings that were made available to people who had been given the permission to stay in the UK via the Homes for Ukraine Sponsorship Scheme.  AETD relief will apply to charges on or after April 1, 2022, and SDLT relief will apply from 31 March 2022.

As you can see, there’s a lot changing. And, the Spring Budget 2023 revealed more changes are set to be introduced in the future – though they don’t appear in the Spring Finance Bill, they were revealed in the Budget. That’s why it’s important – whether for yourself or your business – to follow recommended tax planning processes.

What is Tax Planning

Tax planning is quite simply the process of arranging your affairs – making a plan – in order to legally minimise tax liability.

You’ll notice we emphasised the word ‘legally’, and that’s because contrary to popular belief, there are several ways in which individuals can legitimately reduce the amount of tax they are or will be liable to pay.

How to Get Started with Tax Planning

Tax planning requires a deep understanding of what taxes a person or company will be liable to pay, knowledge of the various reliefs and provisions on offer in the UK, and a perfect understanding of compliance and legislation. That’s why, Tax Planning Strategies are almost always developed and managed by Tax professionals or Accountants.

However, that being said, there are certain things you can do yourself with a little guidance – guidance just like you will find below.

Tax Planning – Tips for Individuals

Tax planning as an individual is all about ensuring you are accessing the right reliefs and allowances, as well as managing your income and investments.

Here’s how you can make the most of these this tax year:

Review your private pension contributions – did you know, the amount you can put into a private pension without being taxed has now increased to £60K from £40K per year. If you’re the type of person that likes to plan for the future and save as much as possible for retirement, it will be music to your ears that you can invest an addition £20K of your annual income into your pension without being taxed. A little bonus too – The lifetime allowance has also been abolished, so you can continue to pay into your pension without the worry of being penalised later down the line.

Assess your eligibility for Marriage Allowance – Marriage Allowance is a scheme which allows married couples or civil partners to benefit from increased personal tax thresholds if one partner/spouse is earning less than the annual personal tax threshold. Basically, if one partner/spouse is earning £11,310 or less per year, they can make a claim to transfer the remaining £1260 of the tax-free allowance to their partner or spouse, which is then applied to their salary allowing for an extra £1260 of their annual income to be tax free. There are a number of criteria to meet to be eligible, but the good news is, if it is found you are eligible, you can request the last 4 years be assessed and potentially receive a tax rebate for these previous years.

Make sure you’re being smart with savings – there are now so many allowances to utilise from a savings perspective that it makes sense to be smart with how and where you save. Traditionally, people had just one savings account, but since the introduction of ISAs, Shares and Premium Bonds, there’s more choice than ever as to where to invest in your future. Let’s recap the different allowances:

• ISA Allowance – you can save £20,000 per year across multiple or one ISA without being taxed on the income you put in there.
• Savings Allowance – you do not need to pay tax on the first £1,000 you receive in interest from your savings (only applies to basic rate taxpayers)
• Starting Rate for Savings – complicated, but helpful to those on low incomes. If you are earning less than £17,570 and have a personal allowance of £12,570 then you will be eligible for an increased amount of tax-free interest on savings. The amount of tax-free interest you can receive is £5,000 but this is for those who earn £12, 570. For every £1 you earn over the £12,570, £1 is deducted from the amount of interest you can receive tax free.
• Junior ISA- you can put up to £9,000 per year in a Junior ISA for your children without incurring CGT or Income Tax on the interest.
• Premium Bond Winnings – if you purchase premium bonds and win, you can receive tax free winnings of between £25 and £1million.

As you can see, it makes sense to be smart with your savings. If you have one big savings pot, it might be worth exploring moving the monies to multiple in order to benefit from the above allowances.

Tax Free Childcare Scheme – is your childcare provider part of the Tax-Free Childcare Scheme? If they are, you could be eligible for up to £500 every three months towards the cost of your childcare for each child (and £1000 if the child has a disability). How this works is you set up an account online for your child and make payments directly to your childcare provider through it. For every £8 you pay in, the government will add £2 for you to use to cover the childcare costs. There are obviously certain criteria you must meet, and certain other benefits you cannot be claiming, but it could be that it’s a better option for you. Head over to https://www.gov.uk/tax-free-childcare to find out more.

Check if you’ve overpaid tax – since the introduction of Making Tax Digital, it’s become a whole lot easier to be in control of your tax code. In the past, access to our own tax affairs was quite limited, and an understanding of our tax code was harder to obtain. It could be that you overpaid tax and didn’t realise. Whilst HMRC is competent in their calculations of tax, tax code errors often occur when they don’t have the correct information about taxpayers and their working arrangements. To assess whether you’ve overpaid tax, fill out the claim form here https://www.gov.uk/claim-tax-refund.

Utilise relevant company perks – whilst most company benefits are taxable, there are a number of perks which businesses offer in replace of receiving a set amount of your salary which aren’t subject to tax.

These are usually the following:

• Childcare Vouchers
• Cycle to Work Scheme
• Annual Travel Passes for Public Transport
• Goods your employer sells as long as they are at least the value of what it cost them to make.

It’s always worth speaking with your employer to see if any of these are offered. If you do receive them, the income you are then taxed on is the income you receive after the value of these perks has been deducted.

Check if your employer offers tax free payments for homeworking – if you work from home as part of your contractual agreement with your employer and not as a benefit, you may be entitled to receive a small weekly payment from your employer without paying tax or NI on it.  Employers are legally allowed to make payments of up to £6 per week to employees from 5 April 2020, if the employee has incurred reasonable additional costs because they work from home, for example increased gas and electric usage.

Utilise Tax Free Expenses – expense policies are put in place for employees for a reason – so that you can reclaim monies you’ve spent which you wouldn’t have normally spent if you weren’t in a particular work situation. However, most of these are usually either taxable or must be reclaimed in the form of tax relief. But there are some which aren’t. The most common expenses you can claim for without being subjected to tax and can receive directly from your employer are:

• Travel costs incurred when required to travel to a location not your usual place of work
• Food purchased when required to be away from usual place of work
• Expenses incurred as part of business meetings where you are not responsible for people within the meeting such as client’s lunches etc

It’s always worth revisiting your contract and company expense policy to understand what can and cannot be reimbursed.

Switch Your Company Car – do you benefit from a company car? When was the last time you checked the renewal date or terms of upgrade? It’s always worth asking your employer if you’re not sure as those who renew and opt for a car with lower CO2 emissions could benefit from a reduced tax liability. If you’re car isn’t due or is unable to be renewed, why not work out whether it would be more cost effective to purchase your own car and give up your company car. You can still claim an allowance for business mileage – and this just might work out cheaper than the tax applied to fuel in your company car paid for by your employer.

Tax Planning – Tips for Businesses

It’s no secret that tax rates for businesses and business owners are increasing all round this year. But that doesn’t mean to say there’s nothing you can do from a tax planning perspective. We’ve listed below just some of the things you can do to legally reduce your tax liability in 2023.

Reduce your plastic packaging usage to either 0 or less than 10 tonnes per year – There is a special exemption on Plastic Packaging Tax for manufacturers and importers of less than 10 tonnes of plastic packaging per year. What’s more, reducing your overall environmental impact as a business could come with other benefits, such as access to environmental reliefs and schemes specifically for businesses.

Review your income structure – if you’re the Director of an owner managed business, now is the time to assess your profit extraction strategy. With Corporation Tax and Dividends Tax and allowances changing from April 2023, it might be the case that moving to a higher salary through PAYE and cutting your dividends reduces the amount of tax due at the end of the year – both CT and PT. Speak with your accountant who can do both calculations for you, so you can compare.

Check your self-assessment tax return – every self-employed person obtaining an income – however small – must complete a self-assessment tax return each year. Whilst is advised to seek help from an accountant with these, it’s also advised that you have involvement in the preparation. There may be various business expenses that you can reclaim such equipment bought, subscriptions and working from home, which your accountant may not know you’ve incurred (N.B. this usually happens when regular accounting isn’t done via a digital accounting system linked to a bank or when business expenses are paid for via personal accounts.)

Estimate your tax liability ahead of time – there’s never been a better time to plan ahead. If you’re keeping monthly management accounts and creating forecasts, it could be a good idea to work out your tax liability ahead of time. Whilst you can’t make it completely accurate, it will give you a good idea what you can expect to pay if things go as planned. If cashflow allows, you can then allocate certain profits to things which will improve/enhance the business, such as plant and machinery, which can be deducted against taxable profits.

Consider remuneration for key personnel – taxable benefits for key personnel within the business not only provide little extras to your employees, but also reduce the amount of profit in your business which is subject to tax. There are a number of taxable benefits you can explore, with the most common right now being electric company cars.

Consider whether a group structure would work– Do you have multiple divisions within your business that could in fact operate as separate companies within a group? It could be worth switching to a group structure. Why? The change in corporation tax rates means that profits above £50k will be taxed higher than 19%. So, if a group structure is in operation, profits can be transferred to other companies in the same group to reduce the tax rate for each company and therefore the overall amount of tax. It’s worth noting however, that it must make business sense to have a group structure, otherwise it could be classed as tax evasion.

Access tax credits – certain businesses are eligible to apply tax credits if they are making a positive contribution towards the economy. The three main tax credits are R and D Tax Credits, Land Remediation, multiple dwelling SDR, and Film Tax Credits. Each of these, if eligible, allow for monies claimed to be applied to your overall tax liability, thus reducing your bill.

As you can see, there are many steps you can take to reduce your tax bill, whether a business owner or an individual.

The most important thing to remember is that even with Tax Planning, you must remain compliant. Tax Evasion and Tax Avoidance are criminal offences.

If you need any support with creating a Tax Planning Strategy, please reach out to our expert team.

The impact of the Covid-19 pandemic on people’s lives and livelihoods has meant that for many submitting a Self-Assessment Tax Return hasn’t been at the forefront of their mind.

With a third national lockdown and schools being closed, the annual last-minute rush to submit tax returns by January 31 may not have been the No1 priority this year.

HMRC has recognised that and if you’re one of the estimated three million or so taxpayers who hasn’t submitted their tax return yet, all is not lost.

HMRC realised this week that people were struggling and this year’s deadline for the 2019-20 tax return has been extended by a month until February 28.

That means late filing won’t incur an automatic £100 fine as it would normally do, though it’s not a ‘get-out-of-jail-free’ card and interest will still accrue on tax due from February 1.

The move by HMRC means that people have a little breathing space but if you can file by Sunday, January 31 you should do so.

If you can’t, here’s a few last-minute tips to help ensure your tax return is as complete as possible and that you only pay the tax that is due.

Make sure you declare all your income

Honesty really is the best policy when it comes to tax affairs. Think carefully about every little pot of income, even foreign income that was not remitted to the UK. If you’re a UK taxpayer it needs to go down.

What about interest on savings too? Yes, rates are at an all-time low and interest is likely to be negligible but it still needs to be declared.

Income from property rentals too needs to be added. It’s worth sitting down for a few minutes and listing where your money comes from.

Claim all your allowances

There are lots of small ‘tax breaks’ and allowances that all add up when it comes to minimizing the amount of tax you pay.

Did you get married or enter a civil partnership but haven’t told HMRC? Married Couple’s Allowance could cut your tax bill by between £351 and £907.50 a year, according to gov.uk. This applies if one of you was born before April 6, 1935.

If you were born afterwards you may be able to claim Marriage Allowance which lets you transfer £1,250 of your personal allowance to your husband, wife or civil partner and could reduce their tax bill by up to £250.

Were you instructed to work from home in the early weeks of the pandemic? You could claim tax relief for additional household costs such as heating, metered water and electricity bills.

Everyone has a Personal Tax-Free Allowance, of course, but there are other allowances to consider too.

Dividend Allowance means the first £2,000 you receive in dividends from investments is tax-free.

Maybe you earn money from buying and selling on eBay or offer a freelance service. Lots of us have a little sideline these days. You can make £1,000 tax-free. This is known as a “trading allowance.”

You can also claim an allowance for spousal or child maintenance payments. Subject to certain conditions the allowance could be worth 10% of the maintenance you pay up to a maximum of £326.

If you or your spouse or civil partner are registered blind or have severely-impaired sight your personal tax allowance is increased. This is worth £2,450 for 2019-20.

Money still tight? Consider Time to Pay

HMRC wants to help if you’re struggling to pay. If you can’t afford to pay your latest bill you can set up a payment plan.

You can only do that if:

* You owe £30,000 or less;

* You do not have any other payment plans with HMRC;

* Your tax returns are up to date;

* It’s less than 60 days after the payment deadline.

You can choose how much to pay straightaway and how much you want to pay each month. You will, however, have to pay interest.

A last piece of advice?

Yes! Be kind to yourself and plan ahead. Keep the pressure off in January 2022 by doing your homework and keeping records as you go.

Keep your tax affairs in order through the year and then when the 2020-21 tax year ends in April you can start preparing your tax return early.

Why not do yourself a favour and submit next year’s tax return early and forget the January blues?

From March 2021 HMRC intends to transfer around one million VAT-registered businesses from the VAT Mainframe (VMF) onto their Enterprise Tax Management Platform (ETMP). This is a process known as “bulk migration.”

There’s a lot of jargon there and you just want to know what it means for your business, right?

It’s pretty straightforward. It’s all about HMRC modernising the way it collects taxes.

Those who have already signed up to Making Tax Digital (MTD) are not affected by the latest changes and don’t need to take any action.

However, those businesses with a taxable turnover of more than £85,000 a year who have not signed up to MTD must do so now or could be hit by a penalty charge.

What’s this “bulk migration” all about?

It’s HMRC getting its systems in order. The transfer or “migration” of these remaining businesses will mean HMRC doesn’t have to continue to operate two separate systems. The old VAT mainframe is expensive to run and maintain so it’ll save money and, hopefully, be more efficient for everyone.

What do I need to do?

Just continue to file your VAT returns as you normally would through your Business Tax Account. Things may look a little different after the switch but change is OK. Keeps us on our toes. The basic principles are the same.

MTD for VAT will be extended to include businesses with taxable turnover below £85,000 from April 2022.

Selecting MTD software and signing up to MTD now will save time and effort in the future. It’s well worth getting it sorted now.

Will my Direct Debit be affected?

Good thinking! For Direct Debits to continue after the migration, HMRC will need a valid and current email address for your business.

This is for your protection and allows HMRC to comply with UK banking regulations which ensure they must inform customers of the date the Direct Debit goes out and how much is being taken.

HMRC will ask businesses for an email address via their Business Tax Account. Doing it online saves time. Without a valid email address HMRC may be unable to collect VAT payments.

What if my accounting software isn’t compatible?

That’s only a problem if you’re still using eXtensible Markup Language (XML) and, to be honest, it’s out-dated and you need an upgrade!

XML allows some software products to file VAT returns directly to HMRC – but that won’t be available after migration. There’s only a small number of businesses who still use XML anyway and from April 21 it will no longer be an option.

I have an agent who handles the VAT for me. Won’t they sort it all out?

Yes – but do have a conversation and check everything is organised.

Following the switch over, agents won’t be able to use the agent online service for VAT clients not yet signed up for MTD. Instead they must file clients’ VAT returns through what’s called an Agent Service Account. Best check with your agent to make sure everything is ready to go.

So that’s what you need to know when it comes to VAT migration. It’s not as complicated as it sounds when you strip out the jargon.

It’s all about the continuing drive to make HMRC one of the most digitally advanced tax collectors in the world and that should be a benefit to us all.

If you need further guidance, we’re always happy to help, so feel free to contact us on hello@shenward.com.

IR35: What’s changed?

Over the last six months, many businesses who use contractors/freelancers, as well as the individuals themselves, have been under increased pressure to review their current off-payroll working agreements due to the introduction of new IR35 laws.

However, Chief Treasury Secretary Steve Barclay announced 16^TH March that the IR35 tax reforms would now be pushed back by one year to April 2021, which has raised concern for those who have already implemented changes.

Whilst many state that it is too late, the government has announced that the move is part of a broad package of measures the Treasury has announced to protect the economy from the coronavirus outbreak.

So, what does this mean?

Due to the new rules now being postponed, businesses who were significantly impacted by IR35 can delay considerations required to comply with the new rules. This will provide them with breathing space to deal with COVID-19, which is significantly escalating. 

Furthermore, contractors who would have been affected by IR35 laws would have likely seen a significant reduction in take home pay, assuming day rates were the same. However, these workers will now possible be able to continue to work under the existing regime without the undue uncertainty, especially when contractors and their families may be impacted by the virus. 

Why is this a positive move?

Due to the current COVID-19 pandemic, many freelancers and contractors have found themselves in a position where workloads have been ended or significantly reduced. 

The recent announcements now mean they are able to accept one-off contracts for work both during the pandemic if required, and most certainly after pandemic when businesses are urgently looking to rebuild following sever disruption.

If you would like clarification on any of the points we’ve just mentioned, please feel free to contact us here https://shenward.com/contact-us/.

April 2018/19 Tax Year Changes – What you should be aware of

It is that time of year again when HMRC will implement the changes announced in the Autumn 2017 budget by the Chancellor of the Exchequer. These changes will come into effect starting from the new tax year on 6 April 2018.

What has changed?

Income tax 

Personal allowance will increase to £11,850. The £350 increase from the previous tax year will lead to a reduction in tax of £70 for most people.

The threshold from when you start paying income tax at the higher rate of 40% will increase to £46,350 (2017/18 £45,000).

The tax free dividend allowance is set to decrease from £5,000 to £2000 from the new tax year. The change will see a basic rate tax payer paying an additional £225 of income tax on dividends paid by their company in the 2018/19 tax year.

Benefit in kind tax rates are increasing from the new tax year. Main changes are:

The diesel supplement applied on top of the above calculated percentage will increase from 3% to 4% with the effect of increasing the taxable benefit on diesel cars.

Car fuel benefit charge multiplier will increase to £23,400 (2017/18 £22,600).

Flat rate van benefit charge will increase to £3,350 (2017/18: £3,230).

Flat rate van fuel benefit charge will increase to £633 (2017/18: £610).

Capital Gains 

The capital gains tax annual exempt amount will increase in line with the consumer price index to £11,700 (2017/18: £11,300).

Pensions 

The maximum amount you can draw from pensions without a tax charge shall rise to £1.03million in line with inflation.

Inheritance tax 

From 6 April 2018 the value of the additional nil rate band will increase by £25,000 to £125,000.

Auto-Enrolment  

Minimum employer contribution towards employee’s workplace pension will increase by 1% from the new tax year.

National Living and National Minimum wage 

The minimum hourly wage rate your staff are entitled to depends on their age and whether they are an apprentice. The rates will increase from the new tax year. For 18-24 year olds, this will be the largest increase seen in a decade.

Residential finance costs

From 6 April 2017, landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive basic rate reduction from their income tax liability. This restriction is being gradually introduced from 6 April 2017.

Conclusion

Our summary of this year’s budget is intended to give you a snapshot of the upcoming changes. There are a number of critical changes in this year’s budget so it’s critical that you plan for these implications to be mitigated. Speak with our team to find out more about how we can help you.

Author

Sonal Dewedi

sonal@shenward.com