Autumn Statement 2022 Small Business Summary

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The Autumn Statement 2022 contained a number of tax increases for small business, landlords and employees. Below is a summary of relevant changes.

National Living and Minimum Wage

The national and living wage will increase from April 2023

Age range Current hourly rate From April 2023
23 and over £9.50 £10.42
21 – 22 £9.18 £10.18
18 – 20 £6.83 £7.49
16 – 17 £4.81 £5.28

 

Tax on dividends

From April 2023 the current 0% tax dividend allowance will be halved to £1,000. This will result in additional income tax of £88 for a basic rate taxpayer, £338 more for a higher rate taxpayer and £394 more for an additional rate taxpayer.

In April 2024 it will be reduced again to £500.

Business owners with the flexibility of paying a salary/dividend mix may want to re-assess whether their strategy is still the optimum remuneration method for them.

Income Tax and NIC thresholds

The personal tax allowance has been frozen at £12,570 until April 2028. The higher rate tax threshold will remain at £50,270. Usually these thresholds increase to keep pace with inflation. Freezing the thresholds will mean most people paying more tax over the next few years. Assuming inflation of 2% per year, someone with a salary of £25K will pay around £580 more in 2027/28, while someone earning £62K will pay about £2,940 more.

The additional rate of tax, 45%, will be payable on income above £125,140 from April 2023. The threshold is currently £150K.

National Insurance

The employer’s threshold will remain at £9,100. Employer’s (secondary) NI contributions will be due at £13.8% of employee’s earnings above that level.  However, the employer’s allowance remains in place, so many employers will not need to pay the first £5,000 of secondary contributions.

Class 2 NIC, paid by self-employed people, will increase to £3.45 per week.

Capital Allowance Reduction

The tax-free capital allowance will reduce from £12,300 to £6,000 in April 2023, then become £3,000 in April 2024. This is significant for property owners planning to sell properties that are not their main residence.  It will increase tax liabilities by up to £1,764 in 2023/24 and £2,604 in 2024/25.

Corporation tax

Corporation tax will remain at 19% for companies with taxable profits below £50K.  Those with profits between £50K and £250K will pay 25%, with marginal rate relief.  Marginal rate relief provides a gradual increase in the rate of corporation tax as profits increase from £50K until the main rate of 25% is payable once profits reach £250K.

R&D tax relief

The small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%.  This is quite a significant change and means considerably less tax relief will be available for small companies.

Business rate relief

For the smallest businesses affected by reductions or changes in eligibility to small business rate relief or rural rate relief, the increase to their bills will be capped at £600 per year from 1st April 2023.

More information…

You can read the full Autumn Statement on the Treasury website.

Revising your forecasts and business plans for April 2023 would be a good idea. If you would like any assistance please get in touch.

Tax update – Autumn Statement 2015

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Summary

The Chancellor, George Osborne, delivered his Spending review and Autumn Statement Speech on 25 November 2015. This article outlines the changes relevant to small-business owners.  The few ‘headlines’ were

  • an extra 3% stamp duty land tax charge on the purchase of additional residential properties from 1 April 2016
  • a requirement to make a payment on account in respect of capital gains tax within 30 days of the disposal of residential properties from April 2019
  • the changes announced to tax credits in Summer Budget 2015 have been abandoned.

More information on the tax proposals scheduled for inclusion in Finance Bill 2016 will be published in the Government’s ‘Overview of Legislation in Draft’ on 9 December.

Making tax digital

As announced at Summer Budget 2015, the government wants to digitise the tax process. The aim is to modernise the tax system and provide a more real-time working basis of individual and business tax affairs, which one would expect, will lead to the advance of tax payments in many cases in due course. Key details so far are:

  • digital tax accounts are to be introduced for all small businesses and individuals by 2016/17
  • by 2020 most businesses, landlords and the self-employed will be required to update HMRC quarterly regarding their tax affairs. The details of how this will work in practice have not yet been decided
  • the intention to consult on ways to simplify tax payments with suggestions of tax payable as profits arise (as announced for capital gains tax arising on the disposal of residential property with payment due 30 days after completion from April 2019).

Employees and pensioners will not be required to update their digital tax accounts quarterly unless they have secondary incomes of more than £10,000 per year.

Simple assessment

The Government is to simplify the tax payment process for taxpayers within the Self-Assessment system where HMRC already holds all the data it needs to calculate the tax liability. Rather than requiring the taxpayer to file a return, instead HMRC will send a legally enforceable payment demand, which the taxpayer can challenge or appeal. This is expected to be introduced from 2016/17.

Residential property

An additional 3% on top of current SDLT rates from 1 April 2016 will be charged on the purchase of additional residential property (e.g. buy to lets and second properties over £40,000), though exclusions to certain corporates and funds are expected.

Dividends for company owners

There was no further commentary with respect to the Summer Budget 2015 announcement regarding the increase in dividend tax rates and the dividend allowance due to apply from April 2016, so the expectation is that these will be introduced in the Finance Bill 2016 as previously announced

Pensions

Further to the announcement at Summer Budget 2015, the Government has now consulted on fundamental changes to pension tax relief. One of the options is that instead of receiving tax relief on the contribution, the savings would work more like an ISA, with a Government top-up and tax-free extraction on retirement.

The Government will provide an update on this at Budget 2016.

Self-Assessment time limits

Draft legislation is to be published ahead of Finance Bill 2016 to clarify that the time allowed for making a self-assessment is four years from the end of the tax year. No further information is included in Autumn Statement documentation but it is possible that this has been prompted by a recent case on tax administration.

Conclusion

There wasn’t a great deal in the Autumn Statement that we didn’t know about, or expect. This article is not a comprehensive review, but concentrated on the issues relevant to small-business owners. If you’d like to know more you can read the government’s documents here.  If you’re concerned that any of the changes mentioned may affect you please get in touch.

Budget Spring 2015

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Budget Spring 2015

We’re all aware that this budget comes very soon before the general election on 7th May 2015. The proposals in this budget may not become law, and anything could be amended. Many of the announcements related to changes we already know about, but there were one or two surprises.

Personal Taxation

Basic Personal Allowance and Transferable Allowance for 2015/16

The personal allowance for those born after 5 April 1938 will be £10,600 for 2015/16. As a corollary, the transferable allowance for married couples and civil partners (10% of the personal allowance) will be £1,060. This is available to certain couples, subject to qualifying criteria.

The higher rate threshold (i.e. the aggregate of the personal allowance and the basic rate limit) will be £42,385.

Personal Savings Allowance

It is proposed that a new Personal Savings Allowance be introduced from 6 April 2016. For a basic rate taxpayer, this will exempt from income tax the first £1,000 of savings income, such as bank and building society interest. For a higher rate taxpayer, only the first £500 will be exempted.

The Personal Savings Allowance will not be available to additional rate taxpayers. At the same time, the deduction of basic rate tax at source from interest paid by banks and building societies will be abolished for all savers.

Online Tax Accounts

Over the last decade or so, we’ve seen a steady decrease in the numbers of paper forms being submitted to all governmental departments, and an increase in online services. The government seems keen to extend the transition by planning to abolish the paper tax return for millions of individuals and small business through the introduction of digital tax accounts. A roadmap setting out the policy and administrative changes will be published later this year.

In addition, the Government will consult on a new payment process to support the use of digital tax accounts that allow tax and National Insurance contributions to be collected outside of PAYE and self-assessment. This will be legislated for in the next Parliament.

How (or if) this will work in practice we have yet to find out.  The principles of NI and taxation are not changing, but the new methods of reporting and paying could be significant changes for self-employed people.

Direct Recovery of Debts due to HMRC from Taxpayers’ Bank Accounts

Again, this is not a new announcement, and the government intends to legislate for it in a firure finance bill. It is something to be aware of if your tax affairs are not up-to-date.  HMRC will be able to collect payment of tax and duties directly from credit balances in debtors’ bank and building society accounts, including ISAs, without first having to apply to the courts. HMRC will only take action against debtors who owe over £1,000 of tax or tax credits. They will always leave a minimum aggregate of £5,000 across debtors’ accounts, and will only put a hold on funds up to the value of the debt. Secondary legislation to be published shortly will set out details of the process and safeguards for taxpayers.

This is intended to be used when taxpayers fail to pay on time, and by the time things reach this stage, any taxpayer should be fully aware of all attempts made by HMRC to recover the debt.

Employment Taxation

Abolition of the £8,500 Threshold for Benefits in Kind

The £8,500 earnings threshold that determines whether employees pay income tax on all of their benefits in kind and expenses, and whether employers pay Class 1A National Insurance contributions (NICs), is to be abolished for 2016/17 onwards.

Currently, an employee whose earnings for the tax year are less than £8,500  pays tax only on certain employee benefits. The abolition of the threshold will mean all employees will be taxed on their benefits and expenses in the same way. The employer’s NICs treatment will follow the income tax treatment.

Statutory Exemption for Trivial Benefits in Kind

A statutory exemption is to be introduced for 2015/16 onwards that will allow employers to identify and treat certain low value benefits provided to employees or former employees as trivial. These benefits will then be exempt from income tax and Class 1A National Insurance contributions and will not need to be reported to HMRC. A benefit will be trivial if it meets all the following conditions:

  • the benefit is not cash or a cash voucher;
  • the cost of providing it does not exceed £50;
  • the benefit is not provided under salary sacrifice arrangements or any other contractual obligation; and
  • it is not provided in recognition of particular services performed, or to be performed, by the employee.

An annual cap of £300 will be introduced for office holders of close companies (broadly those controlled by 5 or fewer people) and employees who are family members of those office holders. Those affected by this cap will be able to receive a maximum of £300 worth of exempt trivial benefits each year.

Employee Expenses: Dispensations

The current system whereby an employer can apply to HMRC for a dispensation to pay expenses free of tax in certain circumstances will be scrapped for 2016/17 onwards. Instead, expenses provided to employees will automatically be exempt in any case where the employee would have been eligible for a deduction had he incurred and paid the equivalent expense himself. The exemption will also allow the employee to be paid a scale rate rather than be reimbursed the actual expense he has incurred. This can either be a rate set by HMRC or a rate that the employer has agreed with HMRC. The exemption will also apply to benefits in kind provided by employers in respect of expenses incurred by their employees It will not apply to expenses/benefits provided as part of a salary sacrifice arrangement or in conjunction with other arrangements that seek to replace salary with expenses. Similar rules will apply for NIC purposes.

Collection of Tax on Benefits and Expenses through Voluntary Payrolling

Legislation is to be introduced to allow HMRC to make changes to the PAYE Regulations to provide for voluntary payrolling of certain benefits in kind. The intention is that employers will be able to opt to payroll benefits for cars, car fuel, medical insurance and gym membership for 2016/17 onwards. Where employers do so, they will not have to make a return on Form P11D for these benefits. Instead, they will report the value of the benefits through Real Time Information, and that value will count as PAYE income liable to deduction using the PAYE Tax Tables. The amended Regulations will determine the value to be placed on the benefit for this purpose.

Van Benefit Charge for Zero Emission Vans

The van benefit charge for zero emission vans will increase from £nil, beginning in 2015/16. The van benefit charge for such vans will be 20% of the van benefit charge for vans which emit CO2 in 2015/16, 40% in 2016/17, 60% in 2017/18, 80% in 2018/19 and 90% in 2019/20. From 2020/21, the van benefit charge for zero emission vans will be the same as the van benefit charge for vans which emit CO2.

National Insurance Contributions

NICs for the Self-Employed

Class 2 contributions will be abolished in the next Parliament. Class 4 contributions will be reformed to introduce a new contributory benefit test. The Government intends to consult on the proposals later in 2015.

Business Taxation

Research and Development

Legislation will be introduced to restrict qualifying expenditure for research and development (R&D) tax credits so that the cost of consumable items incorporated in products that are sold in the normal course of a company’s business are not eligible for R&D relief, with effect from 1 April 2015. Qualifying expenditure on consumable items will be limited to the cost of only those items fully used up or expended by the R&D activity itself which do not go on to be sold as part of a commercial product. This restriction will not apply where the product of the R&D is transferred as waste, or where it is transferred but no consideration is given.

In addition, from 1 April 2015, the rate of the above the line credit for large companies will increase from 10% to 11% and the rate of the relief for the SME scheme will increase from 225% to 230%.

 VAT

VAT Registration Thresholds

With effect from 1 April 2015, the VAT registration threshold will be increased from £81,000 to £82,000. The deregistration threshold will be increased from £79,000 to £80,000. The registration and deregistration thresholds for acquisitions from other EU member states will be increased from £81,000 to £82,000.

This is a summary of announcements most likely to affect owners of small UK businesses.  Things could change after the general election but in the meantime if you’d like more information on how the changes may affect you please get in touch.