Taxaccount; views from the village.

What they’re saying………

• “Living standards set for largest drop since 1950s” says fiscal watchdog
• Inflation leaps to 30-year high ahead of Spring Statement
• Inflation soars to 6.2% but ‘worse is yet to come‘
• Several factors – including the pandemic and Russia’s invasion of Ukraine – are conspiring to drive up inflation, drive down household consumption and erode spending power.
• OBR sees inflation (currently 6.2%) averaging 7.4% this year. It had foreseen a figure of only 4% five months ago.
• Sunak says the OBR has not accounted for the full impacts of the war in Ukraine… “and we should be prepared for the economy and public finances to worsen –  potentially significantly. And the cost of borrowing is continuing to rise.

• National Insurance threshold increases by £3,000 from 5^th July 2022.

• The so-called ‘rabbit out of the hat’……the basic rate of income tax will be cut from 20% to 19% before the end of this parliament (2024) “….IF all targets are met….” (whatever that means).

• Fuel duty will be cut by 5p per litre, covering both petrol and diesel, until March next year to help drivers and businesses. Average fill up of 60 litres …..save £3. Big whoop.

• No VAT applied to energy-saving materials including solar panels, heat pumps and insulation for five years as energy bills surge. Working with EU to ensure this can apply to Northern Ireland because of current “deficiencies” in the Northern Ireland Protocol.

• There will be extra £500m of funding through a doubling of the Household Support Fund to £1bn for local authorities to distribute.

• Sunak announced a new “tax plan”. He says it will “help families with the cost of living”, “create the conditions for higher growth” and “share the proceeds of growth fairly”. The 13 page publication is in large print, contains many stock images and vague ideas only. In light of this any further comment from me at this stage would be pointless.

• The Chancellor concluded by saying: “My Tax Plan delivers the biggest net cut to personal taxes in over a quarter of a century.” We’ll see……..

At the end MPs shouted “ is that it?” as he announced there will be extra £500m of funding through a doubling of the Household Support Fund to £1bn for local authorities to distribute.

Comments

The threshold where you start paying income tax – £12,570 – is being frozen for four years from this April. Soaring inflation means twice as many people will be dragged into paying income tax compared with forecasters predictions last year.

Graduates are being absolutely hammered……students starting university next year will begin paying off their loans when they earn more than £25,000 – down from the existing £27,295-a-year threshold now.

Meanwhile the length of time to repay their debt will be extended to 40 years, up from 30.

Hidden in the small print of the OBR report is the revelation that Brexit red tape still appears to be hitting Britain’s trade.

The OBR said that the UK “saw a similar collapse in exports as other countries at the start of the pandemic” – but was missing out as global trading levels began to recover at the end of 2021.

It adds: “The UK appears to have become a less trade-intensive economy, with trade as a share of GDP falling 12% since 2019, two and a half times more than in any other G7 country.”

Warning tale from The Times….NEVER divulge your personal tax and government gateway login credentials to ANYONE. It’s like giving your bank PIN number out.

Many unfortunate folk have been conned into this scam.

Mike Grogan is struggling to believe that claiming a tax rebate for a work uniform has landed him with an £11,500 bill from HM Revenue & Customs.

Grogan, 32, is one of dozens of victims of a fraudulent firm that claimed to be helping taxpayers like him with routine rebates, but stole their identities and claimed tens of thousands of pounds worth of tax relief in their name for investments that did not exist.

And even though HMRC paid out the tax relief for these workers without seeming to check whether the claims were valid, the customers are now liable for the debt because HMRC says they were careless with their personal information in the first place.

Some workers have faced bills that are almost as much as they pay in tax in an entire year.

Grogan, who lives in Fleetwood, Lancashire and earns about £30,000 a year, said the stress of it all had made him ill.

“I have a girlfriend and a baby, Alfie, to support and we’ve had to put off making wedding plans. It’s a nightmare and seems incredibly unfair.”

A colleague at work put Grogan in touch with the rogue tax firm two years ago, saying that it could help him to claim back tax relief on the costs of his work uniform at the plant, petrol used to get to work and food while at work. The Times is not naming the firm because it is similar to two legitimate accountancy businesses.

Grogan exchanged messages with someone from the company over WhatsApp, and sent his identity documents and P60 forms so that the firm could make a claim for him. In July 2019 and May 2020 he received two tax rebates for a total of £3,833. In fact the firm had paid him the money after using his tax details to file self assessment forms in his name, claiming thousands in tax relief on fictional investments that never existed — claims that HMRC paid out to the fraudsters, seemingly without checking.

It was only this year that the taxman realised that the claims were false. In April Grogan had a letter from HMRC demanding £11,494 that the fraudsters had claimed in tax relief over three years while pretending to be him.

HMRC said that the fake tax relief claims had been made by the identity fraudsters for investments made under the Enterprise Investment Scheme — a government initiative that offers tax breaks for investing in small businesses. Grogan had never invested in any such funds, and the schemes he was supposed to have backed never existed.

After getting his bill from HMRC, he tried to get hold of the tax firm, but it had disappeared. He then tried to appeal against the HMRC demands, saying that he had been the victim of a scam, but his appeal was rejected on August 27 because the taxman said he had been negligent in handing over his details to the rogue firm. It said that although the a firm had acted as if it were him, it “had been enabled by you in that you provided them with the necessary paperwork and security details”.

HMRC said that Grogan had handed over the activation code to his tax account, which it said was “akin to providing a pin code for your bank account in terms of security”.

He was told: “The fraud has been enabled by you and you are sadly the victim.” HMRC also decided that even though the rogue firm had submitted a self-assessment form in Grogan’s name, it was still his responsibility. He said that he had never filled one in before and had not realised that was what the firm was doing.

Another victim, who did not want to be named, said that eight colleagues at his workplace had fallen for the same scam. “HMRC has sent me a letter demanding I pay £17,000. This guy must have run off to the Bahamas with all of our money,” he said.

Tax experts say the cases show how easy it is to impersonate someone when filling in a tax return.

“I can fill in yours now with very little information from you,” said Andy Liddle, a former HMRC officer who now works at Jones Harris accountants in Fleetwood, Lancashire.

Records at Companies House show that the rogue tax firm never filed any accounts and was dissolved in 2020. Contact details are out of date.

George Turner from the think tank TaxWatch, questioned why HMRC had paid out tax refunds for an EIS without checking if it had ever existed. “It is pretty much their policy to pay out all reliefs and then ask questions later, if any arise,” he said. “Most tax avoidance schemes rely on them doing this.”

HMRC said it would not comment on an identifiable taxpayer. “We would remind customers to be careful when sharing their government gateway user ID or password with anyone else. HMRC continuously addresses the issues that specific high-volume (refund) agents present through an ongoing programme of risk assessment and agent meetings.”

• 

Today’s speech from Mr Sunak contained plenty of spending promises in many areas but will they actually be scrutinised, monitored and delivered?

Also how will they be funded? By improved economic forecasts? Uncertain. Definitely not by money raising measures from today.

The Office for Budget Responsibility (OBR) said that Sunak’s tax increases since March 2020 mean the tax burden on the British public will reach its highest level since the Labour government of the 1950s.

Main points of immediate note …..

• Corporation tax rising as previously announced BUT the impact on banks will be mitigated by a reduction in the bank surcharge from 8% to 3%.
• Several changes to business rates including a revaluation every 3 years, a 50% cut for the leisure & hospitality industry over 12 months and a new investment relief.
• Alcohol taxes are reformed. The number of main rates of duty falls from 15 to 6 and the rates also fall from 15% to 6% with a new sliding scale of charge to be applied. Looks like this means a cut in sparkling wine, beer and cider.
• Property Capital Gains Tax notification and payment deadline is extended from 30 days to 60 days. 
• ISA and jISA investment limits unchanged at £20,000.
• Air passenger duty reduced on domestic flights but increased on long haul.
• Property Developer Tax imposed partially to fund cladding remediation.
• The temporary, uplifted, ‘Annual Investment Allowance’ deduction of £1M is extended for 15 months from 1^st January 2022.
• National Living Wage is to increase to £9.50 p/hr next year continuing the progress towards the target of £10.50 p/hr in 2024.
• Fuel duty rise is cancelled for the 12^th year in a row.

There were no significant changes to capital gains tax or inheritance tax announced and the Chancellor refused to freeze VAT on energy bills despite Johnson pledging to scrap it during the 2016 Brexit referendum.

There were no nasty tax hits in the speech itself but….the devil is in the detail. We need time to examine the accompanying government publications.

Back with more on that later, as necessary.

A new system for late tax payment penalties will be phased in from April 2022 starting with VAT then, in 2023, on some “self-assessment” tax bills.

KEY POINT TO TAKE AWAY– pay after 15 days of due date and fines will be imposed automatically. Do NOT forget this.

The main new rules are:

• Pay your bill in full within the 15 days after the date it was due – NO penalty.

• Pay later – a penalty is charged of 2% of the tax owing.

• 30 days after the due date – a further penalty applies of 2% of the tax owing beyond day 15 PLUS another 2% of the tax owing as at day 30.

(Further penalties are set out in HMRC’s policy papers updated on 20^th August 2021.)

HMRC acknowledges that this new penalty regime will be difficult for some. HMRC says it will “take a light-touch approach” but only to the first ‘15 day’ 2% late payment penalty in the first year it applies to VAT and self assessment income tax.

This “light touch” means that, if you cannot pay on time, HMRC will give you 30 days from the due date to get in touch with them and make arrangements to pay.

Usually they will not charge the initial penalty.

Contact HMRC immediately you know there will be a problem.

Whenever you make arrangements with them make sure you STICK to them and pay as agreed or the agreement may be revoked.

If you have a “reasonable excuse” for paying late (e.g. serious illness of someone crucial to the payment) then penalties might be cancelled. HMRC requires that you appeal on these grounds by post or electronically.

As always …..get in touch if you want help or advice.

ANNOUNCED YESTERDAY – The proposed mandatory ‘Making Tax Digital’ for income tax self assessment (MTD ITSA) is postponed (again) to April 2024. 

Full government announcement here …..
https://questions-statements.parliament.uk/written-statements/detail/2021-09-23/hcws308

Also delayed to 2024 is the proposed mandatory change to the tax year basis. The ‘transition year’ will now be no earlier than 2023.

Plenty of tax related issues to blog about but I haven’t got the time to cover everything now.

One thing of immediate impact…the new Health and Social Care Levy.

If you have taxable income between £100,001 and £125,140 then, from next April, this new levy means you will be paying tax at 64.75% on income in that band.

You need to plan ahead if you are to avoid that.

More news to follow (when I can find the time in the day job when I finish digesting it all).

VAT exemption thresholds, income tax, capital gains tax, inheritance tax rates, reliefs and allowances are all more or less frozen in time.

The personal allowance will remain at £12,750 until 2026.

The higher-rate tax threshold will increase to £50,270 next year, and also remain at that level.

(The “62%” anomalous penalising tax rate on taxable earnings between £100,000 and £125,500 has not been addressed so tax planning still needs to be employed to avoid/minimise this problem).

National Insurance thresholds etc are to be aligned.

Furlough scheme – is to be extended in the short term in modified form.

Employers will pay 10% towards the hours their staff do not work in July increasing to 20% in August and September.

A fourth Self Employment Income Support Scheme (SEISS) grant will be available to cover lost earnings for February, March and April 2021.

The grant will cover 80% of monthly earnings up to a maximum of £2,500.

The fifth grant will be available from July.

Eligibility of the SEISS grants has also been widened to include many people who became self-employed in the 2019-20 tax year.

The maximum pension investment “lifetime allowance” is also frozen. The current allowance, £1,073,100, will stay until April 2026.

Corporation tax will rise from 19% to 25% from April 2023 for companies with taxable profits of £250,000+over. Companies with profits of less than £50,000 will still pay 19%.

We feel this is a return to the former smaller companies’ rate & “marginal relief” system that operated until 2014. These new limits will be split/spread/shared between companies who are “associated” and/or members of groups.

This may be an area for planning to reduce the number of affected companies. Perhaps consolidating to get rid of redundant, or little used, companies.

This new scheme does not apply to property rental companies but does apply to “close investment companies”.

Thoughts – losses built up over years affected by covid may be carried forward and relieved at the higher rates in later years when businesses recover.

Higher corporation tax rates may trigger more companies to relocate outside the UK. For example, Ireland’s corporation tax rate is currently only 12.5%

Sunak’s plans largely reverse the Osborne cuts with the rise projected to generate an extra £16BN for the Treasury by the end of this parliament. This is closer to Jeremy Corbyn’s policy for corporation tax at the 2019 election than Boris Johnson’s was.

LOSSES – extension to the company “carry back” provisions. Losses until 31^st March 2022 may be carried back to set against profits of THREE previous years up to a maximum of £2M p.a.

Capital allowances – a new “super deduction” is to be granted for the two years 1^st April 2021 to 31^st March 2023 for companies ONLY. A new 130% deduction is given for expenditure on NEW plant & machinery that would usually qualify for the 18% allowance.

50% first-year allowances will be granted for assets qualifying for “special rate relief”.

[Note….the Annual Investment Allowance is available for unincorporated businesses for expenditure of up to £1M.]

VAT –

The reduction in rates charged by the hospitality sector will be –   

5% continues to Sept 2021

12.5% October 21 to March 22

20% full rate from April 2022.

Software will need to update to accommodate new rate and timings

Under the VAT New Payment Scheme applications to start “Deferred payments” is extended up to three months.

Stamp Duty Land Tax – The nil-rate band at £500,000 is to be continued until 30^th June 2021.

Thereafter it will fall to £250,000 to 30^th September 2021.

A surcharge of 2% will be applied from 1^st April 2021 for non UK residents.

Business rates – pubs/gyms/shops and similar – the 100% rates holiday continues to June 2021.

From July 2021 relief will drop to 66% until March 2022 subject to conditions.

To qualify for this relief businesses must have been “affected by the third national lockdown” i.e. they were required to close on 5^th January 2021.

This is all subject to a £2M claim cap.

Future Fund Breakthrough – government proposes to match large investment in tech industries.

For companies attracting third party investment of £20M in R&D projects the government will match it with another £20M.

An R&D review is to be undertaken to examine various aspects of the scheme including its international competitiveness and exploitation. Could involve capping SME claims loosely connected to their salaries.

Freeports – 8 new locations – East Midlands Airport, Felixstowe and Harwich, Humber Region, Liverpool City Region, Plymouth, Solent, Thames and Teesside.

This is aimed at easing trade barriers and increasing localised tax incentives for corporation and income tax including enhanced 10% “Structures and Buildings Allowance” where the structures are brought into use before 30^th September 2026 in designated sites.

Capital allowances of 100% will be available to 30^th September 2026 for companies investing in plant & machinery in designated sites.

In addition Freepports will benefit form Stamp Duty Land Tax relief.

Sunak ended with a comment about freeports intended to persuade the public this will be a Brexit dividend. WRONG. This is yet another measure that could have been introduced when the UK was in the EU.

Social Investment Tax Relief under the VCT regime will be extended until April 2023.

The National Living Wage will go up from £8.91 an hour from 1^st April.

The highest rate will also now include those aged 23 and over – workers who previously fell under the lower wage bracket.

23 and 24 year olds, currently on £8.20 an hour, will see their pay increase by 71p to £8.91 from 1^st April.

RECOVERY POST PANDEMIC

Restart grant – for hospitality/ gyms/ hairdressers and similar businesses. Businesses such as shops and hospitality reopening from April 2021 can apply for grants up to £18,000.

Recovery loans – “Bounce Back” loans will be replaced with new “recovery loans”. Businesses can apply for loans from £25,000 to £10M but businesses will need to consider carefully – will it be wise to take on even more debt?

“Help to Grow” scheme – £520M will be introduced to help companies’ growth after the pandemic. The scheme will provide access to digital and management services.

This will be a new online platform offering free advice on technology that to help businesses save time, reduce costs and reach more customers.

Vouchers will be given to eligible SMEs, up to £5,000 each, to get up to 50% off the purchase of new productivity enhancing software.

Culture Recovery Fund – The Fund will receive an additional £300M.

There will also be an extra £90M for museums and cultural bodies in England with £18.8M for community cultural projects.

£77M will be awarded to similar projects in Scotland, Wales and Northern Ireland.

Not enough for everyone so let’s see how it’s spread around.

Sports recovery – £300M is to be provided to sports (including cricket, tennis and horse racing) to aid recovery along with £25M support to grassroots football.

95% mortgages – from April 2021 various banks are on board including Virgin.

The new mortgage guarantee scheme will enable all UK homebuyers secure a mortgage up to £600,000 with a 5% deposit.

May push up property prices though.

A new green savings bond will be issued via National Savings and Investments (NS&I).

Funds raised will be used to fund projects on renewable energy and ‘clean’ transportation but the interest rates have not been announced as yet.

Missing from the Budget

No change to the process for taxing dividends received by individuals.

No Capital Gains Tax changes such as alignment of Capital Gains Tax rates with income tax rates or any reduction of the “annual exemption”.

No mention of any “online sales tax”. Yet. (Not to be confused with the 2% “digital sales tax” introduced by last year’s Budget)

ISA investment limits are unchanged.

Many urged the government to make permanent the £20 per week universal credit uplift and to include measures to address social care. Neither were included in the announcements, reportedly, to the annoyance of MPs David Davies and Jeremy Hunt.

And finally …some government departments are facing cuts in real-terms.

According to the Institute for Fiscal Studies the figures for government spending in the red book imply that, outside protected budgets for health, education, defence and international aid, other departments face real-terms spending cuts.

Info here…..

https://www.moneysavingexpert.com/news/2020/10/paypal-to-introduce-p12-yr-fee-for–inactive–accounts—act-now/

Making Tax Digital (MTD) is already operational for VAT registered businesses over the VAT threshold £85,000.

It will be extended.

Well we knew it was coming, covid or no covid, brexit or no brexit.

From April 2022 MTD will be extended to ALL VAT registered businesses with turnover below the VAT threshold.

From April 2023 MTD will apply to ALL self-assessment tax returns for businesses or property income of more than £10,000 a year.

That may seems like a long way off but we all know time passes quickly.

Our advice is to make sure your tax affairs are up to date as quickly as possible – and stay that way – AND ensure that books/records are organised, spick & span.

Preparation is the key. Always.

I very much doubt HMRC will provide the necessary software to handle the new rules. That means everyone will have to buy their own software and learn how to use it in a compliant manner.

At the moment our Making Tax Digital clients are using a variety of different software. The hope is that companies will increase their program offerings to the public to accommodate these new requirements.

Obviously if you need any help or guidance on this MTD nonsense as time goes by just let us know.