News


MTD ('Making Tax Digital')

The introduction of the Government's flagship MTD tax system started on 1st April 2019 in respect of VAT compliance, but only for businesses with an annual turnover of £85000 and above; VAT registered entities below that threshold must enter MTD from 1st April 2022.

However, aside from VAT, the core thinking behind MTD is that income tax matters will be dealt with online and so in due course all businesses and larger landlords will have to keep digital details of their income and their costs (by expenses type) and submit these details to HMRC on a quarterly basis. After several postponements the planned start date for this 'full' income tax related version of MTD is now 1st April 2023.

Please see our 'MTD' page for full details or access it by clicking here.


Sale of Residential Property - Capital Gains Tax changes

In respect of a residential property sale/disposal, other than when it has been 100% someone's principle private residence, HMRC's disclosure rules changed with effect from April 2020.

Previously, the associated capital gains disclosures were submitted to HMRC as part and parcel of that tax year's Tax Return, with any capital gains tax (CGT) being remitted with usual Self Assessment tax - usually at the end of the following January. However the new rules require the necessary disclosures to be made online to HMRC within 30 days of the disposal date (usually the completion date) and all related CGT must be paid to HMRC within that same time scale.

Due to the strict timings involved it means that considered estimates may have to be used in respect of certain figures, not least of which may be an estimate of the applicable tax rate payable (the latter is dependent upon the overall level taxable income received, which may not become apparent until the end of the tax year in question). As a result the CGT disclosures will still need to be subsequently entered onto the relevant annual Tax Return; by that time it is assumed that 'actual' figures will be available, and so those details will then take precedent over what was submitted previously to HMRC. If necessary, the liability will then be adjusted either up or down so as to match to the final calculations.

Penalties will be applied if submissions are made after the statuary 30 day period and this also applies to late payment of the related tax.


VAT Reverse Charge for the Construction Industry

To help counter fraudulent use of the VAT system the Government intends to introduce new VAT rules for the construction industry known as the Domestic Reverse Charge rules or DRC for short; in this instance 'domestic' refers to the UK, and not residential related works. Implementation was originally set for 1st October 2019 although subsequent deferrals mean that the new rules came into force on 1st March 2021.

Once the DRC rules are in place, in simple very terms it will mean that a VAT registered CIS subcontractor will no longer add VAT to their invoice when they issue it to their contractor; should there be further tiers of subcontractors / contractors then the process will repeat up the line until the end user is eventually billed, at which point the appropriate VAT will be charged as normal.


Personal Allowance and Higher Rate Threshold

From 2021/22, and until 2025/26, the annual Personal Allowance will be set at £12,570.

In England the next £37,700 of income is taxed at basic rate and so by default a taxpayer will start to pay higher rate tax of 40% once their annual gross income goes above £50,270 (the starting point rate at which additional rate tax of 45% comes into play remains at an assessable income level of £150,000 per annum). This threshold will also be maintained until 2025/26.


Dividends

Tax changes mean that basic rate taxpayers will now potentially have to pay personal tax on dividend income above £2,000 per annum, and higher rate taxpayers face an increased tax charge.


£1000 Trading Allowance / £1000 Property Income Allowance

In essence the respectively allowance can be claimed against business income or property income in lieu of claiming the actual associated costs. Should income be less than £1000 then the allowance must be restricted accordingly as it is not allowed to exceed income - i.e. both of these allowances can not be used to create a loss.


Corporation Tax

In respect of companies generating an annual profit of £250,000 or more the current uniform corporation tax rate of 19% will be increased in April 2023 to 25%. Although companies making £50,000 or less will be still subject to the 19% rate, and those with profits in the range of £50,000 to £250,000 will effectively be charged at a tiered tax rate somewhere in between (known as a 'marginal rate').

Associated companies will be reviewed together to determine the overall level of profits earned, and so therefore the overall tax rate to be applied. An associated company will usually be one that is either controlled by another company or is controlled by the same person or persons. 

However, any company classed as close investment holding company will be charged the 25% tax rate irrespective of the size of its profit. To be categorised as such a company will be non-trading and have five or fewer directors.


£4,000 Employment Allowance

For 2021/22 the annual Employment Allowance is set at £4,000. Therefore, dependent upon certain conditions, most small employers will be able to recoup the first £4,000 of their Employers' National Insurance Contributions for the tax year in question. However, year to year 'carry over' of any unused allowance will no longer be permitted, and any business paying annual employer's NIC of over £100,000 will no longer qualify for the allowance. 


P11Ds

Previously, unless covered by a formal HMRC dispensation, virtually all reimbursements to directors or employees had to be reported each year via a form P11, even if no tax or national insurance resulted. However, subject to some important conditions, certain trivial reimbursements to employees and directors can now be ignored from the benefits in kind regime.


Worldwide Income

HMRC is clamping down on taxpayers who receive overseas income of any kind that is not subsequently declared on their UK Tax Return.

Updated cross-border agreements mean that previously unobtainable details regarding foreign bank accounts or assets etc are now readily being made available to HMRC; so much so that counties previously synonymous with financial secrecy, such as Switzerland, are now sharing data.

HMRC intend to charge penalties when previously undisclosed overseas income comes to light.








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