Summer 2022 Newsletter
It is a tough time for both families and businesses, with higher prices and staff shortages causing difficulties that are witnessed every day, from supermarkets to airports. Those under fifty will struggle to remember such difficult economic times, with inflation at a 40-year high.
On 26th May, the Chancellor announced the introduction of several new tax-free payments to families to help them deal with the increased cost of living. These are being partly funded by a windfall tax on the energy companies, even though the Chancellor did not use the term. Many experts feel that further measures will be needed later in the year, unless there is an unexpected reduction in inflation.
Perhaps unsurprisingly, given all the business support schemes from the pandemic, the Chancellor has focussed his support on families rather than businesses, many of which are struggling due to higher energy costs and wages. However, there are many other issues that businesses need to be aware of currently, including imminent changes to National Insurance Contributions thresholds and, in future years, changes in the way that, and frequency with which, unincorporated businesses and landlords must report their profits to HMRC. We discuss these issues and many more in this newsletter.
With a Budget due in the autumn and the possibility of further announcements before then, please get in touch if you need to discuss any tax issues relating to your family or business.
MTD for VAT Sign Up
MTD for VAT is now compulsory for all VAT-registered businesses from their first VAT period that starts on or after 1 April 2022. There are two vital steps to take before the transition to MTD can be completed for those not already using MTD.
Taxing Cryptocurrencies
There is currently no specific law that determines how cryptoassets (bitcoin and similar) and decentralised finance (DeFi) transactions should be taxed, but that doesn’t mean any profit made is tax-free. It is subject to tax either as sundry income or as a capital gain.
Trivial benefits for Directors
As a company director it very important to keep your personal money and the company’s money completely separate. If you use the company’s funds to pay your personal bills, that is treated as a loan to you for tax purposes.
If you use the company’s debit card to buy personal items, the value of those purchases should be credited to your director’s loan account, but there are exceptions.
NIC Threshold Changes in July 2022
National Insurance Contributions (NIC) rates increased for everyone by 1.25 percentage points from 6 April 2022, but the thresholds from which employee NIC are payable are being raised significantly from 6 July 2022 (see table).
This means that most employees will have more NIC deducted from their pay in April to June and more low earners will pay no NIC from July 2022 onwards.
Delays for VAT Groups
Setting up a VAT group can help to reduce administration costs, as transactions between the companies within the group are VAT-free and a single VAT return can be submitted for the whole group.
However, HMRC has been taking months to react to requests to set-up, amend, or delete a VAT group. This leaves those companies that want to be part of the VAT group, or which wish to leave it, in VAT limbo.
Reporting COVID Grants
COVID grants provided to businesses from the furlough scheme, the self-employed scheme or Eat Out to Help Out are taxable. They need to be declared on the business’s corporation tax or income tax self-assessment return.
Preparing for MTD for Income Tax
Self-employed individuals need to start thinking about how to prepare for the six reports per year they will need to submit to HMRC under the MTD for Income Tax Self-Assessment (MTD ITSA) regime.
Most sole traders and landlords (not partnerships or companies) will need to comply with MTD ITSA from 6 April 2024. This may seem a long way in the future, but there is a lot to do before then.
Helping your Employees
The cost of living crisis is hitting everyone, including small businesses. You are required to raise the wage rates of employees on the National Minimum Wage by 6.6% for pay periods starting from 1 April 2022, but some employees may still be struggling to make ends meet.
Here are a few things your business could do to help those employees; these ideas are all tax-free for the individual, except for the small benefit charge on electric cars.
Employee Benefits and Expenses P11D Reporting by July 6th 2022
Expenses and benefits provided to employees in the tax year to 5 April 2022 need to be reported to HMRC on a form P11D (or online equivalent) by 6 July 2022.
HMRC has been discouraging employers from using paper P11D forms for some time and in recent years it has provided an interactive PDF form for submitting the information online. However, this PDF form has previously led to numerous problems, so this year HMRC has scrapped that method of submitting the P11D.
Self Employed NIC
Most self-employed individuals pay Class 2 NIC (which provides entitlement to state benefits) and Class 4 NIC (which doesn’t). Traders with low profits may only pay Class 2 NIC, which is £163.80 for 2022/23.
The profit levels from which both Class 2 and 4 NIC are payable are being aligned for the first time in the current tax year at £11,908. From 6 April 2023 the starting point for income tax, NIC and the new Health and Social Care Levy, all payable by the self-employed, will be aligned at £12,570.
This is a welcome simplification, but as with all tax there is a hidden complication.
Registering foreign-owned properties
Owning UK property through overseas entities is about to become a far more transparent affair.
Companies, trusts, partnerships and similar entities, which own UK property and are governed by the law of a country outside of the UK, will soon have to register with Companies House in the UK. This includes companies and trusts based in the Channel Islands.
Back to The Future?
It is a tough time for both families and businesses, with higher prices and staff shortages causing difficulties that are witnessed every day, from supermarkets to airports. Those under fifty will struggle to remember such difficult economic times, with inflation at a 40-year high.