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Tax Update July 2023

Welcome to the July 2023 Tax Update. In this edition we take a look at Super Deduction’s replacement, the extended deadline for topping up NI contributions, the VAT flat rate scheme, working from home, school fees plans, and this month’s events on the accounting horizon.

If you need any help or advice on any of these topics, please do not hesitate to contact our friendly and experienced Tax Team on 01384 376 964

SUPER-DEDUCTION REPLACED BY ‘FULL EXPENSING’

In the Spring Budget the Chancellor announced that ‘full expensing’ – 100% relief for new, eligible plant and machinery – would replace the 130% super-deduction from 1st April 2023 for limited companies. This is in addition to the £1 million annual investment allowance (AIA) and will be available for expenditure incurred up to 31st March 2026.

Unlike with AIA, the equipment must be new and must qualify for inclusion in the capital allowances general pool.  The legislation specifically excludes motor cars and assets for leasing. The items purchased are not pooled with other equipment, and a separate record needs to be kept of each piece of equipment. That is because there is a clawback charge based on the disposal value of the asset.

Where the company’s year end straddles 31st March 2023, the amount of super-deduction is pro-rated. For example, if the company had a year end of 30th September 2023, and incurred expenditure on a new machine before 31st March 2023, there would be 115% relief for that equipment. A new lorry purchased in May 2023 would only qualify for 100% full expensing.

Where a company buys new equipment that would normally be dealt with in the capital allowances special rate pool, such as the installation of air conditioning or central heating, the 50% first year allowance (FYA) continues to apply until 31st March 2026. The balance of expenditure would then be dealt with in the special rate pool with a 6% writing down allowance per annum on a reducing balance basis. Where the £1 million AIA is available it would be more advantageous to claim AIA at 100%, rather than the 50% FYA.

DEADLINE FOR TOPPING UP NI CONTRIBUTIONS EXTENDED AGAIN

Taxpayers now have until 5th April 2025 to fill gaps in their National Insurance record from April 2006 that may increase their State Pension – an extension of nearly 2 years…

To find out more, visit our recent Insight update by CLICKING HERE

SHOULD SMALL BUSINESSES STILL USE THE VAT FLAT RATE SCHEME?

The VAT Flat Rate scheme was introduced in 2002 to simplify VAT reporting for small traders, reducing the time taken to calculate VAT and prepare returns compared to normal VAT accounting. With the extension of Making Tax Digital to all VAT registered businesses, those traders are now required to keep digital records and, arguably, the time-saving benefits have reduced. The decision as to whether or not traders should use the scheme should now be based on the amount of VAT payable and the risk of making errors.

If you are unsure whether your should be on the VAT Flat Rate scheme or not, please do not hesitate to contact us for advice on 01384 376 964.

CAN WE STILL BE PAID £6 A WEEK FOR WORKING FROM HOME?

During the COVID pandemic the government relaxed the conditions to enable those working from home to be paid £6 a week tax free by their employer, or, where that was not paid by the employer, they could claim relief for £6 a week against their employment income for a tax refund from HMRC. Those relaxed rules applied for 2020/21 and 2021/22. Many employers and employees may not be aware that from 6th April 2022 the rules reverted to the strict statutory position. Employees can claim tax relief if they have to work from home under a homeworking agreement, for example because:

  • their job requires them to live far away from the office,
  • their employer does not have an office, or
  • the office is closed every Friday and employees are required to work from home that day.

Tax relief cannot be claimed if the employee choses to work from home.

HMRC CHALLENGING A MARKETED SCHOOL FEES PLAN

HMRC frequently warn taxpayers that when a tax avoidance scheme looks ‘too good to be true’, it probably is. They publish ‘Spotlights’ on their website to alert taxpayers of schemes being marketed by promoters that are under scrutiny, and, in their opinion, do not work. Tax avoidance schemes need to be notified to HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) rules, normally by the scheme promoter. HMRC then issue a DOTAS scheme reference number (SRN). This does not mean that the scheme is HMRC approved, although some promoters claim this in their marketing literature.

If taxpayers have used the scheme and received the SRN from a promoter or supplier, they must tell HMRC that they have used the scheme, usually when submitting a tax return.

The school fees plan that HMRC are challenging broadly involves the grandparents of the children investing in the parents’ company at an undervalue, and then transferring those shares to a trust. The company then pays dividends to the trust, which are used to pay the grandchildren’s school or university fees. It is argued that the payments from the trust are the children’s income and takes advantage of their £12,570 personal allowance and lower tax rates.  HMRC contend that the arrangements are a “settlement” by the parents and, as such, the payments should be taxed on them at their rates of tax.

Not all school fees plans are tax avoidance schemes. Please contact us if you are approached to implement a scheme similar to that outlined above.

ON THE ACCOUNTING HORIZON

  • Wednesday 5th July – Last date for agreeing PAYE settlement agreements for 2022/23 employee benefits
  • Wednesday 5th July – Deadline for agents and tenants to submit returns of rent paid to non-resident landlords and tax deducted for 2022/23
  • Thursday 6th July – Deadline for forms P11D and P11D(b) for 2022/23 tax year. Also, the deadline for notifying HMRC of shares and options awarded to employees.
  • Wednesday 19th July – PAYE & NIC deductions, and CIS return and tax, for month to 5/07/23 (due 22/07/23 if you pay electronically)
  • Monday 31st July – 50% payment on account of 2023/24 tax liability due.
  • Thursday 1st August – Corporation tax payment for year to 31/10/22 (unless quarterly instalments apply).
  • Monday 19th August – PAYE & NIC deductions, and CIS return and tax, for month to 5/08/23 (due 22/08/23 if you pay electronically).

Folkes Worton LLP Chartered Accountants
Accounting for the Future

Meet the Tax Team

Matthew Morris FCCA CTA
Tax Partner
Dan Simpson ACA
Chartered Accountant
Ellie Smith ATT
Tax
Jack Taylor
Accountant