On Wednesday October 30 the Chancellor Rachel Reeves presented Labour’s first Autumn budget in 14 years.

She confirmed her priorities as putting ‘more pounds in people’s pockets’, improve living standards and restore economic stability. Overall, the budget measures will raise an additional £40 billion in tax.

Below, we explore key elements from the Budget that will affect small businesses and individuals.

National insurance increase

Employees will not pay more national insurance directly, but from April 2025 employers’ national insurance contributions will increase by 1.2 percentage points to 15%. The NI threshold reduces from £9,100 to £5,000.

Recognising the potential impact of this on Britain’s smallest businesses, Ms Reeves is increasing Employment Allowance from £5,000 to £10,500. The chancellor says this means 865,000 employers won’t pay any National Insurance at all next year, and over one million will pay the same or less as they did previously.

Minimum wage increase

Reeves confirms that the ‘national living wage’ – the legal minimum for over 21s – will increase by 6.7% to £12.21. This equates to £1,400 a year for an eligible full-time worker.

A single adult rate will be phased in over time, to eventually equalise pay for under 21s.

No rise to income tax

Income tax will not increase, and the ongoing freeze in income tax thresholds will end in 2028. This will reduce the flow of taxpayers moving into higher tax brackets as salaries increase with inflation.

Business rates

Businesses will receive 40% relief on business rates for retail and hospitality up to a cap of £25,000.

Capital gains and inheritance tax

Capital gains tax will increase, with the lower rate moving from 10% to 18%, and the higher rate from 20% to 24%.

The government is extending the freeze on the threshold for inheritance tax, allowing £325,000 to be inherited tax free; £500,000 where property is involved and £1m by passing allowances on to a spouse.

£2bn in tax will be raised by reforming reliefs for business and agricultural assets. Beyond £1m, such assets will attract inheritance tax at 20%.

State pension spending to increase

Labour will make sure that “the people who powered our country receive the pension they are owed”, and remains commitment to the triple lock. Spending on the state pension is projected to rise 4.1% in 2025-26, equating to a £470 increase for over 12 million pensioners in the UK.

Fuel Duty

The chancellor rejected the option to increase fuel duty, and is maintaining the 5p cut from the previous government.

Electric Vehicles

To continue to support the take-up of electric vehicles, existing incentives will be retained in company car tax from 2028. The government will also increase the differential between fully electric and other vehicles in the first rates of Vehicle Excise Duty, as of April 2025.

Stamp Duty

Reeves announces the government will increase stamp duty land surcharge for second homes by 2% to 5% from 31 October 2024. There are no changes to the duty rates for First Time Buyers or people moving home.

Other measures

The additional tax will be raised in a variety of ways, with further announcements including:

• A new levy on vape liquid, which will be increased in line with tobacco.
• A cut in draught duty by 1.7%, which equates a penny off a pint in the pub.
• The non-dom tax regime will disappear from the tax system from April 2025, impacting UK residents whose permanent home for tax purposes is outside the UK.  According to the Office for Budget Responsibility, this package of measures will raise £12.7bn over the next five years.
• Private school fees will now be liable for VAT, and private schools will lose business rates relief from April 2025.
• Air passenger duty is to increase, at a level of an additional £2 on an economy short haul flight. But the duty for private jet passengers will increase by 50% to around £450 per person.

Inflation and growth forecasts

The chancellor will maintain the Bank of England’s 2% target for inflation.

Inflation will average 2.5% in 2024, rising to 2.6% in 2025 and dropping to 2% in 2029. Inflation was at 1.7% in September, below the Bank of England’s 2% target, down from 11% in October 2022.

The Office for Budget Responsibility slightly upgrades its growth forecast for this year but adjusts them down in later years. GDP growth is forecast to be 1.1% in 2024 and 1.6% in 2030.

Want to explore in more detail what the latest rules will mean for you or your business? As leading small business accountants in the Lune Valley we’re happy to advise. Get in touch with us today.

Last year, HMRC received more than 130,000 reports of scams and phishing attempts. With fraudsters becoming ever more sophisticated in their attempts to fool us, it’s important to know what to look out for.

We round up the latest advice and examples of phishing and fraud.

Text or WhatsApp messages

The number of fraudulent text messages has increased by more than a third in the past year. HMRC does send texts out in some situations, but never asks you for personal information.

A common approach is to claim you are due a tax refund, supplying a link. HMRC only sends links to information on the gov.uk website or to HMRC website.

Don’t click on any links unless you are certain they are legitimate, and if the link is to a form requesting information, close it down.

If you have subscribed to the UK Government Channel on WhatsApp, you might receive occasional tax-related reminders. These will be single messages and you will not be able to reply. HMRC will not communicate with you for any other reason using WhatsApp.

Send any suspicious messages to HMRC on 60599 (network charges apply).

Letters

HMRC recently shared an example of a misleading fraudulent letter that has been in circulation. A copy is below. The letter requests the recipient to email copies of recent bank statements, filed accounts, VAT returns and passport information.

It’s a convincing-looking letter – but one clue is a long and complicated email address. All genuine correspondence from HMRC should end in @hmrc.gov.uk.

QR codes

HMRC does use QR codes in letters and correspondence. The QR code will usually take you to guidance on the GOV.UK website – and if not, the letter will explain the destination for the code.

You will never be taken to a page to input personal information.

Send any suspicious emails or other materials containing QR codes to phishing@hmrc.gov.uk and delete them.

Emails

HMRC will never send notifications by email about tax rebates or refunds.

Don’t click on links in a ‘tax rebate’ email or open any attachments. Never disclose personal or payment information.

Fraudsters are good at making email addresses look genuine – but you can often detect suspicious details by clicking on the sender name. If you are unsure, forward it to HMRC’s phishing address and then delete it.

Phone calls

People are reporting an automated phone call scam that suggest HMRC is filing a lawsuit against you, asking you to press a button to speak to a caseworker and make a payment. You should end a phone call like this immediately.

Other scam calls may refer to National Insurance number fraud, or offer a tax refund, and ask you to provide bank or credit card information.

To help HMRC investigate, share any call details such as the date and phone number used via this online form.

Refund companies

Some companies send emails or texts offering to claim tax refunds or rebates on your behalf, usually for a fee. These companies are not connected with HMRC in any way. You should read the ‘small print’ and disclaimers before using their services.

What to look for

Although online criminals work very hard to make their scams appear real, there can often be a few tell-tale signs that things are not as they seem. Watch out for:

• Spelling errors and untidy formatting
• Email addresses that don’t look genuine
• Any form that requests financial information or personal details
• Strange website addresses that are not part of gov.uk

Helpful rules to follow

The Metropolitan Police suggests following these rules to prevent fraud:

• Be suspicious of all ‘too good to be true’ offers and deals.
• Don’t agree to an offer immediately. Insist on time to get independent or legal advice first.
• Don’t hand over money or sign anything until you’ve checked someone’s credentials and their company.
• Never send money to anyone you don’t know or trust, or use methods of payment you’re not comfortable with.
• Never give banking or personal details to anyone you don’t trust.
• Always log on to a website directly rather than clicking on links in an email.
• If you spot a scam or have been scammed, report it and get help.

What to do if you fall victim to a scam

If you think you’ve fallen victim to fraudsters, contact Action Fraud on 0300 123 2040 or at Action Fraud.

Remember that if you’re a victim of a scam or an attempted scam, however minor, there may be hundreds or thousands of others in a similar position. Your information may be vital in completing the picture.

Don’t be embarrassed – many people fall victim to online crimes each year because fraudsters are experts at deception.

For further advice on tax, tax refunds and staying safe as a taxpayer, we can help. Get in touch with our team today.

If you plan to set up a small business, the structure you choose can make an important difference. It can influence the amount of tax you pay, how you pay it and how the business operates.

Each type has its pros and cons, and the best way to set up your new venture will depend on your circumstances.

Here’s a quick guide to the different types of operating structure.

What type of business structure do I need to be self-employed?

Being self-employed just means you work for yourself. You can set up any type of business and still be self-employed.

What are the different types of business structure?

There are several types of legal structure to choose from when you set up a business in the UK. The main options are:

• Sole trader
• Limited company
• Partnership
• Limited Liability Partnership (LLP)

What is a sole trader?

In a sole trader set up, you’re the sole owner of your business. In legal terms, operating as a sole trader means there’s no distinction between you as an individual and you as a business. That means you keep all the profits you make after paying tax and National Insurance, but you’re also personally liable for any business debts.

Running your business as a sole trader is often the most straightforward option. Registering is quick and easy, and business admin is simpler.

But a sole trader set up might not be suitable for every business owner. Being personally liable for any business debts could, for example, put your home at risk if the business can’t pay its bills.

For some businesses, it’s more tax efficient to operate under a different business structure. Sole traders are taxed differently from a director of a limited company.

How do I start up as a sole trader?

Anyone can become a sole trader, and you won’t need to tell HMRC about the business if you earn less than £1,000 per tax year from self-employment. If your self-employed earnings are higher than this, you’ll need to register your sole trader business.

You don’t need to register with Companies House like a limited company, but you will need to sign up for self-assessment with HMRC.

Setting up a limited company

A private limited company exists as a legal entity in its own right, that’s separate from you as the owner or director.

That protects your personal assets if the company can’t pay its bills, but it also means that any profit the business makes belongs to the company.  You will need to decide how to pay yourself from the business.

Anyone can form a limited company. You don’t need employees or partners or a minimum amount of money to set up a business. Those requirements only apply if you’re starting a public company. You’ll need to register the business with Companies House.

Partnerships

A partnership is also registered as a business with HMRC, but not with Companies House. It’s a structure for a business where you and one or more partners work together.

Partners can be individual people or other companies. Each partner is jointly liable for everything that happens in the partnership – you share the profits as well as the risks.

Partnerships don’t pay any tax as an entity. Each partner must submit their own tax return, reporting their share of the income. They pay tax depending on how they are set up individually – as a sole trader or limited company, for example. Each partner is responsible for submitting their own tax return and paying tax.

How do I set up a partnership?

The partnership chooses a name and one partner acts as the ‘nominated partner’, to deal with legal admin like registering the partnership with HMRC.

Each partner will also need to register within in the partnership. Most partnerships also set out a written agreement, confirming how profits will be shared and how someone can leave the partnership if they choose to in future.

Limited Liability Partnerships (LLP)

A Limited Liability Partnership (LLP) puts a limit on how much the partners are liable for company debts. It limits how much partners invest in the business and guarantee personally against loans.

Unlike general partnerships, LLPs must register at Companies House.

At least two partners need to be ‘designated members,’ who file account information about the partnership. Each partner must also register as self-employed with HMRC and pay tax on the income they earn from the business.

Again, it’s a good idea to create a partnership agreement detailing how profits are shared and confirming individual roles and responsibilities.

Can I change from one type of business structure to another?

Yes, and it’s very common to switch from one type of structure to a different one. For example, many people become self-employed as a sole trader, and then later incorporate the business as a limited company as it grows.

Or, you might decide to take on a partner. It’s a good idea to seek advice to make sure you follow the correct procedures.

Need some advice about the type of business structure that might work best for you? Just give us a call. As small business accountants in the Lune Valley, we can advise you on business structure, tax returns, accounting, payroll and more. Get in touch!

We’re often asked for advice on whether or not to buy an investment property via a limited company.

The answer, as always, is that it depends on the circumstances. There are pros and cons to either approach, as we explain in this month’s blog.

The options

You can either buy property personally or through a limited company, also called a property investment company or Special Purpose Vehicle (SPV).

If you buy personally, the deeds and mortgage are in your name, and you pay income tax on your rental profits.

Or, you can set up a limited company, owned by you. The company buys the properties, the mortgages are in the company name and the company pays corporation tax on the rental profits.

Benefits of Buy to Let through a limited company

There are a few good reasons why people set up a limited company to buy property…

1. Better taxation of mortgage interest. A limited company can offset 100% of the mortgage interest, reducing the profit and therefore the tax due.
   
2. Lower taxation for higher rate taxpayers. If you’re a higher rate taxpayer or plan on owning multiple properties, there can be a tax saving.  Rental profits are taxed at the current rate of corporation tax, which tends to be around 50% of higher rate income tax.
   
3. Flexibility. You have flexibility around what you do with the profits. You can invest in further properties, save into a tax-efficient pension or take dividends. That flexibility can help with tax planning.
   
4. Good for growing portfolios. If youplan to expand your property portfolio, there are usually tax savings via a limited company. You can retain your profits in the company for future purchases and protect them from tax.

5. Inheritance tax and legacy planning.  If you plan to pass your properties onto your family in future, it’s simpler to transfer a limited company than a property. Because the company owns the property, that can protect against stamp duty, inheritance tax and capital gains tax liabilities.

Disadvantages of limited companies for Buy to Let

There are a few things to be aware of before you decide to set up a limited company for investment properties.

1. More expensive for basic rate taxpayers. If you’re a basic rate taxpayer and you plan to own one to two properties, it may not benefit you to set up a limited company. If your salary is likely to remain under the higher rate tax threshold and you have no plans to buy more property, it makes sense to buy in your personal name.
   
   
2. Additional legal responsibilities and costs. As a company director, you need to keep accurate financial records and submit accounts and returns to Companies House and HMRC. Most people appoint an accountant to deal with this, which is an added cost.
   
3. Double taxation. In a limited company, you pay corporation tax on your profits. If you want to take money as a salary or dividends, you’ll also pay income tax. There are strategies to mitigate double taxation, so seek advice before setting up your company.
   
4. Capital gains tax considerations. If you sell a rental property personally, you’ll need to pay capital gains tax – but you do get a tax-free allowance. A limited company doesn’t get the tax-free allowance, but the rate of tax is lower. If selling property is a key part of your strategy, get some tax advice.
   
5. Mortgage costs. Buy to Let mortgages are more expensive for a company. Lenders charge higher interest rates and fees to limited companies compared to individuals. But stress testing is often more favourable for limited companies. A mortgage broker can advise on the best deals for you.

I already own Buy to Let property – should I transfer it into a limited company?

Moving your property into a limited company is not cheap or straightforward. You will sell each property to your company, which can generate numerous costs:
Stamp duty: Your company will have to pay stamp duty when buying the property. Check the stamp duty thresholds and bands on the government website. You usually pay 3% on top of these rates if you own another residential property.

Capital gains tax: If the market price is higher than your original purchase price, you are personally liable to capital gains tax at 18% or 24%, depending on whether you are a basic or higher rate taxpayer.

Early repayment fee: A penaltymay apply if you end your mortgage early to switch to a company Buy to Let mortgage.

Mortgage costs: There will be costs to secure a company Buy to Let mortgage for the property. Limited companies have fewer mortgage options, which could mean higher interest rates.

Legal fees: These will also come into play for transferring properties and updating the Land Registry.

Everyone’s situation is different. Whether you’re starting out as a landlord or you already own Buy to Let property, it’s important to seek tax and mortgage advice so you can make an informed decision.

Need some tax advice on Buy to Let? We can help. As Lune Valley accountants we provide personalised support to many landlords in the city. Contact us today.

Not all tax-free allowances disappear at the end of the tax year, which can help save you money. We explore those that do, and those that don’t.

Tax allowances that you can carry forward

1. Your pension allowance

You can pay 100% of your annual income into your pension up to a maximum of £60,000 a year. Those contributions are also boosted by tax relief at the same rate as your income tax.

And in fact, with carry-forward rules, you could pay in even more and still get a top-up, because you can also use any pension allowance left over from the last three tax years.

This year, then, you could pay into your pension and get tax relief on as much as £200,000. That’s based on two years with a £40,000 allowance, plus two years at the higher rate of £60,000 (this changed in 2023).

There are more rules and criteria involved, but this can be a helpful approach for higher earners who have a variable income, or people with a lump sum to pay into a pension.

2. Your inheritance tax gifting allowance

Cash gifts are considered ‘potentially exempt transfers’ from inheritance tax if your estate were to qualify. They become totally tax free if you live for seven years.

You can also give away up to £3,000 a year free of inheritance tax and, if you didn’t use last year’s allowance, you can carry that forward too. That means a couple that hasn’t gifted before could give away as much as £12,000 in one go.

Also, if your child is getting married, you can give them up to £5,000 tax free to mark the occasion. You can give £2,500 to grandchildren too, which could contribute towards a deposit for their first marital home.

3. Capital losses

Losing money on an investment is painful, but if you keep a record of losses and report them to HMRC, they could be helpful in the future.

While the capital gains tax allowance can’t be carried forward, investment losses can be – and you can offset use against capital gains to potentially reduce your bill.

Don’t worry if you haven’t reported losses from previous years, because HMRC gives you four years to report a loss.

Allowances that disappear if you don’t use them

1. Capital gains tax allowance

Under your capital gains allowance, you can keep some investment profits each year tax-free, although the allowance has shrunk a lot – in just two years it has dropped from £12,300 to £3,000.

Because the allowance is now small, it pays to be strategic in how you benefit from your investments. It’s now less appealing to let your gains pile up.

Imagine you make around £500 a year on an investment. If you let this accrue and sell the investment after 10 years, your gain could be £5,000. You would have to pay tax on £2,000 of that gain.

Instead, you could take advantage of the annual allowance, selling a portion of the shareholding annually. If each sale was under the annual exempt amount, you wouldn’t lose out to capital gains tax.

2. The dividend allowance

Dividends are taxable too and, like capital gains, this allowance has also been cut in recent years. It currently stands at £500 a year.

The tax is 8.75% for basic-rate taxpayers, 33.75% for higher-rate and 39.35% for additional rate.

Married couples could transfer assets between each other and use both sets of allowances to reduce their exposure to the dividend tax.

Another helpful option is to make the most of both your ISA and pension allowances to grow your money tax free.

3. ISA allowance

Money kept in individual savings accounts (ISA) is fully protected from tax. There’s no tax on interest or dividends, or when you take money out.

So, it really does make sense to use your £20,000 ISA allowance each year. You can’t carry this forward.

Married couples can effectively amass £40,000 a year tax free between them. If you still have spare cash beyond that, you could pay into a Junior ISA for a child or grandchild too. This has a £9,000 allowance.

Want to explore how to minimise the tax you pay? Get in touch – as Lune Valley tax specialists and accountants we can help you assess the most tax-efficient way to manage your money.

For businesses with profits over £50,000, corporation tax rose on 1 April 2023. If you’re looking to find ways to reduce your tax liabilities this year, here are some helpful options to consider.

How much corporation tax do you have to pay?

If you own a limited company, you’ll need to pay corporation tax on the profits your company makes.

As of 1 April 2023, a higher rate came into effect for companies with profits over £50,000. The corporation tax rate rose from 19% up to 25%. Meanwhile companies with profits below £50,000 continue to pay the 19% rate.

As a result, many companies are seeking ways to reduce their profits below the £50,000 threshold.  Some of the following options may help you achieve this.

1. Employer pension contributions

If you have your own limited company, paying into a pension via your business could help you save on tax. You can make employer contributions to your pension from your company account.

Employer contributions are normally treated as a business expense, so you won’t pay corporation tax on these.

If the pension contribution is made in place of a certain amount of salary, you and your company will also save on National Insurance.  Plus, you personally wouldn’t pay any UK income tax on this amount until you access your pension.

Most people have an annual pension contribution allowance of £60,000. But you might be able to ‘carry forward’ unused allowances from the three previous tax years.

2. Claim for all business expenses

Claim for everything you spend through your business – no matter how big or small it might be. Each claim will reduce your profits, and therefore how much corporation tax you pay.

You can claim for office equipment, advertising costs, travel expenses and training courses – anything you spend purely for business purposes.

Do keep a record of your expenses. Without a record, HMRC could refuse to accept your claim.

3. Make a charity donation

Limited companies can pay less corporation tax if they gift money to a charity or community group. The value of any charity donations is deducted from total business profits, before tax is paid.

4. Use Capital Allowances

Capital Allowances allow businesses to gain tax relief on the depreciation of assets and equipment. It can be helpful to time future expenditure carefully to maximise tax savings. 

The Annual Investment Allowance gives full tax relief when spending up to £1m on assets and equipment. A good accountant will help you make the most of this.

5. Additional relief for capital expenditure

Limited companies can also benefit from full tax relief for capital expenditure.  For most qualifying plant and machinery, companies can claim a deduction of 100% of the cost of the assets, effectively giving a tax saving of up to 25%.

This relief is particularly useful for companies that fully utilise their £1m Annual Investment Allowance.

The eligible assets must be new and unused, and there are exclusions for items like cars – although, under current rules, 100% relief can still be claimed for zero-emission cars. 

6. Claim R&D Tax Relief

Research & Development tax relief allows companies to claim tax savings for innovation.

You could qualify for R&D tax relief with any project that drives measurable improvements in science or technology – so if your company is paying people to solve technical problems, there may be scope to claim. Examples include:

• Creating a new product – or improving an existing one
• Adjusting a manufacturing process
• Developing bespoke software

The relief available is generous. A small business with £100k of qualifying costs, for example, could save an extra £21k in tax. Claims can also go back two financial years.

Larger companies can claim under the RDEC scheme.

 7. Optimise company structure

As businesses expand, they can end up with many different activities within a single company – or different companies established for each activity. Both can create tax inefficiencies.

It can be helpful to have an accountant review your structure. Options might be to create a group structure, with a holding company owning the subsidiaries. This way the various activities are legally separate, but gain tax benefits by operating within a group.

Alternatively, shareholders could hold individual companies directly, which can be more tax efficient if an individual company is likely to be sold.

8. Tax relief for losses

There are lots of ways to claim back tax on losses, which can vary depending upon details. Sometimes losses from particular activities can be surrendered for a cash payment rather than waiting to offset them against future profits.

The timing of relief is particularly important, now that different rates of tax can apply to specific tax years or different companies within a group.

 9. Reinvest after selling business assets

If your business sells a business asset and reinvests in replacement assets, the gain you make can sometimes be deferred until you then sell that replacement asset is sold.  This will reduce the amount of corporation tax owed.

10. Receive rent from the business

You can charge your business rent for using a property. For example, if you work from home, you can set up a formal arrangement to charge rent on the part of your property used by the business. Seek advice on this, as there are some consequences to be aware of.

Need more help with reducing corporation tax? As accountants for small businesses in the Lune Valley we’re here to help with tax advice, accounting services and much more. Get in touch today.

If you run a business that pays tax via self-assessment, a new HMRC reform will probably affect you. Called the Basis Period Reform, it could impact how you report your profits to HMRC for the 2023/24 tax year onwards.  You might even end up paying more tax than you need to.

Why is the basis period reform being introduced?

HMRC says the basis period reform will “create a simpler, fairer and more transparent set of rules for allocating trading income to tax years”.

The issue is that under the previous system, two identical businesses with different accounting dates could have very different annual taxable profits.

The reform is designed to remove this difference and make things fairer.

What’s changing and when?

As of 6 April 2024, a new ‘tax year basis’ now applies to sole traders and partners who are subject to income tax. 

Under the tax year basis, these businesses will be taxed on the profits from a tax year (6 April to the following 5 April), no matter when their accounting period ends.

It will replace the ‘current year’ basis, where tax is calculated on the profits of the accounting period ending in that year. 

Who does this impact?

The reform applies to ‘trading businesses subject to income tax’ – which means sole traders and individual partners in a partnership. Companies are not affected and corporation tax rules are not changing.

Also, if you happen to do your accounts between 31 March and 5 April, you are also unaffected. Your accounting period is already the same as the tax year.

Property income is already reported on a tax year basis so should not be affected by the change.

What do sole traders and partners need to do?

If your business has a year-end other than 31 March to 5 April, you will need to apportion amounts from two sets of accounts to calculate your profits for every tax year from 2024/25 onwards. The current tax year is a ‘transitional’ phase in which we switch over from the current year basis of assessment to this new tax year basis.

How do I calculate profits for the new system?

You will need to look at two sets of accounts to calculate your taxable profits each year. The advice is to do this based on days. 

Here’s an example. A business whose year-end date is 31 December would need to apportion 270 days from the year ended 31 December 2024 (covering 5 April 2024 to 31 December 2024) and 95 days from the year ended 31 December 2025 (1 January 2025 to 5 April 2025).

The figures are used after adjusting for non-deductible expenses and capital allowances.

What if my accounts aren’t ready in time?

If your latest year’s accounts aren’t ready by the time you need to complete a self-assessment, you need to estimate the figure from the second set of accounts and file a provisional figure. That provisional figure will need to be corrected later.

HMRC doesn’t explain how to calculate that provisional figure – it will depend on your business, its size and complexity. You just need to ensure the estimate is reasonable and can be justified. Keep a record of how you came to the figure used.

Provisional figures are corrected by amending the original return as soon as the actual number is known. HMRC has said provisional figures can be corrected at any time up to the normal amendment deadline. For tax year 2024/25, this deadline is 31 January 2027.

How will it work in 2023/24?

The current tax year is a transitional year, where we swap over to the new tax year basis.

In 2023/24 businesses will be taxed on the profits of:

• The 12 months starting with the end of the basis period for 2022/23 (the ‘standard’ part)
• The period from the end of the standard part to 5 April 2024 (‘transition’ part)
• For most businesses, the standard part will effectively be the profits under the current year basis. The transition part then takes you from the end of that period up to 5 April 2024.

What is Overlap Relief and can it help?

Overlap relief can reduce your taxable business profits. Overlap relief is based on ‘overlap profits’, which can arise if your business has not always had an accounting-period ending between 31 March and 5 April.

Overlap profits can arise in the first two or three years of a business or in any year where you change accounting date.

What’s spreading and could it be helpful?

Spreading is a way to reduce the tax impact of additional profits being brought into account due to these changes.

As above, overlap relief should be deducted from any transition part profits in 2023/24.  Additional profits after this are called ‘transition profits’, and can be spread over up to five tax years.

But in some instances spreading is not available, including:

• If deducting overlap relief from the transition part profits results in a loss
• Where there is an overall loss for 2023/24 (looking at the standard part, transition part plus overlap relief).

How does spreading work?

The general approach is for 20% of transition profits to be brought into account in 2023/24, and a further 20% in each of the following four tax years.

It’s also possible to bring in more transition profit in any one tax year. The business can choose any additional amount to bring into account. Any remaining transition profits are then spread equally over the remaining period.

This ability could be useful you are paying less tax than usual in any tax year. You might have had a large expense or lower income that year, for example.

Spreading must be noted on the self-assessment return, and the deadline is one year after the filing date for that return.

Where can I get help with all of this?

The new basis reform period can seem a bit daunting and it’s important to get it right so that you pay the correct amount of tax. We’re here to help. For specific advice for your business just get in touch.

Worried about basis period reforms and what it means for you? We’re here to help. As small business accountants in the Lune Valley, we can advise you on tax returns, accounting, payroll services and much more. Get in touch

On Wednesday 6 March 2024 Jeremy Hunt presented the Spring budget. He explained that while interest rates remain high to bring down inflation, his budget would help families manage the higher cost of living with permanent cuts in taxation. He described it as a ‘budget for long term growth.’

Mr Hunt announced that inflation is expected to fall below the government’s target of 2% in ‘just a few months’ time. Inflation in January 2024 was 4%.

Below, we explore the Budget developments that will affect small businesses.

Cuts to National Insurance

The main rate for employee national insurance will be cut from 10% to 8%. People earning £50,000 per year or more stand to save £754 annually as a result. For those earning £35K to £50K the saving is £449, and with incomes of £25k to £35K, people will save £249 per year.

Self-employed national insurance contributions will reduce from 8% to 6%, thought to mean an annual saving of £650 for 2 million people. 

VAT threshold increase

The VAT registration threshold will increase from £85,000 to £90,000 from April 1 2024 – the first increase in seven years. Hunt said: ‘This will bring tens of thousands of businesses out of paying VAT altogether and encourage many more to invest and grow.’

Full expensing for leased assets

Hunt announced his intention to publish draft legislation for full expensing to apply to leased assets. This is an extension of the full expensing tax scheme for investing in new plants and equipment, announced in the Autumn 2023 budget.

This is likely to be a welcome development, as leasing is often a more viable strategy than purchasing for small businesses.

Freeze on fuel duty

Fuel duty will remain its current level for another year. The levy should rise in line with inflation – but this has not happened since 2011. A 5p cut to fuel duty, introduced in 2022, was due to end this month but has been extended.

Recovery Loan Scheme extension

Hunt vowed to provide £200 million of funding to extend the Recovery Loan Scheme as it transitions to the Growth Guarantee Scheme. This is expected to help 11,000 SMEs access much-needed finance.

Capital Gains Tax change

The government plans to raise more money by reducing the higher rate of property Capital Gains Tax from 28% to 24%. Hunt is also abolishing multiple dwellings tax relief, which previously reduced stamp duty liability when buying more than one home in a single transaction.

Holiday lettings tax relief to end

In response to lobbying from MPs representing coastal towns, the tax benefits of running a furnished holiday let business will be abolished.

Increased maximum income for Child Benefit

Hunt says 500,00 families will gain almost £1,300 from an increase to the high income threshold for Child Benefit. The threshold will go up from £50,000 to £60,000.

The tapering limit will increase to £80,000 from the current £60,000.

There are also plans to change how child benefit is paid, by applying the threshold to households rather than individuals.

Childcare

Free childcare hours for parents of children aged over nine months will continue for the next two years. Hunt says this will allow an extra 60,000 parents enter the workforce in the next four years.

Want to explore in more detail what the latest rules will mean for you or your business? As leading small business accountants in the Lune Valley we’re happy to advise. Get in touch with us today.

HMRC uses some clever tactics to keep an eye on UK taxpayers and their activities, by making the most of the data available.

Here we look at some of the ways HMRC gathers information – and why it’s so important to make sure you keep your tax affairs in order.  

General information powers

HMRC can legally request any information ‘reasonably required to check a taxpayer’s tax position’. It’s mainly used in an enquiry, but it is not limited to those – it can be applied to potential tax fraud situations too. 

HMRC can also ask third parties for information about taxpayers, such as banks or letting agents. Since 2021, HMRC can approach financial institutions without having first to seek your consent. 

Looking for unregistered businesses

HMRC actively searches for non-registered businesses and income that hasn’t been declared. It uses online search tools, reports from members of the public and information from other government departments to watch for potential tax evasion.

It also has Connect, a sophisticated software application which explores large volumes of information to detect patterns and inconsistencies. It’s thought to look at information including bank interest, credit card data and information from the Land Registry.

Other key sources of information include:

• customer lists from websites selling luxury items or services
• policyholder lists from insurance companies
• letting agents’ books
• mortgage providers
• property websites
• socia media

HMRC is said to use social media sites to identify people who appear to be living beyond their means – taking lots of luxury holidays and buying high end cars, or offering properties to let on a short or long term basis.

Targeting landlords and certain professions

HMRC has targeted commonly ‘non-compliant’ pockets of the economy for years, including tradespeople and – interestingly – solicitors and doctors. In more recent times, it has focused on Buy to Let income and money earned from second jobs.

Local authorities that require landlord licences have become a big asset to HMRC in identifying people who often own a portfolio of properties in a single town or city.

Small businesses are also under the microscope – especially where cash-in-hand could be involved. Around half the UK ‘tax gap’ originates from small and medium sized businesses.

Offering rewards

HMRC has a public hotline where people can report tax fraud of all kinds, which receives more than 100,000 tip-offs per year.  The informants are encouraged by the offer of financial rewards for a successful conviction.

Publicised wins

An example of HMRC’s successful detective work is the discovery of an escort agency operating from a multi-million pound property in London, after credit transactions were linked to the property. The owner admitted making more than £100,000 per year, tax free, for more than five years.

What to do if you’re worried

You will generally benefit from disclosing any wrongdoing to HMRC as soon as possible, rather than waiting for them to come to you. That way, you’re less likely to be prosecuted. Cooperating fully could also reduce any penalties you might face.

If you have received a letter saying that HMRC suspects you have been involved in tax fraud, there is some guidance here: https://www.gov.uk/guidance/admitting-tax-fraud-the-contractual-disclosure-facility-cdf. It’s a good idea to seek professional advice in this situation.

Get tax advice and support

The safest way to make sure you’re not scrutinised by HMRC is to check that you are paying the correct tax. By working with a reputable accountant you can make sure that all your records are correct and you’re paying the right amount of tax when it’s due.

As Lune Valley tax specialists and accountants, we’re here to help you manage your tax, whether you’re a landlord, a small business owner or you have more than one source of income. For more information, contact us today.

Many of our SME clients want to take some or all of the profits from their business and use them personally. There are ways to reduce the amount of tax you pay on those profits, so that your business is operating as efficiently as possible.

Here are five options to consider in how to take the profit from your company.

1: Taking a small salary

Paying a small salary can be tax-efficient if the recipient is not using their personal allowance elsewhere. Paying a salary at least equal to the Lower Earnings Limit for National Insurance purposes (£533 per month for 2023/24) will make sure the year counts towards state pension qualification.

The ideal salary will depend on whether your company is eligible for the National Insurance Employment Allowance, which shelters you from National Insurance costs on salary.

In a case where the personal allowance is available in full, and Employment Allowance is not available – which is common where a sole employee is also the director – it makes sense to pay a salary equal to the Primary Threshold.  In 2023/24 this is £11,908.

If the Employment Allowance is available, an optimal salary equals the personal allowance, set at £12,570 for 2023/24.

2: Using dividends

Dividends are paid out of post-tax profits, which have already been subject to corporation tax.

All taxpayers benefit from a dividend allowance, set at £1,000 for 2023/24, so paying a dividend up to this amount is free from further tax.

Once you’ve taken an optimal salary and used your dividend allowance, if you want to take further profits it’s usually best to take dividends rather than additional salary. Dividend tax rates are lower and there is no National Insurance to pay on these.

Remember, dividends must be paid in proportion to shareholdings, and they can only be paid if you have sufficient profit to pay them. If you take dividends over the level of your profit, the difference is seen as a Directors Loan.

3: Making pension contributions

Your company can also make pension contributions on behalf of the director. The pension contributions can usually be deducted in full from pre-tax profits. As long as the contributions are within the available annual allowance and below the level of the lifetime allowance, there will be no tax charges on the recipient.

4. Paying rent

Many small businesses are based at home, and your company can pay rent for a room from the director. This is tax efficient, as the company benefits from deducting the rent from profits for corporation tax purposes.

Although the rental income to the director is taxable, they may be able to benefit from the property income allowance to receive £1,000 of rent tax-free. Another advantage of paying rent is that there is no National Insurance to pay.

5: Applying benefits-in-kind

Giving directors and family employees benefits-in-kind can be very tax efficient. A mobile phone, workplace parking or health insurance are tax-free to the employee and the company can deduct the cost from its taxable profit. Most benefits in kind are free of National Insurance.

Some benefits-in-kind can still be tax efficient even if a tax charge applies. It may be beneficial for the employee to have an electric company car, for example, rather than be given more salary to pay for the car.

The most beneficial approach in reducing your tax will depend on your specific circumstances. It’s a good idea to talk to an accountant for advice on how to manage your company’s finances in the most efficient way.

As Lune Valley accountants we help limited companies and sole traders with tax advice, company accounting and payroll services. Get in touch