Government U-turns and delays have made it harder than ever to keep up with the changes in tax due this year. Here’s a quick round up to help you make sure there are no unwelcome surprises.

Extended freeze on income tax thresholds

The freeze on income tax thresholds was originally set to end in 2025-26, but will now continue until April 2028.

As salaries increase, the freeze on tax thresholds could tip you over into the next tax bracket in the coming years, meaning you will potentially pay more.

On top of that, the Additional Rate tax threshold fell in the Autumn budget. From April this year, it drops from £150,000 to £125,140. Because of that, around 25,000 more people will have to pay income tax at 45%, costing them on average £1,200 more.

This table sums up the new thresholds and tax rates, as of April 2023:

Tax band	Income Threshold	Rate of tax
Personal Allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £125,140	40%
Additional rate	Over £125,140	45%

National Insurance latest

In April last year National Insurance increased by 1.25% with the ‘Health & Social Care Levy’. Then the contribution threshold was raised in July to £12,570.

But in September’s Mini Budget, the levy was abolished and National Insurance dropped back to 12% for those earning £12,570 to £50,270. For people earning more than £50,270 it fell from 3.25% back to 2%. These rates are expected to stay the same for at least the next 12 months.

Allowance on Capital Gains and Dividend tax reduces

There is a big change coming this year on Capital Gains Tax. From April, the tax free allowance will drop from £12,300 to just £6,000. It will fall again in April 2024 to £3,000.

If you sell a second property, the basic rate for Capital Gains Tax over that threshold is 18%, and 28% for a higher rate taxpayer. For other assets, you will pay 10% at basic rate and 20% at higher rate.

From April the dividend allowance will reduce from £2,000 to £1,000, and to just £500 in April 2024. Dividend tax rates for 2023/24 are:

Basic rate – 8.75%

Higher rate – 33.75%

Additional rate – 39.35%

Corporation Tax increases

From April 2023 onwards, the main rate of Corporation Tax will rise from 19% to 25%, unless your business profits are £50,000 or less, in which case you will still pay 19%.

This change was first announced by Rishi Sunak in March 2021, was then scrapped in the Mini Budget, and reinstated in October 2022.

There is ‘marginal relief’ on the new tax rate, which means that your business will pay a rate between 19% and 25% depending on your annual profit. For an idea of what you’ll pay, there’s a useful corporation tax calculator here.

Inheritance Tax threshold freeze

The Inheritance Tax threshold has also been subject to a freeze. The ‘nil rate band’ will stay at £325,000 until April 2028. This threshold has not changed since 2010.

Inheritance tax is charged at 40% on any assets or cash over this threshold.

Stamp Duty help

Stamp Duty rates changed in the Mini Budget, and this is one area where we haven’t seen a U-turn. The new thresholds are set to remain the same until April 2025.

Now, first time buyers have no stamp duty to pay on any property up to the value of £425,000, an increase from £300,000. Existing homeowners won’t pay duty on the first £250,000 of the property. This limit was previously £125,000.

Need some help understanding what this means for you? We’re here to help with any tax matters for individuals, sole traders and limited companies in the Lune Valley and the surrounding areas. Contact us today .

Here’s what it means for you…

From April 2026, sole traders earning over £50,000 will say goodbye to self-assessment. People in this bracket will have to then use Making Tax Digital (MTD) for their income tax. The following year, in April 2027, this will apply to any sole trader earning over £30,000.

This timetable has changed – the initial deadline was originally April 2024. HMRC announced the delay in December 2022.

How it works now

At the moment, sole traders use the Self Assessment system and complete a yearly tax return. This is how you tell HMRC what your income has been, minus any business-related allowable expenses.

Some people fill in their own Self Assessment form, whiles other appoint an accountant to do it for them.

What will change in 2026

If you earn over £50,000 as a sole trader – or as a landlord from rental income – you’ll need to adopt Making Tax Digital (MTD) for Income Tax from April 2026.

Essentially, that means you’ll need to use accounting software to digitally manage your records relating to income tax.

As part of MTD you will need to:

• Send an update to HMRC at least every three months via your software, for each business you run, as below:

	Period covered	Filing deadline
Quarterly update 1	6 April to 5 July	5 August
Quarterly update 2	6 July to 5 October	5 November
Quarterly update 3	6 October to 5 January	5 February
Quarterly update 4	6 January to 5 April	5 May

• Provide an End of Period Statement (EOPS) for each business by 31 January, covering the previous tax year. The EOPS summarises income, allowances and adjustments for the business.
• Provide a final declaration by 31 January after the end of the tax year. This states your total income from self-employment across all your businesses. The final declaration is how you calculate income tax and National Insurance contributions for the year.

Are income tax rules changing too?

No – there are no changes to the rules with MTD. Allowable expenses, personal tax allowances and National Insurance contributions all stay the same.

You’ll continue to pay your tax and National Insurance in the same way.

Why is the government bringing in Making Tax Digital?

Generally the aim is to get better visibility – both for HMRC and for you as a business owner. You will have a more regular look at your income tax and the cash flow in your business.

It’s not complicated – and in fact many people will find it easier once they’ve switched to digital. A lot of the process is automated, depending on the software you choose.

Are there benefits for me and my business?

Generally, the financial insight you gain could make it easier to plan for growth. You will have a better understanding of the money coming into and going out of your business, and how you could save for future investments.

It’s also easier to spot trends and understand the seasonal performance of your business.

Very importantly, you’ll also get a much better idea of what your income tax bill will be. A lot of people set aside around a quarter of their income to cover their income tax – but with the quarterly updates you’ll have a clearer figure in mind.

Will it take a lot of time?

Your new system might take a bit of getting used to, but the reporting itself is straightforward. Software companies are making it as easy as possible to create the quarterly update you will send to HMRC, for example. You will just need to select an option and the report will be compiled for you to check. It is a similar process for the EOPS and final declaration.

How do I find accounting software?

HMRC has shared a list of recognised MTD software suppliers. The best known of these are Sage, QuickBooks and Xero. If you’re unsure about your options, contact us for advice.

Can an accountant do it all for me?

Yes – we can do the periodic updates, EOPS and final declaration on your behalf.

Do I need to do anything now?

The MTD deadline is a few years away, but there are a few things you could do to get ready:

1. Explore accounting software if you’re not already using it.
   
   
2. Align your ‘financial year’ with the tax year (6 April to 5 April) if it’s different. This will make things simpler in future and is in fact a legal requirement for MTD. If you need to make that change, it needs to happen in 2023/2024. 
   
   
3. Start using digital apps to record your expenses. Many let you take a photo on your smartphone and upload them directly to your accounting software.

We’re here to help on all of this – whether you just need some advice or you’d like us to take responsibility for your accounting. Just get in touch for a chat.

As Lune Valley accountants we work with many sole traders and landlords locally. We also manage payroll services and corporate accounts. Get in touch

If you’re starting to think about your next self-assessment and tax bill, you may be able to reduce the amount you owe by claiming for business expenses.

What are allowable expenses?

Allowable expenses are essentially the costs of running your business, as defined by HMRC. You can deduct these costs from your business accounts before you start paying tax on the profits you make.

Expenses can significantly reduce most sole traders’ tax bills. If your turnover is £60,000, for example, and you claim £15,000 in allowable expenses, you only pay tax on the remaining £45,000.

What can I include?

Examples of allowable expenses, as listed on the government website, include:

• office costs such as stationery or phone bills
• travel costs, e.g. fuel, parking, train or bus fares
• clothing expenses such as uniforms or protective clothing – but not businesswear.
• staff costs: salaries or subcontractor costs
• stock or raw materials
• insurance and bank charges
• costs of your business premises: heating, lighting, business rates
• advertising, marketing and website costs
• professional services – e.g. an accountant or lawyer
• training costs

Is there an easy way?

It can be complicated to work out the specific cost of running your company, especially if you work from home. You can use simplified expenses, which set flat rates for tax relief on vehicles, working from home and living on your business premises.

If you work from home, you can claim a proportion of your costs for heating, electricity, council tax, mortgage interest or rent and your internet/telephone use. You will need to keep records of your business miles, hours you work at home and how many people live at your business premisses over the course of the tax year.

You can find flat rates for vehicle milage, working at home and living in your business premises on the government website.

Can I claim for pension contributions?

Your pension payments are not seen as a business expense, so you can’t claim for these. However, you automatically gain tax relief on your contributions, which is claimed for you by your pension provider.

Is business entertaining an allowable expense?

Client entertaining – such as taking a business contact out for lunch – is not an allowable tax deduction. You can claim the cost back from your business, but it cannot be deducted from your profit to reduce tax.

How do I claim my business expenses?

The simplest way is to track your expenses using your accounting software, or by keeping detailed records for your accountant. Generally, it’s a good idea to keep clear records, and hang onto them for five years in case HMRC have any queries.

If you have any queries about what you can or can’t include, or how to use the flat rates, contact a good accountant or tax advisor for support.

Need more clarity about allowable expenses for your company? As accountants for small businesses in the Lune Valley we’re here to help with tax advice, payroll services and much more. Get in touch today.

23 September 2022

The new chancellor, Kwasi Kwarteng, has delivered a mini-Budget featuring a string of tax cuts. The stated aim is to ‘deliver growth for the economy’.

This mini-budget had been billed as new Prime Minister Liz Truss’ response to the ongoing cost of living crisis.

Reversing National Insurance increase

A 1.25 per cent cut to National Insurance was announced, effectively reversing the increase announced last year by Boris Johnson, designed to help fund the NHS and social care.

The ‘Health and Social Care Levy’ was due to come in in April 2023 at a rate of 1.25 per cent. Liz Truss has now scrapped this plan. The new National Insurance rate will come into force on 6 November 2022.

If you pay National Insurance through Self-Assessment, this reduction means you’ll retain more income. The Treasury says that the new approach will save taxpayers an average of £330 each a year.

Income tax cuts brought forward

The basic rate of income tax has been cut by 1p to the pound. Rishi Sunak had originally promised to deliver this by 2024, but today it was announced that this would take effect in April 2023.

People earning between £12,571 and £50,270 will now pay income tax at 19%. This is the first time that basic rate income tax has been reduced since 2008. Estimations are that this will mean £170 more per person, per year, for 31 million taxpayers.

The chancellor also announced that the 45% tax band for people earning more than £150,000 a year will be scrapped from April 2023. They will pay income tax at 40%, along with anyone else earning a salary of more than £50,271.

Energy support for businesses

Details of the Energy Bill Relief Scheme were announced on 21 September. The scheme sets discounted gas and electricity unit prices on non-domestic contracts for six months, starting on 1 October.

No increase to corporation tax

Previous plans to gradually raise corporation tax 25 per cent have also been scrapped. Corporation tax will remain at the rate of 19 per cent. It was originally scheduled to increase in April 2023.

Other announcements

Another key move in the mini-budget was a permanent cut to stamp duty.

Property buyers will now pay no stamp duty on the first £250,000 of a property purchase (up from £125,000), while first-time buyers will only pay stamp duty on properties over £425,000 (an increase from £300,000).

Other measures announced included the following:

• unlocking pension fund investments
• scrapping the bonus cap for city bankers
• introducing minimum service levels to reduce strike action in industries like the rail sector
• VAT-free shopping for overseas buyers
• the Bank of England to remain financially independent
• expansion of the Enterprise Investment Scheme

Will there be an autumn Budget later this year?

There is usually a Budget in October, and it is expected that this will still take place. Having said that, no date has been set at present.

Need a bit more clarity about what the Budget means for you or your business? As small business accountants in the Lune Valley, we provide tax advice, payroll services and much more. We’re here to help, so contact us today.

National Insurance increased in April – but in July the threshold changed. Could this mean you save money?

In April, new rates of National Insurance rates came into play, as part of the Government’s changes to Health & Social Care budgeting. We explored this change in this blog last year, which essentially increased most people’s National Insurance costs by 1.25%.

But on 6 July, the thresholds for paying National Insurance increased – which is a game changer for a lot of people.

How will the changes affect me?

It all depends on how much you earn. People on lower incomes – around 30 million of us – will benefit, gaining a little more in their pay packet. Meanwhile those in higher income brackets will pay more in National Insurance.

Plus, 2.2 million people will no longer have to pay NI, as their salary will come under the threshold.

What are the new NI rules?

On 6 July the NI threshold – the minimum amount you need to earn to make contributions, became the same as the income tax threshold.

Now, you no longer pay National Insurance or income tax if you earn under £12,570 a year. That’s a fairly big jump up from the previous NI threshold of £9,880 which applied from April 2022.

The change was announced in March 2022 by the Chancellor of the Exchequer, as a response to the rapidly rising cost of living.

What if I earn more than the NI threshold?

You will still feel the benefit as you will pay less National Insurance overall, because a smaller proportion of your salary is over the threshold. It means you will pay less than you did before 6 July.

Around 30 million people are set to pay less National Insurance, with an average benefit of £330 per year. This applies for anyone earning up to £40,000 a year.

Those on higher salaries will pay more, however. Around a third of the UK’s working population will still pay more NI now than they did in March.

The table below sums up how much people in different income brackets will pay.

Annual salary	NICs in 2021-22	April NICs	July NICs
£20,000	£1,251	£1,340	£984
£30,000	£2,451	£2,665	£2,309
£40,000	£3,651	£3,990	£3,634
£50,000	£4,851	£5,315	£4,959
£60,000	£5,078	£5,667	£5,311
£70,000	£5,278	£5,992	£5,636
£80,000	£5,478	£6,317	£5,961
£90,000	£5,678	£6,642	£6,268
£100,000	£5,878	£6,967	£6,611

Does this change again next year?

From April 2023, the 1.25% increase in NI will move into a new Health and Social Care Levy, at the same rate. It will be paid separately from National Insurance as a standalone tax.

As a result, NI rates will fall again – but you won’t see any difference in your pay because of the Levy.

There are also changes on the way for pensioners. People still working after the state pension age (currently age 66) don’t currently pay National Insurance. But from April 2023 the new levy will be deducted from the earnings of those still in employment.

What do the NI changes mean for my pension?

Your National Insurance record affects the level of state pension you are entitled to. But if you no longer earn enough to pay NI, you won’t necessarily miss out on state pension credits.

You will still gain qualifying years for the state scheme if your income is over the “lower earnings limit” with your employer, which is currently set at £123 a week or £6,396 a year.

If you’re self-employed, you will still gain National Insurance credits if your profits are above £6,725 for the 2022/23 tax year.

Need help with tax, pensions or other personal planning in the Lune Valley? Just get in touch, we will be pleased to help.

We’re often asked about the process of setting up a business and are always happy to help and advise. There are a number of important things to have in place to make sure your new company complies with UK law and is protected should anything go wrong.

In this month’s blog we take a look at the legal documents you should have a place when starting up a new business – specifically, a limited company.

Main steps to set up a company

There are a few steps to creating a business:

1. Get advice on whether a limited company is the right approach
2. Choose a company name, directors and a company secretary (they might all be you!)
3. Decide on shareholders – you need at least one
4. Prepare legal documents (as per below)
5. Register your company with Companies House

Legal documents you will need

• Memorandum of Association

This is a legal statement where you agree to form the company. It needs to be signed by all shareholders. BUT if you register your company online, the Memorandum of Association is created automatically as part of the process. If you register by post, you can use a government template for the Memorandum.

• Articles of Association

Every limited company that is set up must have Articles of Association. This sets out how the company is to be run and how decisions will be made by its directors. It includes rules about offering share options to staff and how you will run director meetings.

Again there is a template you can use when registering with Companies House, called the model articles. You can change your document over time as your company develops.

• Shareholders Agreement

While there isn’t a legal requirement to have a shareholders agreement, if you have more than one shareholder – including if this is your spouse – it’s a very good idea to get this document in place. Like most legal contracts, it’s there to prevent future conflicts and resolve disagreements.

The shareholders agreement sets out the rules to follow if a partner wants to sell their shares in the business or if they decide to leave.

Legal documents to consider

• Supply of Services Agreement

A Supply of Services Agreement is a contract setting out what your company will do for the customer or client.  These agreements are essential business tools for professional trading and business relationships. Without clearly defined and agreed contracts there’s a risk of misunderstanding because you and your client have different expectations. By setting our all the details clearly, you can protect both your own company and your customer.

• Statement of Work

If you work with your clients on a project basis, this is a useful document. It sets out the scope of the project, how long the project will take and the objectives to be met. It’ll also state how much the project will cost and what the client will receive at the end.   

• Non-disclosure Agreements

If you and your client will be sharing confidential information, a non-disclosure agreement is a document where you (or your client) confirm that they will not disclose the information to any third party. The agreement will define what is confidential and how long it is valid for.

• Directors’ Service Agreements

Directors have certain duties to a company that are not generally covered in a standard employment contract. This document will set out the director’s specific role and duties, their role in decision-making and the benefits they’re entitled to. There are commonly clauses preventing the director from setting up a company that competes with yours in the future.

There are many more legal agreements and guidelines to consider, depending on the focus of your new business – all of which are there to protect you in all kinds of scenario. There’s no substitute for qualified legal advice, and we will always point you in the direction of professional support as necessary. But for an initial conversation about setting up a business and what’s involved, we’re highly experienced and very happy to help.

As Lune Valley accountants we can help with drafting and submitting financial statements and many other services for small businesses. Contact us today.

One of the main reasons to set up your own company is to reduce your liability for tax. But how does this work and how much should you pay yourself?

There’s no standard amount to set as your salary, and it’s well worth seeking advice on what works best for you. But generally, most limited company directors choose to pay themselves a low salary topped up with dividends.

Your salary is an ‘allowable business expense’, which reduces how much Corporation Tax your company pays.

What to consider in setting your personal salary

1. State pension access
If you set a salary at above the Lower Earnings Limit you will continue to qualify for your state pension. The Lower Earnings Limit this tax year is £6,396.

2. Minimum wage

As a company director, you’re not subject to the National Minimum Wage unless you have a contract of employment in place.

3. Income Tax

Income up to the Personal Allowance is free from Income Tax. This threshold is currently £12,570.

4. National Insurance

If your salary is above the National Insurance (NI) ‘Lower Earnings Limit’ (£6,396) but below the NI ‘Primary Threshold’ (£9,880 per year), you won’t pay NI contributions as an employee, but you do retain your State Pension contribution record.

If you take a salary of more than £9,100 (the NI ‘Secondary Threshold’), your limited company will have to pay National Insurance contributions.

What’s the general approach to setting a salary?

Many company Directors choose a salary that is above the Lower Earnings Limit – so they qualify for the state pension – but below the level where they need to pay either employee or employer’s NI. Currently, that means a salary of £9,100.

Topping up your income with dividends

Once you have set your salary at a certain level, you can add to this by taking dividends – a share of the company’s profits.

You can take all your annual profits as dividends, just a proportion, or none of them. Your company can retain profits over the years and distribute them as and when you (and any other shareholders) wish.

There are three main benefits of taking dividends:

1. They attract lower rates of income tax than salary
2. National Insurance Contributions are not payable on dividends (neither employer’s nor employee’s)
3. There is a tax-free dividend allowance on top of your personal allowance. In 2022/23 this is £2,000 – so you can earn up to £12,570 without paying tax.

An important thing to be aware of is that you can only take dividends when the company has turned a profit. If you take dividends over the level of your profit, the difference is seen as a Directors Loan.

Income tax vs Corporation Tax

A limited company is a very tax efficient businesses structure because limited companies pay corporation tax on their profits of a flat rate of 19%. Meanwhile a sole trader will have to pay Income Tax on all taxable earnings, at a rate of 20% if they are a lower rate taxpayer, or 45% if they are charged at the higher rate.

Sole traders cannot minimise their tax or National Insurance liabilities, or defer tax by leaving profits in the business to withdraw later.

Example

The following example is based on a company making a profit of £40,000 in the tax year. The Limited Company Director takes a salary of £9,100 and tops their earnings up via dividends.

	Sole Trader	Limited Company
Profit	£40,000	£40,000
National Insurance Class 2	£156	£0
National Insurance Class 4	£2,823	£0
Income Tax	£5,500	£0
Corporation Tax	£0	£5,959
Dividend Tax	£0	£1,465
TOTAL after tax	£31,520	£32,574

Generally, a Limited Company Director is slightly better off from a tax position than a sole trader. Also, a limited company enjoys more business expenses that can be deducted from profits before tax.

On the other hand, there are various responsibilities that Limited Companies must meet, such as filing statements, creating formal accounts and managing other paperwork. Most limited companies choose to appoint an accountant to manage this for them.

We work with limited companies and sole traders to provide tax advice, company accounting and payroll services. Get in touch with us today

It’s no secret that costs are rising rapidly in the UK and the wider world, not least with the pressure of soaring oil prices, energy bills, increasing wages and the cost of materials.

Research by The British Chambers of Commerce found earlier this year that 73% of UK firms are planning to raise prices.  62% said rocketing energy bills are a driving factor behind the need to increase costs, and this figure rises to 75% for manufacturers.

Small business owners are feeling the pain of these rising costs, compounded by rate rises that are mean debt repayments are also increasing. But what can you do to mitigate the impact of this worrying trend?

1.    Increase your prices

If you haven’t already responded with a price rise, it’s likely to be the most effective solution. As we’ve seen above, almost three quarters of UK businesses are planning to put prices up.

Some estimates anticipate that inflation will hit 8% this year. Restaurants and hotel prices rose steeply in March and are expected to increase again now that the hospitality VAT cut has now expired as we recover from the pandemic.

All businesses are understandably nervous about putting prices up, but your profit margin is crucial to success.

2.    Introduce new price-efficient products and services

If you’re in a particularly price-sensitive market, a further solution is to introduce keenly priced offers for your customers. The aim is to offer customers a less-expensive way to retain your services that preserves your profit margin. Think of a supermarket own brand – it provides the same product but saves on brand reputation, packaging and marketing costs.

You might achieve this be sourcing cheaper resources, transport options or by scaling back what you offer.

3.    Review your spending

To reduce the impact of costs, you need to be clear about how much you’re spending and on what. Reviewing your monthly and annual outgoings often highlights that you are paying for services and products that are not essential. Now is the ideal time to cut back on unnecessary payments.

An important part of this is reviewing and benchmarking your suppliers – whether that be your energy provider, IT service or cleaning services. It’s likely these costs will increase too in the coming months, so shop around to make sure you’re getting the most effective deal.

4.    Look for efficiencies

There will always be ways that your business can operate more efficiently. With fuel costs at a premium, can you reduce your transport costs? Replace face to face meetings with online appointments; make fewer trips to your supplier; group your deliveries by location.

There may be an option to downsize your premises or sublet your space for an extra income. Look too at reducing your energy consumption. Turn equipment off overnight, lower the thermostat, even sell business equipment that is rarely used.

5.    Seek advice

Don’t suffer in silence. If you’re unsure of the right course for your business in the current economic environment, seek help. Talk to other business owners, contact the government’s business support helpline or talk to your accountant.

Accountants like us can be a big help in helping you prioritise what’s important, seeking out possible options for funding, find ways to reduce your tax and suggest other ideas that you may not have considered. We work with many small businesses and have a great deal of experience to draw upon.

Find out how we can help as accountants in the Lune Valley. We provide everything from bookkeeping services and payroll to tax returns. Get in touch.