New tax year ahead

Employers running payroll need to report to HM Revenue and Customs (HMRC) on the previous tax year (which ends on 5 April), give their employees a P60 and prepare for the new tax year, which starts on 6 April.

HMRC have published important information for employers on gov.uk, which includes:

• help finishing the tax year 2021 to 2022 (https://www.gov.uk/payroll-annual-reporting);
• help starting the new tax year 2022 to 2023, by using their form P9X (2022) to find out which tax codes to change from 6 April 2022 (https://www.gov.uk/government/publications/p9x-tax-codes);
• information on the rates, limits and changes for 2022 to 2023 (https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2022-to-2023) and this includes the increase in National Insurance rates for the 1.25% Health and Social Care Levy; and
• their Employer Bulletin from February 2022 (https://www.gov.uk/government/publications/employer-bulletin-february-2022) – this edition contains information about sending in the final payroll submission for the tax year 2021 to 2022.

Big Tax Bills for the Self-Employed in 2022/23

Earlier this month we mentioned that draft legislation has been published to change the basis periods for the assessment of self-employed profits to coincide with the tax year. The proposed new rules provide that from 2023/24 onwards profits or losses will be apportioned to tax years where the period of account does not coincide with the tax year. This is intended to coincide with the start of Making Tax Digital for income tax.

The transitional rules proposed for the previous 2022/23 tax year could result in large tax bills for some sole traders and partners, particularly those with an existing 30 April year end.

The profits of year ended 30 April 2021 would be taxed in 2021/22 under the current rules with 2023/24 taxing profits arising between 6 April 2023 and 5 April 2024 under the new rules. But what about 2022/23?

The profits taxed in 2022/23 would be those for year ended 30 April 2022 plus the period 1 May 2022 to 5 April 2023 - in total 23 months profits!

The good news is that there would be a deduction for 11 months “overlap relief” which typically arose when profits were taxed twice at the start of the business - but those will often be much lower than the extra 11 months being taxed in 2022/23!

The transitional provisions allow the taxpayer to elect to spread the excess profits over the next 5 tax years to smooth out the excessive tax bill.

We can work with you to advise you on how much to set aside to cover these additional tax liabilities.

6th August 2021 – Hillmans Weekly Update

Below I have summarised all the main tax related updates we have seen this week.

• Coronavirus Job Retention Scheme – Update
• Self-Employment Income Support Scheme update
• Abolition of Basis Periods and New Tax Year End?
• MTD Coming Soon for Income Tax

If you have any queries about this week’s content, or if you need any assistance please do not hesitate to contact me.

I hope you have a great weekend. 

Stay safe and well. 

Cheers,

Steve

Steven Hillman BSc (Hons) ACA
Chartered Accountant
Tel: 01934 444100

Abolition of Basis Periods and New Tax Year End?

We are awaiting further information on MTD from HMRC this summer but one significant announcement on 20 July was draft legislation to abolish basis periods for unincorporated businesses for the 2023/24 tax year to simplify MTD reporting.

That change would apply to sole traders, partnerships, as well as trusts with trading and property rental income. There would also be complicated transitional rules for 2022/23 which could result in a big tax bill that year for some traders.

The Treasury are also consulting on changing the tax year itself from the archaic 5 April year end to 31 March or even 31 December. A calendar tax year would bring the UK into line with most other countries at last!

We will keep you updated when more information comes available.

1st April 2021 – Hillmans Weekly Update

Below I have summarised all the main tax related updates we have seen this week.

• Finishing tax year 2020-21 and preparing for 2021-22
• Consultations Issued on Tax Day by Treasury
• More Details on the New Super-Deduction for Equipment
• Prepare for tax changes if you engage or supply contractors – Off-payroll working rules (IR35)

If you have any queries about this week’s content, or if you need any assistance please do not hesitate to contact me.

Just a courtesy note that our office will be closed for the Easter weekend, closing at 5pm on Thursday 1st April and reopening at 9am on Tuesday 6th April.

I hope you have a great Easter.

Stay safe and well.

Cheers,

Steve

Steven Hillman BSc (Hons) ACA
Chartered Accountant
Tel: 01934 444100

Finishing tax year 2020-21 and preparing for 2021-22

As we head into April now is the time to think about pre-tax year planning, doing the year end administration and filing the necessary forms to HMRC.

Time is running out to make the most of your tax allowances this year as the tax year ends on the 5th April 2021. The first step to making the most of your tax allowances can mean looking closely at your pension. UK residents under 75 can add money to a pension and receive tax relief on it. You’ll automatically get basic rate tax relief (currently 20%) paid into your pension by the government.

If you pay tax at a higher rate you could get up to a further 25%, but you will need to claim it by declaring any pension contributions you have made on your tax return.

The annual allowance is the maximum you can invest in your pension each year that would be eligible for tax relief. It is currently £40,000, or your entire income, whichever is the smaller and there are lifetime allowances to consider.

If you run a limited company then there are some actions you could consider such as dividend and salary planning, purchasing capital items to maximise capital allowances, research and development tax credits and a range of other matters.