VAT group registration

There are special VAT rules that allow two or more companies or limited liability partnerships, commonly referred to as ‘bodies corporate’, to be treated as a single taxable person for VAT purposes known as a VAT group.

These bodies corporate can register as a single taxable person or VAT group if:

  • each body has its principal or registered office in the UK; and
  • they are under common control, for example, one or more company is a subsidiary of a parent company.

The VAT group registration is made in the name of the ‘representative member’, who is responsible for completing and submitting a single VAT return and making VAT payments or receiving VAT refunds on behalf of the group.

This is particularly helpful for those whose accounting is centralised. As a VAT group is treated as a single taxable person, there is usually no requirement to account for VAT on goods or services supplied between group members. Only one VAT return is required for the whole group. However, all members of the VAT group remain jointly and severally liable for any tax debts.

There are other important points to be aware of in respect of a VAT group registration. For example, the representative member must have all the necessary information to submit a VAT return for the group by the due date. The partial exemption de minimis limits apply to the VAT group as a whole and not the members individually.

Source:HM Revenue & Customs| 23-09-2024

What is fiscal drag?

The freezing of tax thresholds often leads to a phenomenon known as fiscal drag. When tax thresholds remain unchanged, taxpayers will likely pay more tax as their earnings rise without a corresponding increase in allowances. As a result, more people are “dragged” into higher tax brackets or into paying tax for the first time. This process effectively acts as a stealth tax.

While fiscal drag is not uncommon, its impact depends on three key factors, the government setting of thresholds and allowances, inflation and wage growth.

How thresholds are determined is critical, especially in periods of high inflation.

Adjusting thresholds in line with inflation or another index is referred to as "indexation." The government’s policy of increasing certain thresholds annually based on inflation is known as "uprating." However, this policy is not always implemented. When thresholds are frozen, tax revenues increase for HM Treasury without any corresponding rise in tax rates.

Source:HM Government| 23-09-2024

Higher rate relief pension contributions

You can typically claim tax relief on private pension contributions up to 100% of your annual earnings, subject to certain limits. Tax relief is applied at your highest rate of income tax, meaning:

  • Basic rate taxpayers receive 20% pension tax relief
  • Higher rate taxpayers can claim 40% pension tax relief
  • Additional rate taxpayers can claim 45% pension tax relief

For basic-rate taxpayers, the initial 20% tax relief is usually applied by the employer. Higher and additional rate taxpayers can claim the extra relief through their self-assessment tax return.

Taxpayers can claim on their self-assessment return for private pension contributions as follows:

  • 20% relief on income taxed at 40%
  • 25% relief on income taxed at 45%

Alternatively, taxpayers can contact HMRC to claim the relief if they pay 40% income tax and do not submit a self-assessment return.

These rates apply in England, Wales, and Northern Ireland, but there are some regional variations for Scotland.

There is an annual allowance of £60,000 for pension tax relief. Taxpayers can carry forward any unused allowance from the previous three tax years, provided they made pension contributions during those years. The lifetime limit for pension tax relief was abolished as of 6 April 2023.

Source:HM Revenue & Customs| 23-09-2024

Current rates for Capital Gains Tax (CGT)

CGT is generally charged at a flat rate of 20% on most chargeable gains for individuals. However, if taxpayers are within the basic rate tax bracket and make a small capital gain, they may be eligible for a reduced CGT rate of 10%. Once their total taxable income and gains exceed the higher-rate threshold, the excess is taxed at the 20% rate.

A higher CGT rate applies to gains from the disposal of residential property (excluding a principal private residence). Basic rate taxpayers are charged 18% (2023-24: 18%), while higher-rate or additional-rate taxpayers are charged 24% (2023-24: 28%). If a gain pushes a taxpayer into the higher-rate bracket, CGT may be payable at both rates.

There is an 18% basic rate and 28% higher or additional rate that applies to gains on carried interest (the share of profits paid to asset managers).

There is an annual CGT exemption for individuals, currently set at £3,000 for 2024-25. Spouses and civil partners have their own separate exemption, with same-sex couples treated the same as married couples for CGT purposes.

Most CGT payments are typically due by 31 January following the end of the tax year in which the gain was made. However, CGT on residential property sales that do not qualify for Private Residence Relief (PRR) must be paid within 60 days of the sale.

Source:HM Treasury| 23-09-2024

Gifts and Inheritance Tax

Most gifts made during a person’s lifetime are not subject to tax at the time of transfer. These gifts, known as "potentially exempt transfers" (PETs), can become fully exempt if the donor survives for more than seven years after making the gift.

If the donor passes away within three years of the gift, the inheritance tax is treated as if the gift was made upon death. A tapered relief applies if death occurs between three and seven years after the gift, reducing the tax liability based on the time elapsed.

The effective tax rates on the amount exceeding the Inheritance Tax nil rate band are as follows:

  • 0 to 3 years before death: 40%
  • 3 to 4 years before death: 32%
  • 4 to 5 years before death: 24%
  • 5 to 6 years before death: 16%
  • 6 to 7 years before death: 8%
  • 7 or more years before death: 0%

However, these tapered rates do not reduce the tax on a lifetime chargeable transfer below the amount initially chargeable and offer no benefit for transfers within the nil rate band.

We strongly recommend maintaining a record of any PETs you make, including details of exemptions used and any regular gifts made out of surplus income.

Source:HM Revenue & Customs| 23-09-2024

Business cashflow

The government offers the following information regarding business cashflow.

If you do not have enough money coming in to pay for goods, services and taxes your company has, you are at risk of insolvency.

Why is cashflow important?

‘Cashflow’ is the term used for money coming in and going out of your company. Not having sufficient cash is one of the most significant factors in companies failing, even when they are trading effectively.

Having ready access to cash means you can pay bills as and when they are due.

When are you likely to experience cashflow problems?

Cashflow problems can strike at any time. But typically, you are most at risk from cashflow difficulties when your business starts and during periods of growth.

Starting up

When you start your company, there may be a lot of overheads and not a lot of money coming in. You might need to invest in equipment, materials, staff, training, premises or advertising.

Keeping a reserve of cash may reduce risks as you get started.

Business growth

Even successful business can experience cashflow difficulties as they grow.

If you are planning to expand your business, make sure you have funds available for unexpected as well as regular expenses.

Managing your cashflow

A key factor in managing your cashflow is making sure you are paid for goods and services on time.

Many businesses operate payment terms ranging from 30 to 90 days before invoices are paid.

Delays in getting paid are often the reason for cashflow difficulties so it is important to always agree payment terms that suit your individual circumstances. Anticipating payment delays is also something companies should consider.

If you are concerned about your business cash flow, please call so we can help you prepare a cashflow forecast.

Source:Other| 22-09-2024

What is fuel duty?

The Office for Budget Responsibility (OBR) has offered the following explanation:

“Fuel duties are levied on purchases of petrol, diesel and a variety of other fuels. They represent a significant source of revenue for government. In 2023-24, we expect fuel duties to raise £24.7 billion. That would represent 2.2 per cent of all receipts and is equivalent to £850 per household and 0.9 per cent of national income.

Fuel duty is levied per unit of fuel purchased and is included in the price paid for petrol, diesel and other fuels used in vehicles or for heating. The rate depends on the type of fuel:

  • the headline rate on standard petrol and diesel is 52.95 pence per litre, it has been frozen since 2011-12 and it reflects a temporary five pence cut introduced in 2022-23 and subsequently extended to 2023-24 and 2024-25. This also applies to biodiesel and bioethanol.
  • the rate on liquefied petroleum gas is 28.88 pence per kilogram.
  • the rate on natural gas used as fuel in vehicles (e.g. biogas) is 22.57 pence per kilogram; and
  • the rate on ‘fuel oil’ burned in a furnace or used for heating is 9.78 pence per litre.

VAT is applied after fuel duty, so, for example, the pump price of a litre of petrol currently reflects the pre-tax price plus 52.95p for fuel duty plus 20 per cent VAT on the pre-tax price and a further 10.59p for VAT at 20 per cent on fuel duty.”

The interesting point here is that the fuel duty is a fixed price per litre and so over time the real value of the duty will decline due to inflation. This has been the case for many years.

Will this be an item that government will increase in the October budget?

Source:Other| 22-09-2024

Is there a partnership in place?

A partnership is a reasonably straightforward way for two or more legal persons to establish and operate a business with the intent to make a profit. Partnerships can take various forms, and legal entities other than individuals can also be partners.

There are two main types of partnerships: the traditional partnership, involving two or more partners, and the more complex limited liability partnership (LLP), which offers the benefit of limited liability, similar to that of a company.

HMRC’s guidance clarifies that a partnership can exist without a written agreement, with a later written agreement simply formalising an existing oral agreement. In such cases, the partnership's formation date is when the terms of the oral agreement were first implemented. However, if a written agreement establishes a new partnership, where none previously existed, it is only effective from the date it is executed and implemented, with no retrospective effect.

HMRC's internal guidance for determining the existence of a partnership advises its officers that… it is important that you establish all of the facts to determine the true relationship between the parties. This will include finding out what the intentions of the parties were. No single factor is likely to be conclusive on its own. You will need to form an overall view, based on all the facts and evidence.

Source:HM Revenue & Customs| 16-09-2024

Not so Trivial Tax Benefits

There is a trivial benefit-in-kind (BiK) exemption for small, non-cash employee benefits. This exemption applies to BiKs classified as 'trivial,' helping employers simplify the handling of these benefits while offering a tax-efficient way to give small gifts to staff.

However, the "trivial" benefit rules actually present an excellent opportunity for employers to provide small rewards and incentives. The key condition is that the gifts must not be a reward for services performed or part of the employee’s duties. Gifts for personal milestones, such as the birth of a child or a marriage, as well as other goodwill gestures, usually qualify.

Employers benefit as these trivial BiKs do not need to be included in PAYE settlement agreements or reported on P11D forms. Additionally, they are exempt from Class 1A National Insurance contributions.

To qualify for the tax exemption, trivial BiKs must:

  • Not be cash or a cash voucher;
  • Cost £50 or less;
  • Not be part of a salary sacrifice or other contractual arrangement;
  • Not be given in recognition of services performed by the employee or in anticipation of such services.

For directors or office-holders of close companies and their families, there is an annual cap of £300. Each gift must still adhere to the £50 limit, but this allows up to £300 of non-cash benefits per person each year. This cap does not apply to employees. If the £50 limit is exceeded for any gift, the entire value becomes taxable.

Source:HM Revenue & Customs| 16-09-2024

Two October self-assessment deadlines

The deadline for submitting paper self-assessment tax returns for the 2023-24 tax year is 31 October 2024. Late submission of a self-assessment return will generate a £100 late filing penalty. The penalty usually applies even if there is no liability or if any tax due is paid in full by 31 January 2025.

Daily penalties of £10 per day will also take effect if the tax return is still outstanding three months after the filing date up to a maximum of £900. Additional higher penalties will be incurred if the return remains outstanding after six and twelve months.

We would recommend that anyone still submitting paper tax returns consider the benefits of submitting the returns electronically. This would allow for an additional three months until 31 January 2025 in which to submit a return.

In addition, you must inform HMRC by 5 October 2024 if you need to complete a tax return for the 2023-24 tax year and have not done so before. Failure to do so could result in a fine.

Source:HM Revenue & Customs| 16-09-2024