fpdteam, Author at Bennetts Accountancy

What your tax code means

30th January 202310th November 2022 by fpdteam

The letters in your tax code signify your entitlement (or not) to the annual tax-free personal allowance. The tax codes are updated annually and help employer’s work out how much tax to deduct from an employee’s pay packet.

The basic personal allowance for the current tax year, which started on 6 April 2022, is £12,570. The corresponding tax code for an employee entitled to the standard tax-free Personal Allowance 1257L. This is the most common tax code and is used for most people with one job and no untaxed income, unpaid tax or taxable benefits (for example a company car).

There are many other numbers and letters that can appear in your tax code. For example, there are letters that show where an employee is claiming the marriage allowance (M) or where their income or pension is taxed using the Scottish rates (S). The basic rate limit for 2022-23 is £37,700 except for those defined as Scottish taxpayers who have a lower basic rate limit as well as an intermediate rate. If your tax code numbers are changed this usually means your personal allowance has been reduced.

There are also emergency tax codes (W1 or M1) which can be used if a new employee doesn’t have a P45. These codes mean that an employee’s tax calculation is based only on what they are paid in the current pay period.

If your tax code has a 'K' at the beginning, this means that deductions due for company benefits, state pension or tax owed from previous years are greater than your personal allowance. However, the tax deduction for each pay period can’t be more than half your pre-tax pay or pension.

It is important to check your tax code to ensure the correct information is being used. If you have any queries we can help, or you can check with your employer or HMRC.

Source:HM Revenue & Customs| 07-11-2022

Tax on dividends

30th January 202310th November 2022 by fpdteam

The dividend tax allowance was first introduced in 2016 and replaced the old dividend tax credit with an annual £5,000 dividend allowance. Tax was payable on dividends received over this amount. The tax-free dividend allowance was reduced to £2,000 with effect from 6 April 2018 and has remain fixed at that level ever since.

This means that the tax rates for dividends received in 2022-23 (in excess of the dividend tax allowance) are taxed as follows:

8.75% for basic rate taxpayers will pay tax on dividends;
33.75% for higher rate taxpayers will pay tax on dividends; and
39.35% for additional rate taxpayers will pay tax on dividends.

These figures include the 1.25% increase in dividend tax rates that came into effect on 6 April 2022 alongside the 1.25% increase in NIC contribution rates. H M Treasury has confirmed that the plan to cut dividend tax rates from April 2023 announced as part of the mini-budget measures has been cancelled.

It remains to be seen if any further changes to the way dividends are taxed will be announced as part of the Autumn Statement. It is possible that there could be further increases in the tax rates or a reduction in the tax-free dividend allowance.

Dividends that fall within your Personal Allowance do not count towards your dividend allowance and you may pay tax at more than one rate.

If you receive up to £10,000 in dividends you can ask HMRC to change your tax code and the tax due will be taken from your wages or pension or you can enter the dividends on your Self-Assessment tax return, if you already fill one in. You do not need to notify HMRC if the dividends you receive are within your dividend allowance for the tax year.

If you have received over £10,000 in dividends, you will need to complete a Self-Assessment tax return. If you do not usually send a tax return, you need to register by 5 October following the tax year in which you had the relevant dividend income.

Source:HM Revenue & Customs| 07-11-2022

What qualifies for First Year Allowances

30th January 20233rd November 2022 by fpdteam

Businesses can claim a 100% first-year allowance (FYA) on the purchase of certain qualifying Plant and Machinery (P&M). The cash-flow benefit of accelerated tax relief is designed to encourage businesses to invest in capital items which help reduce their carbon footprint by being energy and water efficient. The list of qualifying items includes expenditure on new unused electric vehicles and other cars with zero CO2 emissions.

The list also includes:

plant and machinery for gas refuelling stations, for example storage tanks, pumps;
gas, biogas and hydrogen refuelling equipment;
zero-emission goods vehicles;
equipment for electric vehicle charging points;
plant and machinery for use in a freeport tax site, only for companies.

The use of the FYA allows businesses to set the full cost of qualifying P&M against their tax bills in the year of purchase. The FYA is only available on the purchase of new cars with zero emissions. Second-hand cars do not qualify for FYAs (but can be eligible for writing down allowances). If claiming the full amount of FYA would create a loss, it is also possible to claim less than the full 100% FYA and claim the balance using writing down allowances.

Source:HM Revenue & Customs| 31-10-2022

Directors and National Minimum Wage

30th January 20233rd November 2022 by fpdteam

Company directors or any other person who has been appointed to a position by a company or organisation but doesn’t have a contract or receive regular payment as office holders are neither employees nor workers.

Company directors who also have an employment or worker's contract can be both an office holder and an employee at the same time. If this is the case, the director would need to be paid the relevant National Minimum Wage (NMW) or National Living Wage (NLW).

If there is no employment contract or other evidence of an intention to create an employer/worker relationship for a company director, then the NMW / NLW minimum rates will not apply. A contract of employment can be written, expressed orally or implied.

The directors would only be covered by the NMW / NLW if they were also defined as a worker in the relevant Act.

A worker is defined in the National Minimum Wage Act 1998, section 54(3) as someone who has entered into or works under (or, where the employment has ceased, worked under):

a contract of employment; and
any other contract by which the individual undertakes to perform work or services personally for someone else (unless the individual is working on a genuinely self-employed basis for a client or customer).

Careful consideration needs to be given especially to directors of personal service companies to ensure the correct tax treatment is in place whilst at the same time complying with employment law and minimum wage legislation.

Source:HM Revenue & Customs| 31-10-2022

Paying stamp duty on share transfers

30th January 20233rd November 2022 by fpdteam

Stamp Duty is paid on shares bought on a stock transfer form. A stock transfer form is the standard form used for transfers of shares from one person to another. If you use a stock transfer to buy stocks and shares for £1,000 or less, you do not normally have to pay any Stamp Duty.

The 300-year-old process used to manually stamp documents to show the duty has been paid, came to an end on 19 July 2021. A new electronic process was introduced during the pandemic as traditional physical stamping could not function under COVID-19 restrictions. As this process has worked well, HMRC has decided to retain the new approach. This requires

The stamp duty must be paid and HMRC notified within 30 days of the document being dated and signed. If the deadline is missed, you may have to pay penalties and / or interest.

Once the Stamp Duty has been paid, HMRC should be notified by email. The email should be sent to stampdutymailbox@hmrc.gov.uk.

The email should include:

the payment reference;
the payment amount;
the date of payment;
an electronic copy (for example, a scanned PDF) of either the signed and dated stock transfer form, instrument of transfer or form SH03 for return of purchase of own shares.

Note Stamp Duty is not the same as paying Stamp Duty Reserve Tax, which is paid on the paperless purchase of shares.

Source:HM Revenue & Customs| 31-10-2022

IHT claiming business relief

30th January 20233rd November 2022 by fpdteam

There are a number of reliefs available that can reduce liability to Inheritance Tax (IHT) if you inherit the estate of someone who had died.

One of these reliefs is known as IHT Business Relief and is a valuable tax relief for taxpayers with business interests, offering either 50% or 100% relief from IHT on the value of the business assets if certain conditions are met.

100% Business Relief can be claimed on a business or interest in a business or on shares held in an unlisted company.
50% Business Relief can be claimed on:
- shares controlling more than 50% of the voting rights in a listed company;
- land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled; and
- land, buildings or machinery used in the business and held in a trust that it has the right to benefit from.

Relief is only available if the deceased owned the business or asset for at least 2 years before they died. There are a number of restrictions to the relief, for example if the company in question mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments. In some cases, partial Business Relief may be available.

Source:HM Revenue & Customs| 31-10-2022

Gifts to spouse or charity

30th January 20233rd November 2022 by fpdteam

In most cases, there is no capital gains tax (CGT) to be paid on the transfer of assets to a spouse or civil partner. There is, however, still a disposal that has taken place for CGT purposes effectively at no gain or loss on the date of the transfer. When the asset ultimately comes to be sold, the gain or loss will be calculated from when the original spouse or civil partner first owned the asset..

There are a few exceptions that couples should be aware of where the relief does not apply. This mainly relates to the use of goods which are sold on by the transferee’s business and for couples that were separated and not living together for the entire tax year when the assets were transferred. Spouses or civil partners that lived together at any point in the tax year when the assets were transferred can still benefit from these rules. If a transfer did not qualify then the asset must be retrospectively valued at the date of the transfer and the transferor is liable for any gain or loss.

There are similar rules for assets that are gifted to charities. However, CGT may be due where an asset is sold to a charity for more than was paid for it and less than the market value. The gain in this case would be calculated based on what the charity paid rather than the market value of the asset.

Source:HM Revenue & Customs| 31-10-2022

2-months to Self-Assessment filing deadline 2021-22

30th January 20233rd November 2022 by fpdteam

There are now less than 2-months to file your 2021-22 Self-Assessment tax return electronically. Last year over 12.5 million taxpayers were required to complete a Self-Assessment tax return but over 2.3 million taxpayers missed the 31 January filing deadline.

The deadline for submitting your 2021-22 Self-Assessment tax returns online is 31 January 2023. The deadline for paper returns ended on 31 October 2022. You should also be aware that payment of any tax due should also be made by the 31 January date. This includes the payment of any balance of Self-Assessment liability for the 2021-22 plus the first payment on account due for the current 2022-23 tax year.

If you miss the filing deadline then you will usually be charged a £100 fixed penalty if your return is up to 3 months late, regardless of whether you owed tax or not. If you do not file and pay before 1 May 2023 then you will face further penalties unless you have made an arrangement to pay with HMRC.

HMRC is encouraging taxpayers to complete their tax return as early as possible to avoid getting more stressed as the filing date looms. Those who submit their returns early still have until 31 January 2023 to pay any tax due.

If you are filing online for the first time you should ensure you register to use HMRC’s Self-Assessment online service as soon as possible. Once registered an activation code will be sent by mail. This process can take up to 10 working days.

Source:HM Revenue & Customs| 31-10-2022

Tax Diary November/December 2022

30th January 20233rd November 2022 by fpdteam

1 November 2022 – Due date for Corporation Tax due for the year ended 31 January 2022.

19 November 2022 – PAYE and NIC deductions due for month ended 5 November 2022. (If you pay your tax electronically the due date is 22 November 2022.)

19 November 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2022.

19 November 2022 – CIS tax deducted for the month ended 5 November 2022 is payable by today.

1 December 2022 – Due date for Corporation Tax payable for the year ended 28 February 2022.

19 December 2022 – PAYE and NIC deductions due for month ended 5 December 2022. (If you pay your tax electronically the due date is 22 December 2022).

19 December 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2022.

19 December 2022 – CIS tax deducted for the month ended 5 December 2022 is payable by today.

30 December 2022 – Deadline for filing 2021-22 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2023-24.

Source:HM Revenue & Customs| 02-11-2022

IHT gifts with reservation of title

30th January 202327th October 2022 by fpdteam

The majority of gifts made during a person's life are not subject to tax at the time of the gift. These lifetime transfers are known as 'potentially exempt transfers' or 'PETs'. These gifts or transfers achieve their potential of becoming exempt from Inheritance Tax if the taxpayer survives for more than seven years after making the gift. There is a tapered relief available if the donor dies between three and seven years after the gift is made.

The effective rates of tax on the excess over the nil rate band for PETs is:

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%

However, the rules are different if the person making the gift retains some 'enjoyment' of the gift made. This is usually the case where the donor does not want to give up control over the assets concerned and the gift is made with reservation of title. These gifts fall under the heading of 'Gifts With Reservation of Benefits rules' or 'GWROBs'.

A common example is a person giving their house away to their children but continuing to live in it rent-free. Under these circumstances, the taxman would contend that the basic position of the donor remained unchanged and that this is a GWROB. In this is the case, HMRC will not accept that a true gift has been made and the 'gift' would remain subject to Inheritance Tax even if the taxpayer dies more than 7 years after the transfer.

A GWROB can usually be avoided in this type of situation if the donor pays full market rent for the use of the asset gifted.

Source:HM Revenue & Customs| 24-10-2022