The 2020/21 tax year saw 1.4 million people charged interest on overdue tax payments – a 15 per cent increase on pre-pandemic figures.

The data was released after a Freedom of Information request by investment platform, AJ Bell, but this did not disclose how much money HM Revenue & Customs (HMRC) raised from these late payment penalties.

The increase came despite a drop in how much money many would have owed HMRC due to furlough during the pandemic and corporate dividend cuts.

Number of taxpayers facing penalties is predicted to increase

The overall amount of people paying late payment charges on missed tax deadlines is predicted to rise.

By the 2024/25 tax year, the number of people HMRC estimate to be paying dividend tax and Capital Gains Tax will increase to 2 million.

This increase means there is a far greater chance that hundreds of thousands more taxpayers could face late payment charges, based on the current proportion of those missing the deadlines.

Late payment interest rate increases

With more and more people having to pay penalties for overdue tax payments, it will not be of great comfort for many to learn that the interest rates on these charges have increased.

As of 31 May 2023, the interest rates on late tax payments rose from 6.75 per cent to 7 per cent.

It is important to note that HMRC will align future hikes to these interest rates with the base rate set by the Bank of England.

This base rate has rocketed in the past 12 months as the Government attempts to stem inflation, and it is predicted that it will continue to rise in the coming months.

This will in turn mean that late tax payment interest rates will increase. This should stand as a warning to UK taxpayers to ensure that their taxes are filed and paid on time.

If you’d like advice on how to submit your tax returns on time, please contact us.

It is important for employees to feel valued in the workplace. A lot of the time, it is the little things that employers can provide to their staff that have the most substantial impact.

One such ‘little thing’ is the concept of trivial benefits in kind. Trivial benefits are best described as small ‘token gifts’ that are given to staff by their employers.

Trivial benefits include such things as chocolates, wine, gift vouchers, tickets to the theatre, or a team outing for lunch or dinner.

These gifts meet the trivial benefit criteria as long as:

• The gift is worth £50 or less
• The gift is not cash
• It isn’t a reward for work or performance
• It isn’t in the terms of an employee’s contract

The main distinction of trivial benefits in kind is that they should not add value to an employee’s salary. They can also not be given in lieu of payment.

Advantages of trivial benefits in kind

As well as the boost to employee wellness and morale, trivial benefits in kind also provide tax advantages for employers.

Below are the benefits and reasons for employers to consider adding trivial benefits in kind to their working culture.

Improved employee morale and engagement 

Regular trivial benefits serve as consistent reminders to employees that they are appreciated. These small gestures can significantly boost morale, leading to increased job satisfaction and productivity.

When employees feel valued, they are more likely to engage with their work actively and maintain a positive attitude towards their employers and the business in general.

Enhancing employer’s reputation

Providing trivial benefits can positively impact an organisation’s reputation, helping it to stand out as an employer that cares about its employees’ well-being.

This increased employer branding can be instrumental in attracting and retaining top talent in the competitive job market.

Tax benefits

From a purely financial perspective, trivial benefits in kind are exempt from tax, National Insurance, and reporting to HMRC. This tax efficiency makes trivial benefits a cost-effective way for employers to reward their staff.

However, if benefits are part of a salary sacrifice arrangement, then they won’t be exempt from tax and will need to be reported on a P11D form.

Employee wellness

Trivial benefits can also contribute to the overall wellness of employees. For instance, offering a yoga class or a fitness tracker can encourage employees to take care of their physical health. Similarly, gifting a book or sponsoring a hobby class can contribute to mental wellness.

A healthy employee, both physically and mentally, is likely to be more productive and less prone to taking sick leave.

The cost to the business is relatively small and is tax-exempt, so it is well worth considering if you haven’t already done so.

For more information on trivial benefits in kind, contact us today.

In the Spring 2023 Budget, the Government laid out plans to shake up the current free childcare system – but many higher earners will be disappointed to find that the changes keep them excluded from the scheme.

The existing childcare rules mean that parents are eligible for up to 30 hours of free childcare if their children are aged three to four.

Eligibility also depends on if you are employed or self-employed, the number of hours you work, and your income.

If you or your partner have an expected adjusted net income of over £100,000 in the current tax year, you will not be eligible.

The changes, which will be staggered over the next couple of years, will see many families in the UK benefit from free childcare at an earlier age, however, the £100,000 annual income cap will remain.

Timeline of changes

• April 2024 – Working parents of two-year-olds will be able to access 15 hours of free childcare per week.
• September 2024 – Children from the age of nine months will be eligible for 15 hours per week of free childcare.
• September 2025 – Working parents of children under the age of five will be entitled to 30 hours of free childcare per week.

The changes will be welcomed by many adults in the UK who will be able to return to work at a much earlier date.

However, higher earners will not see this benefit due to the income restrictions, which have not changed.

If you’d like more advice on the current childcare rules or want more information on the upcoming changes, please contact us.

As an employer, you will likely face the delicate situation of employees asking for pay rises.

With the cost-of-living crisis and rise in inflation, these requests will have become more frequent as people look to keep up with spiralling living costs.

Each month, the Office for National Statistics (ONS) surveys collect the salaries of 12.8 million workers to produce the median salary for the UK.

The latest data from the ONS indicates that the median average salary is estimated to be £31,772.

However, how much a person earns often depends on their age, skill and where they live.

When it comes to pay rise requests, employers need to tread a thin line between granting requests and retaining talented staff you cannot afford to lose, while keeping an eye on employment costs in what is still a tough financial climate.

Handling these situations correctly and professionally is crucial to keeping employee morale high and your business running smoothly.

Encourage open communication

Asking for a pay rise can be an awkward, uncomfortable experience for employees, so it is important to make employees feel comfortable discussing their salary expectations.

Encourage open and honest discussions about pay and make it a regular part of performance reviews.

This helps to prevent surprises and ensures that both parties have a clear understanding of the expectations.

Align pay with performance and evaluate requests objectively

Regularly evaluate your employees’ performances, acknowledge their accomplishments, and align their pay accordingly.

This approach encourages productivity and gives employees a clear understanding of how they can increase their earnings.

When requests for pay rises are made, objectively evaluate the requests based on performance and the last time the employee was given a pay rise. Try and avoid an instant response that may not be in line with objective thinking.

Consider the business’s financial position

While it is important to reward deserving employees, you must also consider your business’s financial situation.

Can your business afford the requested pay rise? If not, it’s important to communicate this openly to the employee while also discussing potential prospects.

It is better to delay a pay rise than to overstretch your finances and potentially jeopardise your business.

Consider alternatives

If a pay rise is not feasible, consider other alternatives. This could include additional benefits such as more flexible working hours, opportunities for training and development, or an enhanced bonus scheme.

Sometimes, non-monetary rewards can be just as effective in demonstrating that you value your employees.

Communicate your decision clearly

Once you have made your decision, communicate it clearly and respectfully. If you approve the pay rise, be sure to highlight the employee’s achievements and contributions. If you decline, explain your reasons, and provide constructive feedback on what the employee can do to improve their chances of a pay rise in the future.

All pay rise requests should be dealt with fairly and consistently. Inconsistent treatment can lead to discontent within the workforce and possible breaches of UK employment laws.

Are you unsure about how to deal with a pay rise request, or have other remuneration questions? Contact us today.

The UK Government has long encouraged businesses to invest in Research & Development (R&D) projects, believing it to be at the forefront of economic growth.

R&D tax reliefs are, therefore, lucrative and aimed at both Small and Medium Sized Enterprises (SMEs) and larger organisations.

However, before organisations plan to claim R&D tax relief or expenditure credit, they must now notify HM Revenue & Customs (HMRC) of their plans to do so.

HMRC reforms to R&D pre-notification claims came about in April 2023 in an attempt to crack down on abuse of the R&D tax relief scheme.

Who should notify HMRC?

Companies who are planning to claim R&D tax relief must now notify HMRC if they:

• Are claiming for the first time.

• Have claimed for the previous tax year but did not submit that claim until after the last date of the claim notification period (the claim notification period ends six months after the end of the period of account)
• Have a claim that was made more than three years before the last date of the claim notification period

Notification deadlines 

The deadline for submitting claim notification forms is six months after the end of the period of account that the claim relates to.

Any submission after this deadline will not be valid.

What information will you need to complete the claim notification form?

The claim notification form requires thorough checking before being submitted as any missing details could lead to claims being rejected outright.

All claim notification forms need the following details:

• The company’s Unique Taxpayer Reference (UTR)
• The name of the senior R&D contact who is responsible for the claim

• Contact details of any agent involved
• The accounting period start and end date for which you’re claiming the tax relief
• The period of account start and end date
• A summary of the high-level planned activities and evidence the project meets the standard definition of R&D

Once a claim notification form has been submitted online, an email will be sent which will contain a reference number that will need to be kept on record to discuss the claim notification form with HMRC.

Submitting the claim notification form allows organisations to continue with their claim, they will just need to put an ‘X’ in box 656 of the Company Tax Return to inform HMRC that the claim notification form has been submitted.

From 1 August 2023, an additional information form must be submitted to support all claims for R&D tax relief. This form will allow you to explain in detail about your project to evidence its R&D properties.

This additional information form needs to be submitted or else HMRC will not be able to process your claim.

For more information about the R&D relief changes and what to include on your notification forms, please contact us for expert advice.

Benefits in Kind (BIK) cover a number of different perks or additional payments made by employers to their employees. They can include any of the following:

• Private Healthcare
• Loans
• Company cars
• Gym memberships
• And much more.

The above are all taxable benefits, and it is an employer’s responsibility to ensure they are noted on a P11D form, which is submitted on an annual basis to HM Revenue & Customs (HMRC).

It is worth noting that certain expenses should also be added to the P11D form. However, there are many different types of expenses with their own complicated rules, so it is best to seek advice if you are unsure.

The GOV.UK website also has an extensive list of all expenses if you are unsure and need to double-check.

The deadline for submitting P11D forms for the 2022/23 tax year is 6 July 2023.

Obtaining a P11D form

In previous years, P11D forms could be downloaded and filed by post with HMRC, but any submissions now need to be made through the PAYE online service.

In some instances, employers will have all expenses and benefits taxed through their payroll, so there may be no need to fill in a P11D form at all.

Missing the deadline and form errors – Do not pay the price

Penalties can be incurred if you submit your P11D forms beyond the 6 July deadline.

A fine of £100 per 50 employees will be handed out for each month or part month that it is late, with further fines issued if matters aren’t resolved.

It is also important that the P11D form is filled in correctly, as HMRC can fine employers for any information they later find to be inaccurate.

Therefore, it is best to go over P11D forms carefully before submitting them.

For any assistance completing or submitting your P11D forms, including queries about BIK, please contact us today.

The way in which Student Loans are repaid is changing and employers need to be prepared.

Currently, graduates and students who have taken out student loans are required to repay their loan when they earn an annual salary of £27,295 or more, with repayments at a rate of nine per cent on any income earned above this threshold. The threshold is then adjusted annually for inflation following the Retail Price Index.

However, starting from the academic year 2023/24 a new student loan plan will be introduced.

Known as Plan 5, the changes affect those taking out loans on or after 1 August 2023.

For these students the threshold will be reduced to £25,000 per year, meaning that graduates will begin repaying their loans when they earn more than this amount.

Repayments will be made at the same nine per cent rate on any income earned above this threshold.

Students on Plan 5 won’t be expected to make repayments to their student loan until April 2026 at the earliest, even if they leave their course early.

The repayment period will also be extended from 30 to 40 years, resulting in a longer repayment period for more graduates to repay their loans in full.

If a person’s income falls below the repayment threshold, their repayments will stop and only restart when their income exceeds the threshold again.

Student Loan Repayment Bands explained

There are a number of student loan repayment bands depending on when people began their course. Students beginning a course on or after 1 August 2023 will be on Plan 5.

This is if they are studying an undergraduate course, Post Graduate Certificate of Education (PGCE), or an Advanced Learner Loan.

They will be on Plan 2 if they started their course between 1 September 2012 and 31 July 2023.

This covers those studying an undergraduate course, PGCE, or who took out an Advanced Learner Loan or a Higher Education Short Course Loan.

Those who started their course before 1 September 2012 will be on Plan 1. Students studying or having studied a postgraduate master’s course will be on a Postgraduate loan.

Want advice on the payroll implications of these changes? Call us today.

Changes to personal tax allowances and higher interest rates have seen a growing number of people being affected by fiscal drag.

Fiscal drag is the phenomenon where taxpayers are pushed into higher tax brackets due to wage increases as they keep pace with inflation.

With the UK Government freezing most tax bands until 2028, and reducing the threshold on the additional marginal rate, fiscal drag can have a significant impact on the finances of people across different income levels.

Rising inflation

Due to rising inflation and to some degree economic growth, wages have risen from £406 a week to £533 on a median basis over the last ten years, according to Money Week.

It also reported that pay in the private sector, excluding bonuses, rose 6.5 per cent from November 2022 to January 2023.

While these rises may be good news, in reality, they are being eroded by spiralling inflation and the need to pay income tax at higher rates as people enter different tax bands.

Increased tax bills

According to Money Week, those earning £15,000, £20,000, and £30,000 will see their income rise by 21 per cent, but their tax bills will increase by 106 per cent, 50 per cent, and 32 per cent respectively.

High earners paid over £50,000 are expected to see a 21 per cent increase in wages and a 35 per cent increase in their personal tax bill – adding £1,905 to their tax bill.

To avoid fiscal drag, people need to carefully manage their income to take advantage of tax reliefs, allowances and tax-efficient investments.

Need advice on personal tax issues? Speak to us today.

The Residence Nil Band Rate (RNRB) was introduced by the Government in 2017 and benefits families passing on their main property to a direct descendent.

Since its introduction, millions of families around the UK have benefitted from its ability to minimise Inheritance Tax (IHT) bills.

Will the RNRB mean paying less IHT?

As of the 2023/24 tax year, the basic Nil-Rate Band allowance on IHT is £325,000.

The RNRB gives you an additional tax-free allowance of £175,000, where your main property is passed to a direct descendant. This means that the first £500,000 of your estate will be free of IHT.

The current IHT relief thresholds have been frozen at their current level until April 2028.

With house prices rising, this freeze will affect many families who will find themselves increasingly above the thresholds and ultimately paying more tax.

The RNRB will only come into effect if the residences are passed to direct descendants who are defined as:

• A child, stepchild, grandchild, or other lineal descendant
• A spouse or civil partner of a lineal descendant (including their widow, widower, or surviving civil partner)
• An adopted or fostered child
• A child where they’re appointed as a guardian or special guardian when the child is under 18

Direct descendants do not include nephews, nieces, siblings, and other relatives who are not included in the above list.

Can my RNRB allowance work in addition to my spouse’s?

As with the basic IHT allowance, any unused RNRB allowance will be transferred to an individual’s spouse or civil partner upon their death.

This means that descendants of their spouses will be able to claim a tax-free allowance from both individuals. This totals £650,000 in basic IHT Nil-Rate Band allowance and £350,000 from RNRB. This means that descendants can potentially enjoy £1 million of an estate tax-free, where the right conditions are met.

RNRB on high-value properties

On estates worth £2 million or more, the RNRB allowance will reduce by £1 for every £2 that the estate is worth.

This can also affect the amount of RNRB that can be transferred to a surviving spouse or civil partner, so the correct figures must be calculated.

Maximise your tax savings

To take full advantage of the tax planning opportunities this offers, professional advice should be sought.

For help and advice with IHT and the RNRB, contact us today.

Residential landlords are the latest group to have been targeted in receiving ‘nudge’ letters from HM Revenue & Customs (HMRC).

The letters are part of a targeted ‘nudge’ campaign from HMRC to remind landlords of their obligation to declare their full rental income.

What is a ‘nudge’ letter

HMRC has used what has become known as ‘nudge’ letters since 2017. These communications are designed to prompt a response from the recipient by offering reduced fines for a declaration of unpaid tax.

The method has been used on numerous occasions, issuing them to taxpayers who hold overseas bank accounts and taxpayers who claim non-domicile status.

Nudge letters have also been sent to holders of crypto assets, reminding them that Capital Gains Tax (CGT) may be payable on income gained from the sale or trade of crypto assets.

The letters being sent to landlords suggest they review their tax position and include a certificate of tax position to be completed and returned, typically within 30 days.

Failure to reply could lead to fines, a further investigation or in more serious cases criminal prosecution.

So far 1,000 or so property owners suspected of tax underpayments have been sent a ‘nudge’ letter.

Evidence gathered via online data tracking

The evidence behind these recent approaches was gathered through online booking platforms like Vrbo and Airbnb. These sites are obliged to share data of registered users and their financial transactions.

Issuing the letters is a way to give taxpayers a genuine chance to rectify any discrepancies and pay tax on undeclared income.

Landlords can take out Client Protection Insurance via their accountant, which protects them against the costs of an HMRC investigation.

If you have received a ‘nudge’ letter from HMRC it is important to seek professional advice on the matter.

Need professional advice on property tax issues? Ask our team.