The Government has announced a two-year delay and further changes to the rollout of its Making Tax Digital for Income Tax initiative.

The delayed implementation of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) means it will now be phased in from April 2026 for a smaller number of taxpayers, rather than the original launch date of April 2024.

The move will give self-employed workers, sole traders and landlords more time to prepare for the upcoming changes.

What is changing? 

From the new start date, instead of MTD for ITSA applying to all self-employed workers and landlords with property and/or business income of more than £10,000, it will now only apply to those with income exceeding £50,000.

As per the original plan, they will have to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software.

Those with an income of between £30,000 and £50,000 will also need to comply with this from April 2027. However, all taxpayers will be able to join voluntarily beforehand if they wish to eliminate common errors and save time managing their tax affairs.

What about smaller businesses?

The Government has also announced a review into the needs of smaller businesses originally due to use the system in 2024, particularly those under the £30,000 income threshold.

The review will consider how MTD for ITSA can be shaped to meet their requirements and the best way for them to fulfil their Income Tax obligations. It will also inform the approach for any further rollout of MTD for ITSA after April 2027.

MTD for ITSA will not be extended to general partnerships in 2025, as previously announced. However, the Government says it “remains committed to introducing MTD for ITSA to partnerships in line with its vision set out in the Tax Administration Strategy”.

Under the original plans, MTD would also be extended to Corporation Tax, but the Government is yet to confirm when this final phase will begin.

The Government has announced a two-year delay and further changes to the rollout of its Making Tax Digital for Income Tax initiative.

The delayed implementation of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) means it will now be phased in from April 2026 for a smaller number of businesses, rather than the original launch date of April 2024.

The move will give self-employed workers, sole traders and landlords more time to prepare for the upcoming changes.

What is changing?

From the new start date, instead of MTD for ITSA applying to all self-employed workers and landlords with property and/or business income of more than £10,000, it will now only apply to those with income exceeding £50,000.

As per the original plan, they will have to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software.

Those with an income of between £30,000 and £50,000 will also need to comply with this from April 2027. However, all taxpayers will be able to join voluntarily beforehand if they wish to eliminate common errors and save time managing their tax affairs.

What about smaller businesses?

The Government has also announced a review into the needs of smaller businesses originally due to use the system in 2024, particularly those under the £30,000 income threshold.

The review will consider how MTD for ITSA can be shaped to meet their requirements and the best way for them to fulfil their Income Tax obligations. It will also inform the approach for any further rollout of MTD for ITSA after April 2027.

MTD for ITSA will not be extended to general partnerships in 2025, as previously announced. However, the Government says it “remains committed to introducing MTD for ITSA to partnerships in line with its vision set out in the Tax Administration Strategy”.

Under the original plans, MTD would also be extended to Corporation Tax, but the Government is yet to confirm when this final phase will begin.

Why has the implementation of MTD for ITSA been delayed?

The announcement comes days after a recent survey found a huge majority of Chartered Institute of Taxation (CIOT) and Association of Taxation Technicians (ATT) members said it cannot be successfully introduced in its current form on 6 April 2024.

The joint CIOT and ATT survey found 97 per cent of the 322 professionals questioned said the top three reasons for concern about the digital project are:

• Taxpayer awareness: 94 per cent believe this is a problem
• Taxpayers’ ability to comply: 94 per cent are concerned
• Cost burden on clients: 92 per cent are worried about this and 83 per cent are concerned they won’t be able to charge for all their professional time in dealing with MTD ITSA

You must use software that works with Making Tax Digital for Income Tax, which will allow you to:

• Create and store digital records of each of your business transactions
• Send updates of the totals of your business income and expenses every quarter
• Confirm end-of-period statements

Now the Government says that it understands that self-employed individuals and landlords are currently facing a challenging economic environment, and the transition to MTD for ITSA represents a significant change to taxpayers and HMRC on how self-employment and property income is reported.

Need help with preparing for MTD for ITSA? Contact us today.

You could see your Income Tax bill increase significantly in 2022-23 because of a freeze on Income Tax thresholds announced by the Chancellor at the Autumn Statement.

While the basic (20 per cent) and higher (40 per cent) thresholds will remain at their current levels for an additional two years until 2028, rising wages will see people dragged across these thresholds over the coming years.

At the same time, inflation means that the buying power of income at these thresholds will be significantly less than it would have been only a year ago.

Furthermore, the additional rate (45 per cent) threshold will fall from £150,000 to £125,140 from 6 April 2023. This means people whose income is already above the additional rate threshold will pay the 45p rate of tax on a larger proportion of their income, while thousands of taxpayers will be subject to the additional rate for the first time.

Fortunately, there are many tax-efficient ways of reducing your income tax liabilities, including:

Pension top up

You can reduce your income tax by topping up your pension using your annual tax-free allowance.

Personal pension contributions within the annual £40,000 pension allowance lower your ‘adjusted net income’.

This is because tax relief is available at an individual’s highest marginal rate on contributions up to 100 per cent of relevant earnings (RE) or £3,600 if higher.

RE includes most earned income but excludes items such as pension income and dividends.

If your pension scheme operates under relief at source, the tax relief is obtained in either one or two stages (depending on your marginal tax rate).

Under schemes operating via relief at source (RAS) the relief is obtained in one or two stages depending on your tax rate.

If you receive basic rate tax relief the pension provider reclaims this from HMRC automatically. However, higher and additional rate taxpayers get relief either via a one-off claim or via a self-assessment tax return.

The rates of relief are obtained as a taxpayer’s basic and higher rate bands are increased in tandem with the amount of the grossed-up contribution. This, in effect, moves income from higher tax brackets into lower ones.

ISA allowances

ISAs are a tax-efficient way of saving. You don’t pay income tax or Capital Gains Tax (CGT) on investments inside an ISA, and you can withdraw money whenever you like, tax-free. You can currently invest up to £20,000 in ISAs per annum.

Maximise your tax allowance

If you’re married or in a civil partnership, your tax allowances can, in some cases, be combined to increase your household’s income tax allowance. For example, the Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner if they haven’t used it.

If you are unsure of the tax-saving opportunities available to you, you should seek professional advice.

Planning for the future is essential when running a business and you should have a perspective of where you want to be in three to five years.

Goals or targets provide a sense of direction, focus, and motivation. However, how do you set aims effectively?

You could try the SMART method. This relies on five key criteria – Specific, Measurable, Achievable, Realistic, and Time-Based – that allow you to create a clear target for success.

What is the plan to get you there?

It may be that small steps are needed before achieving the ultimate goals and could include:

• Establishing your Unique Selling Point (USP). What can you offer that the competition cannot?
• Identifying your ideal customer, do you need to pivot the business to attract new clients?
• Maximising talent. Your staff are your most important asset.

How you can build SMART goals into your business plan:

Specific

A specific goal clearly defines what needs to be achieved, by whom, where and when it is to be achieved (and sometimes why).

Measurable

Measuring draws your focus, and the latest tracking software can measure this accurately.

When you measure, you need to ask certain questions:

• How much?
• How often?
• How many?

Achievable

When you set goals, ensure they’re achievable. It’s a mistake to set unreachable goals because you’re setting yourself up for failure from the beginning.

Realistic

Make sure the goal that you set has long-term importance in what you want to achieve as an individual or an organisation.

Time-based

It sounds obvious but set up a timeframe. A deadline can be an excellent motivator.

Struggle to set goals? Need help monitoring your Key Performance Indicators (KPIs)? It makes the most sense to seek professional support so you can create a SMARTer approach to working.

Chancellor Jeremy Hunt has announced a series of changes to the UK research and development (R&D) tax credit regime, including a cut to the deduction and credit rates for the SME scheme.

The R&D SME scheme enhanced deduction rate will be cut to 86 per cent from the current 130 per cent, and the payable tax credit rate cut to 10 per cent from 14.5 per cent.

However, the rate of the separate R&D expenditure credit – also known as RDEC – will increase significantly, from 13 per cent to 20 per cent.

The changes to the SME scheme mean that if you are a loss-making company, you will now only receive £18.60 for every £100 spent from April next year, compared to £33.35 per £100.

These changes are intended to reduce abuse in the R&D tax system, particularly claims for SMEs, which have been the spotlight of several investigations by HM Revenue & Customs (HMRC).

They are scheduled to take effect from 6 April 2023, so there is still time to plan, and it may make sense to bring forward R&D expenditure, where possible, to benefit from more favourable deductions and credits.

April 2023 also sees changes to the review and approval process for R&D claims. For any claim commencing on or after 1st April 2023, companies will need to notify HMRC within six months of the end of the accounting period that they intend to make a claim for R&D tax relief. If you have claimed R&D tax relief within the last three years you are not required to pre-notify HMRC.

Companies House has gone fully digital after the announcement of the closure of its office in London and all filing being transferred online.

It has also permanently shut the public counters in Cardiff, Belfast and Edinburgh.

Online services will be available 24 hours a day, seven days a week.

Changes have taken place with improved security features, which include:

• Multi-factor authentication
• The ability to link your company to your WebFiling account to give you more control over your filings
• Being able to digitally authorise people to file on your behalf on WebFiling, and to remove authorisation
• To view who’s digitally authorised to file for your company
• An option to sign up for emails to help you with the running of your company

WebFiling is an online service that Companies House provides, designed to make the submission of official paperwork easier and paper-free.

Once you’ve linked your company to your account, you will not need to enter your authentication code every time you file online.

Key changes, which form part of the 2020 to 2025 strategy and part two of the Economic Crime Bill, are expected to go through Parliament this spring and will include:

• Filing deadlines will not be shortened at the moment, but legislation will be introduced to facilitate future changes.
• Small companies will no longer have the option to prepare and file abridged accounts and will be required to file both their profit and loss account and directors’ report.
• Micro-entities will also be required to file their profit and loss accounts but will continue to have the option to not prepare or file a directors’ report.
• Dormant companies will be required to file an eligibility statement.
• All companies will be required to file accounts digitally, with full tagging.

The exemption for paying Capital Gains Tax (CGT) is changing.

The CGT annual exemption will fall from £12,300 to £6,000 from April 2023, before being cut in half again to £3,000 from April 2024.

CGT is what you pay on any gains that you make when you come to sell an asset, such as a second home or shares.

However, the annual CGT exemption allows you to make a certain value of gains before you pay tax on any additional gains.

Higher-rate or additional-rate taxpayers pay 28 per cent on gains from residential property and 20 per cent on gains from other chargeable assets.

If you are a basic-rate taxpayer, you will be charged 18 per cent on residential property and 10 per cent on other gains.

Steps that could reduce your CGT liabilities include:

• Ensuring you use your allowance for the current year as soon as possible.
• If you are married or in a civil partnership, you can utilise your partner’s unused allowance. You can transfer your assets into joint names if you are married or in a civil partnership without triggering a tax event. This doubles your £12,300 allowance to £24,600 in one year.
• Utilise tax-efficient investments such as the Enterprise Investment Scheme and Venture Capital Trusts.
• Using Business Asset Disposal Relief when selling a business.

Now is a great time for investors to review their portfolios and decide whether they should transfer or dispose of certain assets before these changes take place.

If you want to take advantage of the current CGT tax rate it is best to seek advice from a qualified tax adviser.

The message from the Chancellor, Jeremy Hunt, in the days before he rose to the despatch box in the House of Commons to deliver the Autumn Statement was clear; he would be outlining billions of pounds of tax rises and spending cuts.

These spending cuts and tax rises, he said, would affect everybody and were necessary to re-establish the markets’ trust in the future health of the public finances.

What was less clear was exactly who the announcements would affect the most and how they would be impacted.

Of course, the challenges for the Chancellor extended well beyond winning the trust of the markets in relation to his stewardship of the public finances. He will also have been thinking about inflation, the cost-of-living crisis, interest rates and promoting economic growth, not to mention the political optics.

These are competing but intricately related pressures; action to address the cost of living carries with it the risk of further inflation; action to reassure the markets brings the twin dangers of not addressing the cost-of-living crisis or promoting economic growth. Different economic considerations do not exist in a vacuum.

Further underscoring the scale of the challenge, just a day earlier, the Office for National Statistics announced that inflation had reached a 41-year high of 11.1 per cent.

This followed warnings from the Bank of England’s Monetary Policy Committee, as it increased interest rates to three per cent in early November, that the UK faces a “prolonged” recession.

The only real questions concerned the detail of what the Chancellor would do. Which taxes would be affected? Will they rise now or in the future? Would tax rates rise? Would the focus be on freezing thresholds? How much pain would there be? Who would bear the brunt?

And, most importantly, would it work?

• Public finances
• Personal tax
• Business tax
• National Living Wage, Energy and Pensions
• Conclusion

Public finances

Addressing the Office for Budget Responsibility’s (OBR) economic forecasts, the Chancellor said that the economy is now in recession and is expected to shrink by 1.4 per cent in 2023/24 before growing in 2024/25.

Meanwhile, he said unemployment is expected to rise to 4.9 per cent in 2024, up from 3.6 per cent now, before falling to 4.1 per cent the next year.

Borrowing this year stands at 7.1 per cent of GDP, according to the OBR. Debt as a percentage of GDP is expected to peak at 97.6 per cent in 2025/26 before falling to 97.3 per cent in 2027/28.

Personal tax

Beginning with personal tax, the Chancellor said that the threshold for the additional 45p rate of Income Tax will fall from £150,000 to £125,140 from April 2023.

At the same time, National Insurance, Inheritance Tax and Income Tax thresholds and Allowances will be frozen at their current levels for a further two years to 2028.

He said the Dividend Tax Allowance will fall from its current level of £2,000 to £1,000 in 2023/24 and then to £500 in 2024/25.

Turning to Capital Gains Tax, the Chancellor said the current Annual Exempt Amount will fall from £12,300 to £6,000 in 2023/24 and then to £3,000 in 2024/25.

He then turned his sights to electric vehicles, saying that a road tax will apply to them from 2025.

Finally, on personal tax measures, he said that the Stamp Duty Land Tax (SDLT) cuts announced by his predecessor, Kwasi Kwarteng, in September 2022 will end on 31 March 2025 and will not be permanent.

Business Tax

Turning to business taxes, the Chancellor said he would reduce the enhanced deduction rate for Research & Development (R&D) Tax Relief for SMEs from 130 per cent to 86 per cent of qualifying expenditure from April 2023. The tax credit for loss-making SMEs will fall from 14.5 per cent to 10 per cent.

On Business Rates, he said that the revaluation exercise will go ahead as planned in April 2023. £13.6 billion of support will be provided over five years to help businesses transition to the new bills.

He said the Business Rates multipliers will be frozen in 2023/24 and there will be extended and increased relief for businesses in the retail, hospitality and leisure sectors. That relief will increase to 75 per cent.

The National Insurance Secondary Threshold will remain at £9,100 until April 2028.

National Living Wage, Energy and Pensions

Turning to the National Living Wage (NLW) and National Minimum Wage (NMW), the Chancellor announced he would increase the rates for those aged 23 and over by 9.7 per cent to £10.42 an hour from 1 April 2023.

Meanwhile, the rate of NMW for those aged 21 and 22, 18 to 20, and 16 and 17 will rise to £10.18, £7.49, and £5.28 an hour respectively. The apprentice rate will also rise to £5.28 an hour.

Moving to address energy costs, the Chancellor said the current Energy Price Guarantee (EPG) will remain in place until April 2023, limiting typical energy bills to £2,500 per year. From April 2023, the EPG will rise to £3,000 for the typical household.

Concluding his speech with pensions, the Chancellor said that the State Pension Triple Lock will remain in place, meaning the State Pension will rise in April 2023 in line with September 2022’s rate of CPI – 10.1 per cent.

Conclusion

The economy is a complex and dynamic system, and there are limits to what can be known about how it will respond to any particular intervention – it is the sum of the ever-changing actions of millions of individuals.

What is more, the Chancellor only has his hands on some of the levers of economic influence, not all of them, and moving one of the levers he controls can stop him from moving another.

Mr Hunt will be hoping he has pulled the right levers by the right amount and that the factors out of his control move in the direction he wants them to.

For businesses and business owners, the impact of the changes is likely to vary considerably and a renewed focus on tax planning is likely to be needed.

Link: Autumn Statement 2022

Inflation has been described as paying £15 for the £10 haircut you used to get for £5 when you had hair.

It is soaring at the moment and leaves business owners facing real problems. If they increase their prices, they risk losing customers, but if they peg prices, they put their profits and potentially their business at risk.

Inflation hits just about everything, from raw materials to higher fuel and energy costs to customer confidence.

The hope is that it will be short-term, but with borrowing costs spiralling as interest rates rise, businesses should look at practical savings and decide:

• Are you paying for services you no longer use regularly?
• What measures can you adopt to cut energy bills?
• Can you achieve discounts with bulk ordering or cut costs by reducing excessive orders?
• Are you making efficient use of your staff?

Maximise technology use

Accounting and financial technology can give you instant information on sales, costs and products and allows cloud-based apps to reduce the time needed for vital but time-consuming tasks.

This can include invoicing systems that tell you what’s been paid and other apps that help you keep track of your cashflow.

Examine your products and workforce

• Can you abandon or suspend certain products which deliver weak margins? At the same time, can a best seller withstand a price increase and boost profitability?
• Are you overstaffing shifts?
• Do you have lengthy processes with unnecessary steps?
• Do you really need those temporary workers?

Stay competitive and prioritise customers

Check out the competition, both locally and nationally, to see what they are charging for similar products and services.

This can often depend on different areas of the country and levels of relative prosperity. Can less well-off consumers withstand price increases?

Make maximum use of your accountant

Accountants offer a wide range of services, including strategic advice and money-saving and revenue-boosting ideas, including:

• Advising on business strategy
• Addressing your cashflow
• Debt management and credit control.

Link: Effect of inflation on business