Dive with caution…Partnership income or employment income

Dive with caution…Partnership income or employment income

In Corrigall [2022], The First-tier Tribunal (FTT) found that earnings from diving could not be treated as income from a partnership.

The appellant in this case was employed as a gas and air diver for UK and international companies. The appellant, however treated his UK employment income as trading income of a partnership split between himself and the other partner, being his spouse.

Therefore, he only reported 50% of this income on his tax returns. This led HMRC to opening an enquiry into the submitted tax returns and subsequently giving notices to the conclusion that all UK employment should be treated as 100% income of the appellant and not partnership income.

The appellant’s argument against this was that ITTOIA 2005, section 15 reclassifies employment income of a diver as trade income and that on this basis the income of such a trade should be taxed on the owners of the trade being him and his wife.

The appellant argued that because HMRC had allowed for expenses such as spouses wages against the diving income that this meant the appellant was trading with a view to a profit with his wife in relation to all of the diving income. Furthermore, because a partnership tax return and accounts were filed with HMRC, he argued that the existence of a partnership had been established.

Nonetheless, the FTT concluded that there had to be evidence that the partners were indeed trading with the view to make a profit and as such the partnership returns and accounts were not sufficient evidence.  Further, upon reading ITTOIA 2005 section 15, it refers to a trade of the employee only, the language used does not extend the meaning to include a trade owned by another person, in this case as partnership income.

The FTT found that the appellant was the sole employee and thus his tax returns needed to reflect 100% of the income from diving which would be taxed as trading income under S15 ITTIOA 2005

In similar cases such as Puttnam [2019], the FTT came to the same conclusion. The application of ITTOIA 2005, section. 15 merely describes the manner in which employment income is taxed and does not change the legal characteristics. Therefore, trading income carried out solely by one diver cannot be regarded as partnership income.

Therefore, please check with your tax advisor before you take that dive.

 

How can we help?

Our team of specialist tax advisers provide expert tax advice in Sheffield, Doncaster, and Northampton. Our tax advisers provide the full service from tax advice to tax planning, and through to compliance across cases from the relatively simple to highly complex tax advice across the full range of taxes.

Whether you are a company or an individual looking for tax advice our tax advisers can help with practical tax advice and planning.

Tax law changes regularly and our tax advisers are always on hand to offer new advice if rules or your circumstances change. This way you can relax knowing your tax affairs are being dealt with by a tax adviser and you can get on with living your life and running your business.

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Dalia Qarawi

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Spring Statement 2022

Spring Statement 2022

Spring Statement 2022

Against a backdrop of rising inflation, Chancellor Rishi Sunak presented his first Spring Statement on Wednesday 23 March 2022.

In his Spring Statement, the Chancellor announced a cut in fuel duty for petrol and diesel as he sought to ease the impact of rising prices for households and businesses.

The Chancellor will lift the starting thresholds for National Insurance contributions (NICs). He also pledged a cut to income tax in 2024. However, the Health and Social Care Levy will still be implemented in April 2022.

For businesses, there is an increase to the Employment Allowance, as well as relief from business rates on a range of green technologies and help with training and the adoption of digital technology.

You should contact us before taking any action as a result of the contents of this summary.

Increase in the National Insurance threshold and Lower Profit Limit

 

Chancellor Rishi Sunak announced an increase in the annual National Insurance Primary Threshold and the Lower Profits Limit in his 2022 Spring Statement.

Primary Class 1 contributions are paid by employees. To align the starting thresholds for income tax and National Insurance contributions (NICs) the threshold will increase from 6 July 2022 from £9,880 to £12,570.

The Lower Profits Limit is the point where the profits of the self-employed become subject to Class 4 NICs. From 6 April 2022 the Lower Profits Limit is increased to £11,908 and from 6 April 2023 the limit is increased further to £12,570.

In addition, there will be no Class 2 NICs on profits between £6,725 and £11,908. £3.15 per week is payable where profits are over £11,908.

 

Temporary increase in National Insurance rates

From April 2022, there will be a temporary increase in the rates of NICs payable for employees, employers and the self-employed as a transitional provision in readiness for the introduction of the Health and Social Care Levy from April 2023.

With the increase to the thresholds announced in the Spring Statement, from 6 July 2022 employees earning between £242 (£190 from 6 April to 5 July 2022) and £967 per week will pay NICs at 13.25%. Earnings over £967 will attract a 3.25% charge. Employers will pay 15.05% on their employees’ earnings over £175 per week.

Although employees’ NICs only become payable once earnings exceed £242 per week, any earnings between £123 and £242 per week protect an entitlement to basic state retirement benefits without incurring a liability to NICs.

For the self-employed, where their profits exceed £11,908 per annum, they will pay 10.25% on the profits up to £50,270 and 3.25% on profits over that upper profits limit.

 

Income tax reduction

The Chancellor announced the reduction in the basic rate of income tax for non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland to 19% from April 2024. This reduction will not apply for Scottish taxpayers because the power to set these rates is devolved to the Scottish Government.

The change will be implemented in a future Finance Bill.

 

Fuel duty

In a measure announced in the Spring Statement to help all motorists – individuals, small businesses and hauliers – fuel duty for petrol and diesel is cut by 5 pence per litre across the whole of the UK. This measure took effect from 6pm on 23 March 2022 and is in place for 12 months.

 

Increased Employment Allowance

Employers are able to claim the Employment Allowance which reduces their employer Class 1 NICs each year.

In the Spring Statement, the Chancellor announced an increase from April 2022 of £1,000 for eligible employers to reduce their employer NICs by up to £5,000 per year.

The allowance can be claimed against only one PAYE scheme, even if the business runs multiple schemes. Connected businesses, such as companies under the control of the same person or persons, are only entitled to one Employment Allowance between them.

 

VAT on energy saving materials

The Chancellor announced a UK wide, time-limited zero rate of VAT from April 2022 for the installation of energy saving materials. This will apply to installations such as rooftop solar panels.

This is in addition to the extension of the VAT relief to include additional technologies and the removal of complex eligibility conditions.

 

Green reliefs for business rates

The government is introducing targeted business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill. It was announced in the Spring Statement, that these measures will now take effect from April 2022, a year earlier than previously planned.

Making Tax Digital for Business: VAT

April 2022 sees the final phase of the introduction of the Making Tax Digital (MTD) for VAT regime. All VAT registered businesses, regardless of turnover, will enter MTD for VAT from their first VAT return period starting on or after 1 April 2022.

Businesses must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.

 

Comment

Keeping digital records will not mean businesses are mandated to use digital invoices and receipts but the actual recording of supplies made and received must be digital. It is likely that third party commercial software will be required. Software is not available from HMRC. The use of spreadsheets will be allowed, but they will have to be combined with add-on software to meet HMRC’s requirements.

HMRC is looking at a scenario where income tax updates are made quarterly and digitally under the MTD for Income Tax Self Assessment (ITSA) from April 2024.

MTD for Corporation Tax (CT)

The Government is committed to ongoing collaboration with stakeholders on the service design and, following any decision to mandate MTD for CT, will provide sufficient notice ahead of implementation but this will not be mandated before 2026 at the earliest.

Corporation Tax rates

The main rate of CT is 19% for the Financial Year (FY) beginning 1 April 2022. This rate will increase to 25% for the FY beginning on 1 April 2023.

If a company’s accounting period straddles more than one FY, the amount of profits for that accounting period must be apportioned to arrive at the tax rate charged.

A small profits rate will be introduced for qualifying companies with no associated companies in the accounting period and profits of £50,000 or less so that they will continue to pay CT at 19%. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective CT rate.

Capital allowances

Plant and machinery

A further extension to the temporary increase in the Annual Investment Allowance (AIA) to 31 March 2023 allows 100% tax relief to businesses investing up to £1 million in qualifying expenditure.

The AIA reverts to £200,000 for expenditure incurred on or after 1 April 2023 and special rules apply to accounting periods which straddle these dates.

First Year Allowances (FYA) for companies

For qualifying expenditure which is unused, not second-hand and is incurred on or after 1 April 2021 but before 1 April 2023 a super-deduction of 130% is available where the expenditure would normally qualify for the 18% main rate of writing down allowance or a Special Rate Allowance of 50% for expenditure which would normally attract the 6% special rate of writing down allowance.

For FYAs, what matters is the actual date on which the expenditure is incurred and not the date on which it is treated as incurred.

 

Comment

Businesses incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow. In 2023, not only will the tax relief rules for expenditure on plant and machinery change, but for companies the percentage of CT relief on that expenditure may change as well.

 

Preventing abuse of the R&D tax relief

From April 2023 a number of changes are proposed to the regimes from both existing schemes of relief which will include the expansion of relief to cloud and data computing.

Claims for relief will have to be made digitally and more detail will be required within the claim. Each claim will need to be endorsed by a named senior officer of the company and companies will need to inform HMRC, in advance, that they plan to make a claim. Claims will also need to include details of any agent who has advised the company on compiling the claim.

Cultural relief

A temporary increase in cultural tax reliefs for theatres, orchestras, museums and galleries across the UK will apply until 31 March 2024, increasing the relief organisations can claim as they invest in new productions and exhibitions.

From 1 April 2022 changes will also be introduced to better target the cultural reliefs and ensure that they continue to be safeguarded from abuse.

The Residential Property Developer Tax

The Residential Property Developer (RPDT) will be introduced on the very largest property developers for accounting periods beginning on or after 1 April 2022.

Broadly RPDT is a charge of 4% treated as corporation tax on the profits of the residential property developer over an allowance of £25 million in a 12-month period.

Capital gains tax (CGT) rates

The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for private residence relief.

There are two specific types of disposal which potentially qualify for a 10% rate:

  • Business Asset Disposal Relief (BADR) which was formerly known as Entrepreneurs’ Relief. This is targeted at working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses. BADR has a lifetime limit of £1 million for each individual.
  • Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares. This has a lifetime limit of £10 million for each individual.

CGT annual exemption

The CGT annual exemption is £12,300 for 2022/23 and will remain frozen until April 2026.

CGT reporting

New reporting and payment on account obligations for chargeable gains on residential property were introduced in April 2020. From 27 October 2021 the deadline to report and pay CGT after selling UK residential property was increased from 30 days after the completion date to 60 days.

Inheritance tax (IHT) nil rate bands

The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2026.

IHT residence nil rate band

The residence nil rate band (RNRB) was introduced in 2017, meaning that the family home can be passed more easily to direct descendants on death.

The rate of the RNRB is £175,000 for 2022/23.

There are a number of conditions that must be met in order to obtain the RNRB.

For many married couples and registered civil partnerships the relief which is available following the second death can effectively be doubled as each individual has a main nil rate band and a residence nil rate band which passes on the death of the surviving spouse.

Charitable giving

A reduced rate of IHT applies where broadly 10% or more of a deceased’s net estate (after deducting IHT exemptions, reliefs and the nil rate band) is left to charity. In those cases the 40% rate will be reduced to 36%.

Employer provided cars

The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are normally announced well in advance. Most cars are taxed by reference to bands of CO2 emissions multiplied by the original list price of the vehicle. The list price is reduced for capital contributions made by the employee up to £5,000.

For fully diesel cars generally add a 4% supplement unless the car is registered on or after 1 September 2017 and meets the Euro 6d emissions standard.

The maximum charge irrespective of the fuel, is capped at 37% of the list price of the car.

The rates announced for 2022/23 will remain frozen until 2024/25.

Employer provided fuel benefit

From 6 April 2022 the figure used as the basis for calculating the benefit for employees who receive free private fuel from their employers for company cars is increased to £25,300.

Employer provided vans and fuel

For 2022/23 the benefit increases to £3,600 per van and the van fuel benefit charge where fuel is provided for private use increases to £688.    

Changes to the van benefit charge from April 2021 means that if the van cannot in any circumstances emit CO2 by being driven the cash equivalent is nil.

National Insurance contributions (NICs)

In September 2021 the government published its proposals for new investment in health and social care in England. The proposals will lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government will introduce a UK-wide 1.25% Health and Social Care Levy based on the NIC system but ring fenced for health and social care.

From April 2022 the Health and Social Care Levy Act provides for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23.

From April 2023 onwards, the NIC rates will revert back to 2021/22 levels and will be replaced by a new 1.25% Health and Social Care Levy.

Broadly, the new Health and Social Care Levy will be subject to the same reliefs, thresholds and requirements as NIC. However the Levy (as opposed to the temporary increase in NICs for 2022/23) will also apply to those above State Pension age who are still in employment or are self-employed.

Existing reliefs for NICs to support employers will apply to the Levy. Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in Freeports will not pay the Levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new Freeport employees.

The Employment Allowance, which reduces employers’ Class 1 NICs by up to £5,000, will also be available for the employers’ liability to the Levy.

Comment

The Levy will be applied to those above State Pension age although this does not apply in respect of the temporary increase from April 2022. The Levy will not apply to Class 2 (a flat rate paid by many self-employed) and Class 3 (voluntary contributions for taxpayers to fill gaps in their contribution records).

 

The burden of the 1.25% increase falls on the shoulders of the employer, the employee and the self-employed as each will have higher contributions to make. Those with property income will be relieved that they are not being included in the Levy.

National Living Wage (NLW) and National Minimum Wage (NMW)

Following the recommendations of the independent Low Pay Commission, the government will increase the NLW for individuals aged 23 and over by 6.6% from 1 April 2022. The government has also accepted the recommendations for the other NMW rates to be increased.

From 1 April 2022, the hourly rates of NLW and NMW will be:

  • £9.50 for those 23 years old and over
  • £9.18 for 21-22 year olds
  • £6.83 for 18-20 year olds
  • £4.81 for 16-17 year olds
  • £4.81 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.

Comment

In total, the annual gross earnings of a full-time worker on the NLW will have increased by over £5,000 since its introduction in April 2016.

The UK personal allowance, tax rates and bands for the tax year 2022/23 were announced by the Chancellor in the October 2021 Budget.

The personal allowance

The personal allowance is currently £12,570 and will be frozen at £12,570 for the tax years to 2025/26.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So there is no personal allowance where adjusted net income exceeds £125,140.

The marriage allowance

The marriage allowance permits certain couples, where neither party pays tax in the tax year at a rate other than the basic rate, to transfer £1,260 of their personal allowance to their spouse or civil partner.

Comment

The marriage allowance reduces the recipient’s tax bill by up to approximately £250 a year. To benefit from the marriage allowance one spouse or civil partner must normally have no income or income below the personal allowance for the year. The marriage allowance was first introduced for 2015/16 and there are couples who are entitled to claim but have not yet done so. It is possible to claim for the four years back to 2018/19 where the entitlement conditions are met. The total tax saving for all years up until 2022/23 could be over £1,000. A claim for 2018/19 will need to be made by 5 April 2023.

Tax bands and rates

The basic rate of tax is 20%. In 2022/23 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance. The bands of tax are also frozen for the tax years to 2025/26.

Individuals pay tax at 45% on their income over £150,000.

Scottish residents

The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland to taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

In 2022/23 there are five income tax rates which range between the starter rate of 19% and the top rate of 46%. The basic rate of tax is 20% and there is an additional intermediate rate of 21%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK. The two higher rates are 41% and 46% rather than the 40% and 45% rates that apply to such income for other UK residents. For 2022/23 the threshold at which the 41% band applies is £43,663 for those who are entitled to the full personal allowance.

Savings and dividend income are taxed using UK rates and bands.

Welsh residents

From April 2019, the Welsh Government has the right to vary the rates of income tax payable by Welsh taxpayers. The UK government has reduced each of the three rates of income tax paid by Welsh taxpayers by 10 pence. The Welsh Government has set the Welsh rate of income tax at 10 pence which will be added to the reduced rates. This means the tax payable by Welsh taxpayers continues to be the same as that payable by English and Northern Irish taxpayers.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income exceeds £5,000.

Tax on dividends

The first £2,000 of dividends are chargeable to tax at 0% (the Dividend Allowance). For 2022/23 and subsequent tax years the rate at which dividends received above the Dividend Allowance are taxed has increased across all rates by 1.25% to the following rates:

  • 8.75% for basic rate taxpayers
  • 33.75% for higher rate taxpayers
  • 39.35% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

VAT rates and limits

The VAT registration and deregistration thresholds will remain unchanged for a period of two years from 1 April 2022.

The six-month extension to the UK-wide VAT reduction to 12.5% for the tourism and hospitality sectors comes to an end on 30 March 2022 with rates returning to the standard rate of 20%.

Vehicle Excise Duty (VED)

With effect from 1 April 2022 the rates of VED rates for cars, vans, motorcycles, and motorcycle trade licenses will increase in line with Retail Prices Index (RPI). 

For heavy goods vehicles, VED continues to be frozen in 2022/23. The HGV Levy is suspended for another 12 months from 1 August 2022.

Landfill Tax

With effect from 1 April 2022 both the standard and lower rates of Landfill Tax will increase in line with the RPI.

Disclaimer

This publication is published for the information of clients. It provides only an overview of the regulations in force at the date of publication and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this publication can be accepted by the authors or the firm.

For more information

For more information on anything discussed in this article or if you would like some tax planning advice please contact your usual Hawsons contact. Alternatively, please contact your nearest office to arrange your free initial meeting.

Free initial meeting

Stephen Charles

Tax Partner, Sheffield

0114 266 7141

Aaron Hemmington

Tax Partner, Northampton

01604 645 600

Craig Walker

Tax Director, Sheffield

0114 266 7141

David Cairns

Tax Partner, Northampton

01604 645 600

[email protected]

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Tax opportunities for UK farmers and agricultural businesses

Tax opportunities for UK farmers and agricultural businesses

Are there tax opportunities for UK farmers available in 2022?

Annual Investment Allowance, Agricultural Property Relief, and farmers’ averaging are generous tax reliefs for UK farmers and owners of agricultural businesses. However, each has some detailed rules that you need to be aware of – particularly as UK farming brings unique tax reliefs and rules.

 

Annual Investment Allowance

The Annual Investment Allowance (AIA) was increased from £200,000 to £1 million on 1st January 2019. It has been confirmed by the Chancellor that this will stay in place until at least 31 March 2023. The AIA provides a 100% deduction for the cost of plant and machinery (excluding cars) purchased by a business, up to an annual limit, and is available to most businesses.

On 1 April 2021, the government introduced the super-deduction which is a 130% first-year capital allowance for qualifying plant and machinery assets. There is also a less generous 50% first-year allowance for assets qualifying for the special rate pool. The super-deduction will allow companies to reduce their tax bill by up to 25p for every £1 they invest. However, it is important to note that the super deduction is not available to unincorporated businesses.

Now AIA has increased to £1 million this is a very generous figure and is one of the best tax opportunities for UK farmers. As the cost of agricultural machinery and equipment is very high, maximising the opportunities of the AIA could be essential for farmers. If you are considering purchasing any farming equipment it is important to note that the £1 million allowance could be significantly reduced in March 2023.

 

Caution

You will need to be very careful of timings in order to maximise your AIA. You also need to decide whether or not now is the right time to use the AIA to reduce your tax bills. Using the AIA to reduce tax bills in the agriculture sector or keeping cash reserves is a topic we have covered before.

Whether or not now is the right time for farmers to use AIA to reduce their tax bills depends on specific circumstances. Given the uncertainty in the sector and the ongoing fluctuations of profits – both heavily influenced by supermarket price wars amongst other things – now might be the time to keep cash reserves rather than spend. When cash flow is tight and you have no spare funds to purchase machinery, spending to theoretically reduce your tax bills through AIA may not be the right option for your business.

 

Farmers’ averaging relief

Farmers’ averaging is a unique tax rule, introduced to limit fluctuations in farmers’ tax bills – which can happen for any number of reasons, such as the weather or a poor harvest.

Provided that certain conditions are met farmers can claim this special relief where they can average their profits from farming or market gardening over 2 years or 5 years.

 

Agricultural Property Relief

Agricultural Property Relief (APR) essentially provides 100% relief from inheritance tax on the agricultural value of land and property where certain conditions are met. Inheritance Tax (IHT) is becoming increasingly complex and potentially expensive for farmers and their families. APR could therefore provide an invaluable relief.

 

The Farmhouse

It should be noted that the agricultural value of farmhouses can qualify for APR but stringent conditions must be met. It is likely that the open market value of a farmhouse is more than the agricultural value. Therefore, even if APR is available there could be some IHT exposure on a portion of the value. The main residence nil rate band is capable of being applied to farmhouses where the farmhouse is passed to a direct descendant.

This may therefore provide some further IHT relief for farmers.

The current allowance for the residence nil rate band for Inheritance Tax is £175,000.

This extra allowance is transferable exactly as the current nil rate band is now, and for a surviving spouse/civil partner who has been widowed before 6 April 2017, there is a transferable allowance of £100,000 if the survivor dies on or after that date.

One important point to note is that the main residence nil rate band will be reduced by £1 for every £2 that the value of an estate before reliefs exceeds £2 million. Since the value of estates for many farmers will exceed this threshold it is vital that they engage in IHT planning with a view to reducing the value of their estates.

This may then enable them to benefit from the main residence nil rate band and in turn reduce their IHT exposure.

 

Caution

APR and the new additional main residence band are extremely generous tax reliefs and, as such requires you to meet certain and complex qualifying conditions. Another key thing to remember is that APR is an all-or-nothing relief – if you don’t meet all of the detailed conditions, then you will not qualify. Planning is essential, and so is making a will that is tax efficient.

We advise farmers to regularly review their activities to ensure their business is structured to take full advantage of APR and maximise other reliefs available. For more information, we recommend you read HMRC’s rules and guidance on APR here.

 

How can we help?

At Hawsons our experienced tax advisers can help and identify which tax reliefs your agricultural business may be eligible for. We are very experienced at providing a full range of accounting, tax, and financial planning services for agriculture businesses and have extensive knowledge of the sector.

If you believe your business may be eligible for any of these tax reliefs it is vitally important to seek expert advice. The rules and conditions of these tax rules are extremely complex and our tax experts can check your eligibility and help you make the most of your claim as well as identify any further tax reliefs your business may benefit from.

Contact us today!

More from our agriculture experts

You can find all of our latest agriculture sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Free initial meeting

Aaron Hemmington

Tax Partner, Northampton

01604 645 600

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HMRC crypto-asset letters | are you being nudged?

HMRC crypto-asset letters | are you being nudged?

Are you being nudged?

In November 2021 HMRC began sending letters out encouraging UK domiciled individuals to pay income tax and capital gains tax (CGT) on income and gains arising from crypto-asset holdings.

If you have received one of these ‘nudge’ letters you must act upon this. Letters are usually sent to individuals they deem a cause for concern, i.e. when your tax affairs don’t appear to be in order. HMRC may take further action if you don’t respond in receipt of the letter, it is important to be totally co-operative to protect yourself from failure to notify penalties.

Nudge letters could be used as a push in the right direction, giving you a chance to seek expert advice on the effects of investing in crypto-asset holdings. There are a number of complexities to crypto-asset holdings which you could unknowingly fall into the trap of, effectively initiating unintentional tax liabilities.

 

How can we help?

At Hawsons we have a dedicated team of tax experts at our Sheffield, Doncaster and Northampton offices. Our understanding of the complex issues with crypto asset holdings allow us to provide you with informed tax advice.

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You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Free initial meeting

Aaron Hemmington

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01604 645 600

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HMRC give self-assessment taxpayers one month waiver

HMRC have announced that they will be waiving late filing and late payment penalties by one month for Self-Assessment taxpayers. This is to give them additional time to complete their 2020/21 tax return and pay any due tax if needed.

However, HMRC are still encouraging Self-Assessment tax payers to file and pay on time if they can. The department have announced that out of the 12.2 million people that need to submit a Self-Assessment tax return by 31 January 2022 nearly 6.5 million have already submitted.

HMRC have said that with Covid-19 affecting the capacity of some tax-payers and their agents it is making it increasingly difficult for taxpayers to meet the 31 January deadline. Therefore, HMRC have made the decision to implement a one-month waiver for late filing and late payment penalties.

This is a very welcome concession.

 

What are the new rules for self-assessment taxpayers?

The official deadline for filing and paying your tax return remains as 31 January 2022. The waiver implemented by HMRC will have two fundamental changes:

  • Firstly, anyone who cannot file their tax return by the 31 January deadline will not receive a late filing penalty if they file online by 28 February. Technically the return will have been filed late but the tax-payer will be treated as if they had a reasonable excuse and so the automatic £100 penalty will not be charged.
  • Secondly, anyone who cannot pay their Self-Assessment tax bill by the 31 January deadline will not receive a late payment penalty if they pay their tax in full, or set up a Time to Pay arrangement, before 1 April.

 

However, it is important to note that interest will be charged with effect from 1 February 2022 for those that miss the 31 January deadline. Therefore, we recommend that you pay on time to avoid any interest payments if you can.

 

How can we help?

If you have any questions about the contents of this article, please contact one of our tax experts who will be able to assist you with any queries you may have.

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

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Stephen Charles

Tax Partner, Sheffield

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Tax Partner, Northampton

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Tax Partner, Northampton

01604 645 600

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Autumn Budget 2021

Autumn Budget 2021

Budget 2021

The Chancellor Rishi Sunak presented his third Budget on 27 October 2021. In his speech he set out the plans to “build back better” with ambitions to level up and reduce regional inequality.

Main Budget proposals

Tax measures include:

  • a new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022/23
  • a change in the earliest age from which most pension savers can access their pension savings without incurring a tax charge. From April 2028 this will rise to 57
  • the retention of the £1 million annual investment allowance until 31 March 2023
  • individuals disposing of UK property on or after 27 October 2021 now have a 60 day CGT reporting and payment deadline, following the completion of the disposal.

Other measures include:

  • a complete overhaul of alcohol duties that will see drinks taxed on their strength
  • the cancellation of the previously announced rise in fuel duties
  • pubs supported with a reduction in draught beer and cider duty
  • increases in the National Living Wage and the National Minimum Wage rates
  • an ultra-long-haul band of air passenger duty introduced.

Some Budget proposals may be subject to amendment in the Finance Bill 2021-22. Should you need any further help or support please contact us.

Making Tax Digital for income tax

The Making Tax Digital (MTD) regime is based on businesses being required to maintain their accounting records in a specified digital format and submit extracts from those records regularly to HMRC. It had been expected that sole trader businesses and landlords with business income of more than £10,000 per annum would be required to enter the MTD regime for income tax purposes from 6 April 2023. However, HMRC recently announced that this will be deferred until 6 April 2024. Early adoption of digital record keeping and voluntary submission of MTD for income tax data remains possible.

Following the deferral for sole trader businesses and landlords, general partnerships will not be required to comply with MTD for income tax until 6 April 2025 and the date other types of partnerships (for example limited liability partnerships) will be required to comply will be confirmed in the future.

HMRC has also confirmed that the new system of penalties for the late filing and late payment of tax for income tax self assessment will be aligned with when a taxpayer becomes mandated into MTD for income tax. For individuals without trade or property income or otherwise exempt from MTD for income tax, the new penalty regime will apply to their income tax affairs from 6 April 2025.

MTD for corporation tax

HMRC has previously announced that MTD for corporation tax will not be mandated before 2026.

Accounting periods that are not aligned to tax years

Aligned to the revised start date for MTD for income tax, changes will be made to simplify the rules under which trading profits made by self-employed individuals and partnerships are allocated to tax years.

The changes mainly affect unincorporated businesses that do not draw up annual accounts to 31 March or 5 April. The transition to the new rules will take place in the 2023/24 tax year and the new rules will come into force from 6 April 2024.

Affected self-employed individuals and partnerships may retain their existing accounting period but the trade profit or loss that they report to HMRC for a tax year will become the profit or loss arising in the tax year itself, regardless of the chosen accounting date.  Broadly this will require apportionment of accounting profits into the tax years in which they arise.

Example

A business draws up accounts to 30 June every year. Currently, income tax calculations for 2024/25 would be based on the profits in the business’s accounts for the year ended 30 June 2024. The change will mean that the income tax calculations for 2024/25 will be based on 3/12 of the profits for the year ended 30 June 2024 and 9/12 of the profits for the year ended 30 June 2025.

This change will potentially accelerate when business profits are taxed but transitional adjustments in 2023/24 are designed to ease any cashflow impact of the change.

Comment

An estimated 93% of sole traders and 67% of trading partnerships draw up their accounts to 31 March or 5 April and thus the current rules are straightforward and the proposed changes will not affect them. Those with a different year end might wish to consider changing their accounting year end to simplify compliance with tax rules.

Corporation tax rates

The main rate of corporation tax is currently 19%. In the Spring Budget 2021, the Chancellor announced the rate would remain at 19% until 1 April 2023 but the rate will then increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

Capital allowances

Plant and machinery

Most corporate and unincorporated businesses are able to utilise a £200,000 annual investment allowance (AIA) to claim 100% tax relief on their qualifying expenditure on plant and machinery. The allowance was temporarily increased to £1 million for expenditure incurred on or after 1 January 2019 and was due to revert back to £200,000 from 1 January 2022. The £1 million allowance will now be retained until 31 March 2023.

Transitional rules will apply to accounting periods that span 1 April 2023.

For companies, this aligns the end of the temporary AIA with the end of the ‘super-deductions’ as announced by the government in Spring Budget 2021.

Reminder – super-deductions

Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from new capital allowances, termed ‘super-deductions’ or ‘first year allowances’, as follows:
  • a super-deduction of 130% can be claimed on most new plant and machinery investments that ordinarily qualify for the 18% main rate writing down allowances
  • a first year allowance of 50% can be claimed on most new plant and machinery investments that ordinarily qualify for the 6% special rate writing down allowances.

These reliefs are not available for unincorporated businesses.

Comment

Businesses incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow. In 2023 not only will the tax relief rules for expenditure on plant and machinery change, for companies the percentage corporation tax relief saving on the expenditure may change as well.

Structures and Buildings

A Structures and Buildings Allowance (SBA) was introduced with effect from 29 October 2018 to relieve costs for new structures and buildings used for qualifying purposes. A business must hold an allowance statement containing certain information to be eligible to claim SBA. Minor changes will be made to the allowance statement requirements to clarify the information required to be kept.

Annual Tax on Enveloped Dwellings

The Annual Tax on Enveloped Dwellings (ATED) charges increase automatically each year in line with inflation. The ATED annual charges will rise by 3.1% from 1 April 2022 in line with the September 2021 Consumer Price Index.

Residential Property Developer Tax

A new tax will be applied from 1 April 2022 on company profits derived from UK residential property development. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million. For companies that are part of a group, the £25 million allowance will be allocated by the group between its companies.

Cultural relief

The government has announced that it will temporarily increase cultural tax reliefs for theatres, orchestras, museums and galleries across the UK from 27 October 2021 to 31 March 2024, increasing the relief organisations can claim as they invest in new productions and exhibitions.

Changes will also be introduced to better target the cultural reliefs and ensure that they continue to be safeguarded from abuse. These will apply from 1 April 2022.

Research and Development relief reform

Research and Development (R&D) tax reliefs for companies will be reformed to:

  • support modern research methods by expanding qualifying expenditure to include data and cloud costs
  • more effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK
  • target abuse and improve compliance.

These changes will take effect from April 2023.

Cross-border group relief

Following the UK’s exit from the European Union (EU), the government is bringing the corporation tax group relief rules relating to European Economic Area (EEA) resident companies into line with those for non-UK companies resident elsewhere in the world. This applies to accounting periods ending on or after 27 October 2021 and will affect UK groups with subsidiary companies established in the EEA along with EEA-resident companies that are trading in the UK through a permanent establishment.

Online Sales Tax

The government has announced its plans to consult and explore the arguments for and against the introduction of an ‘Online Sales Tax’.

Should such a tax be introduced in future, it would raise revenue to fund business rates reductions.

Business rates review

Business rates have been devolved to Scotland, Northern Ireland and Wales.

The government announced at Budget 2020 that it would conduct a fundamental review of the business rates system in England. The government’s objectives for the review were reducing the overall burden on business, improving the current business rates system and allowing the consideration of more fundamental changes in the long term.

In March 2021, the government published the Interim Report of the review. The Final Report was published on 27 October 2021. Collectively, these set out the government’s commitments by:

  • Supporting local high streets as they adapt and recover from the pandemic by introducing a new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022/23. Over 90% of retail, hospitality and leisure businesses will receive at least 50% off their business rates bills in 2022/23.  This amounts to support worth more than double the relief that was announced pre-COVID for the 2020 to 2021 financial year and includes additional businesses such as hotels, gyms and bowling alleys.
  • Cutting the burden of business rates for all businesses by freezing the multiplier for 2022 to 2023.
  • Introducing a new relief to support investment in property improvements , enabling occupying businesses to invest in expanding their properties and making them work better for customers and employees.
  • Introducing new measures to support green investment and the decarbonisation of non-domestic buildings. This will provide exemptions for eligible green plant and machinery such as solar panels, wind turbines and battery storage used with renewables and electric vehicle charging points, as well as a 100% relief for low-carbon heat networks that have their own rates bill.
  • Making the system fairer by moving to three-yearly revaluations from 2023 .
  • Providing stability ahead of the 2023 revaluation by extending Transitional Relief and the Supporting Small Business Scheme for 2022 to 2023 to protect small businesses from significant bill increases in the final year of the current revaluation cycle.

Capital gains tax (CGT) rates

No changes to the current rates of CGT have been announced. This means that the rate remains at 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains, mainly chargeable gains on residential properties, with the exception of any element that qualifies for Private Residence Relief.

There is still potential to qualify for a 10% rate, regardless of available income tax basic rate band, up to a lifetime limit for each individual. This is where specific types of disposals qualify for:

  • Business Asset Disposal Relief (BADR). This is targeted at directors and employees who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met. It can also apply to owners of unincorporated businesses.
  • Investors’ Relief. The main beneficiaries of this relief are investors in unquoted trading companies who have newly-subscribed shares but are not employees.

Current lifetime limits are £1 million for BADR and £10 million for Investors’ Relief.

CGT annual exemption

The CGT annual exemption will be maintained at the current level of £12,300 for 2022/23 and up to and including 2025/26.

CGT reporting and payment following a property disposal

UK resident individuals who dispose of UK residential property are sometimes required to deliver a CGT return to HMRC and make a payment on account of CGT within 30 days of completion of the property disposal. Broadly, this only applies where the property disposal gives rise to a CGT liability and as such usually excludes the disposal of a property to which private residence relief applies.

Non-UK residents are subject to similar deadlines in respect of the disposal of all types of UK land and property.

In both cases, for disposals that complete on or after 27 October 2021, the reporting and payment deadline is extended to 60 days following the completion of the disposal.

From the same date, changes will clarify that for UK residents disposing of a mixed use property, only the portion of the gain that is the residential property gain is required to be reported and paid.

Inheritance tax (IHT) nil rate bands

The nil rate band has been frozen at £325,000 since 2009 and this will now continue up to 5 April 2026. An additional nil rate band, called the ‘residence nil rate band’ (RNRB) is also frozen at the current £175,000 level until 5 April 2026. A taper reduces the amount of the RNRB by £1 for every £2 that the ‘net’ value of the death estate is more than £2 million. Net value is after deducting permitted liabilities but before exemptions and reliefs. This taper will also be maintained at the current level.

National Insurance Contributions (NICs)

In September 2021 the government published its proposals for new investment in health and social care in England. The proposals will lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government will introduce a UK-wide 1.25% Health and Social Care Levy based on the NIC system but ring fenced for health and social care.

The Health and Social Care Levy Act provides for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates will decrease back to 2021/22 levels and will be replaced by a new 1.25% Health and Social Care Levy.

Broadly, the new Health and Social Care Levy will be subject to the same reliefs, thresholds and requirements as NIC. However the Levy (as opposed to the temporary increase in NICs for 2022/23) will also apply to those above State Pension age who are still in employment.

Existing reliefs for NICs to support employers will apply to the Levy. Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in Freeports will not pay the Levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new Freeport employees.

The Employment Allowance, which reduces employers’ Class 1 NICs by up to £4,000, will also be available for the employers’ liability to the Levy.

Comment

A novel aspect of the Levy is the application to employees above State Pension age. This does not apply in respect of the temporary increase for 2022/23. The Levy will not apply to Class 2 (a flat rate paid by many self-employed) and Class 3 (voluntary contributions for taxpayers to fill gaps in their contribution records).

The main burden of the 1.25% increase falls on the collective shoulders of the employer and employee as each will have higher contributions to make. Those with property income will be relieved that they are not being included in the Levy.

National Living Wage (NLW) and National Minimum Wage (NMW)

Following the recommendations of the independent Low Pay Commission, the government will increase the NLW for individuals aged 23 and over by 6.6% from 1 April 2022. The government has also accepted the recommendations for the other NMW rates to be increased.

From 1 April 2022, the hourly rates of NLW and NMW will be:

  • £9.50 for those 23 years old and over
  • £9.18 for 21-22 year olds
  • £6.83 for 18-20 year olds
  • £4.81 for 16-17 year olds
  • £4.81 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.

Comment

In total, the annual gross earnings of a full-time worker on the NLW will have increased by over £5,000 since its introduction in April 2016.

Power to make temporary modifications of taxation of employment income

This will allow HM Treasury, under ministerial direction, to make regulations to make temporary modifications to existing legislation for a period of up to two tax years in the event of a disaster or emergency of national significance as determined by HM Treasury. This will enable the government to support taxpayers, for example by:

  • exempting benefits in kind of a specified description from income tax where appropriate
  • changing the qualifying conditions for exemptions on benefits in kind
  • exempting specified reimbursements from the charge to income tax
  • providing relief for specified expenses.

This will have effect on and after the date of Royal Assent to the Finance Bill 2021-22.

The personal allowance

The personal allowance is currently £12,570. The Chancellor announced in the March 2021 Budget that the personal allowance will be frozen at £12,570 for the tax years 2022/23 to 2025/26.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So there is no personal allowance where adjusted net income exceeds £125,140.

The marriage allowance

The marriage allowance permits certain couples, where neither party pays tax in the tax year at a rate other than the basic rate, to transfer £1,260 of their personal allowance to their spouse or civil partner.

Comment

The marriage allowance reduces the recipient’s tax bill by up to approximately £250 a year. To benefit from the marriage allowance one spouse or civil partner must normally have no income or income below the personal allowance for the year. The marriage allowance was first introduced for 2015/16 and there are couples who are entitled to claim but have not yet done so. It is possible to claim for all years back to 2017/18 where the entitlement conditions are met. The total tax saving for all years up until 2021/22 could be over £1,000. A claim for 2017/18 will need to be made by 5 April 2022.

Tax bands and rates

The basic rate of tax is 20%. In 2021/22 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance.

At Spring Budget 2021, the Chancellor announced that the basic rate band will be frozen at £37,700 for the tax years 2022/23 to 2025/26. The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these years.

Individuals pay tax at 45% on their income over £150,000.

Scottish residents

The tax on income (other than savings and dividend income) is different, for taxpayers who are resident in Scotland, from that paid by taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

In 2021/22 there are five income tax rates which range between 19% and 46%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK. The two higher rates are 41% and 46% rather than the 40% and 45% rates that apply to such income for other UK residents. Currently the 41% band applies to income over £43,662 for those who are entitled to the full personal allowance. The 46% rate applies to income over £150,000.

The Scottish Government will announce the Scottish income tax rates and bands for 2022/23 in the Scottish Budget on 9 December.

Welsh residents

From April 2019, the Welsh Government has had the right to vary the rates of income tax payable by Welsh taxpayers (other than tax on savings and dividend income). The UK government has reduced each of the three rates of income tax paid by Welsh taxpayers by 10 pence. For 2021/22 the Welsh Government has set the Welsh rate of income tax at 10 pence which has been added to the reduced rates. This means the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers.

The Welsh Government will publish its Draft Budget for 2022/23 on 20 December.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits, and property income, less allocated allowances and reliefs) exceeds £5,000.

Tax on dividends

The first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates for 2021/22:

  • 7.5% for basic rate taxpayers
  • 32.5% for higher rate taxpayers
  • 38.1% for additional rate taxpayers.

In September 2021 the government announced an increase to the rates of dividend tax by 1.25% from 6 April 2022 to help fund the new planned investment in health and social care. The new rates will therefore be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Comment

Dividends on shares held in ISAs and pension schemes are not subject to dividend tax and thus will not be affected by the increase in rates.

Green National Savings and Investment (NS&I) product

In the Spring Budget 2021 the government announced  a green retail savings product through NS&I. The Bonds are now available to buy online and offer savers a chance to support green projects at a fixed rate of 0.65% pa over a three-year term. The Bonds are available to those aged 16 or over, with a minimum investment of £100 and a maximum limit of £100,000 per person. The interest is taxable in the tax year the Bond matures.

The UK’s inaugural sovereign green bond (or ‘green gilt’) was launched in September 2021, and was followed by a second issuance in October 2021. They are the first sovereign green retail product of their kind in the world.

Universal Credit

The Universal Credit taper rate is reduced from 63% to 55%, meaning Universal Credit claimants will be able to keep an additional 8p for every £1 of net income they earn.

Increase to the normal minimum pension age

The current earliest age at which most pension savers can access their pension savings without incurring a tax charge is age 55. From April 2028 this earliest age will rise to 57.

This measure will affect individuals born after 5 April 1973 whose earliest date to access their pension benefits will see a two-year delay to those born on or before that date.

Pensions – Scheme Pays

Although there are no limits to how much an individual can save or accrue in a registered pension scheme, there is an overall limit on the amount of an individual’s tax-relieved annual pension savings or accrual which includes employer contributions. This is known as the annual allowance and the standard annual allowance is currently £40,000, but in some circumstances this is reduced, with the maximum reduction taking it down to £4,000.

An individual’s unused annual allowance from the three previous tax years can be carried forward and added to the annual allowance. However, if the individual’s pension savings for the tax year exceed their annual allowance, the annual allowance tax charge is applied to the excess.

Although this tax liability would normally be the individual’s liability it is possible for them to elect for the pension scheme administrator to be jointly liable.

Where an individual has inputted more than £40,000 and their annual allowance charge exceeds £2,000 the individual can request that their pension company pays the charge for them in return for an equivalent reduction in the value of their pension pot. This is called mandatory Scheme Pays.

From April 2022 there will be a change to the rules for certain pension schemes to remove anomalies where the tax charge has arisen due to a retrospective change of facts, the tax charge is £2,000 or more and the individual requests the pension scheme pays the amount. This measure applies retrospectively from 6 April 2016.

Tonnage Tax

The UK’s tonnage tax regime will be reformed from April 2022 to help the UK shipping industry grow and compete in the global market. The reform is intended to make it easier for shipping companies to move to the UK, ensure they are not disadvantaged compared with firms operating in other countries, and reduce unnecessary administrative burdens.

Landfill Tax

As announced at Spring Budget 2021 both the standard and lower rates of Landfill Tax will increase from 1 April 2022 in line with the Retail Prices Index (RPI).

Gaming Duty

The government will raise the bandings for Gaming Duty in line with inflation. The new bandings will affect Gaming Duty accounting periods commencing on or after 1 April 2022.

Vehicle Excise Duty (VED)

The government will increase VED rates for cars, vans, motorcycles, and motorcycle trade licences in line with RPI with effect from 1 April 2022.

For heavy goods vehicles, VED continues to be frozen in 2022/23. The HGV Levy is suspended for another 12 months from 1 August 2022.

Tobacco Duty

Increases in Tobacco Duty rates take effect from 27 October 2021 and the government will legislate in Finance Bill 2021-22 to introduce tougher sanctions to tackle Tobacco Duty evasion.

Alcohol Duty

Rates of Alcohol Duty were not changed in this Budget. The government is publishing a consultation on its detailed proposals for Alcohol Duty reform. These include:

  • changes to duty structures
  • new rates for some products sold on draught
  • extension of small producer reliefs
  • simplification of the administrative regime.

In addition, alcohol duties have been frozen to February 2022.

Air Passenger Duty (APD)

The government will introduce a new domestic band for APD for reduced rate and standard rate travel, covering flights within the UK. In addition, a new ultra-long-haul band will be introduced, covering destinations with capitals located more than 5,500 miles from London. These changes will take effect from 1 April 2023.

Freeports

The government announced its plans for Freeports in 2020. Freeports are specified geographical areas that allow certain benefits to businesses operating within them. The main VAT benefit is that businesses selling goods within free zones will be able to zero-rate their supplies. Services carried out on goods in those zones may also be zero-rated subject to conditions. The government will introduce an additional element to the VAT free zone model for Freeports. This will implement a free zone exit charge to ensure businesses do not gain an unintended tax advantage from the zero-rate in the free zone model. The measure will take effect from 3 November 2021.

VAT on second-hand cars sold in Northern Ireland

In a measure that will be backdated to 1 January 2021, motor dealers in Northern Ireland will be able to include motor vehicles sourced from Great Britain in their second-hand margin scheme calculations. This measure will apply should a relevant agreement be reached with the EU.

Second-hand Motor Vehicle Export Refund Scheme

Under this scheme, businesses that remove used motor vehicles from Great Britain for resale in Northern Ireland or the EU may be able to claim a refund of VAT following export. The power will come into effect on Royal Assent of Finance Bill 2021-22. Legislation outlining the detail of the scheme will be introduced in 2022.

VAT treatment of fund management fees

A consultation will take place on options to simplify the VAT treatment of fund management fees.

VAT penalties

Budget documents confirm that the new late submission and late payment penalties for VAT will still come into effect for VAT registered businesses for accounting periods starting on or after 1 April 2022, as announced at Spring Budget 2021.

Plastic Packaging Tax

Draft legislation has been issued to establish a Plastic Packaging Tax. This is a new tax that applies to plastic packaging produced in or imported into the UK, that does not contain at least 30% recycled plastic. Plastic packaging is packaging that is predominantly plastic by weight.

The tax rate will be £200 per tonne of non-compliant plastic packaging. There will be an exemption for businesses that manufacture or import less than ten tonnes of plastic packaging per year. The tax will take effect from April 2022.

Disclaimer

This publication is published for the information of clients. It provides only an overview of the regulations in force at the date of publication and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this publication can be accepted by the authors or the firm.

For more information

For more information on anything discussed in this article or if you would like some tax planning advice please contact your usual Hawsons contact. Alternatively, please contact your nearest office to arrange your free initial meeting.

Free initial meeting

Stephen Charles

Tax Partner, Sheffield

0114 266 7141

Aaron Hemmington

Tax Partner, Northampton

01604 645 600

Craig Walker

Tax Director, Sheffield

0114 266 7141

David Cairns

David Cairns

Tax Partner, Northampton

01604 645 600

[email protected]

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