Welcome to April’s news. We have an article that covers the changes in Corporate Tax, taking effect from next April so you have a year to prepare. In essence the rate of tax is changing from a flat rate to a whole new set of rules, read carefully! There’s information on year-end changes that applies to self-employed people. We can help you with this if you are affected. A really significant change coming in 2024 is the requirement to file quarterly digital tax returns instead of the current annual return. This is quite a change and will need some planning ahead of its implementation. HMRS has issued warnings over more online fraud – and we conclude the month’s round-up with some useful dates for your financial diary. As usual, you know where we are if you’d like to discuss any of these, or other, issues that might affect your business.
Corporation tax increase
The present 19% rate of Corporation Tax applies to all companies whatever their size.
From 1 April 2023, this flat rate will cease to apply and will be replaced by variable rates ranging from 19% to 25%.
A small profits rate of 19% will apply to companies whose profits are equal to or less than £50,000.
The main Corporation Tax rate is increased to 25% and will apply to companies with profits in excess of £250,000.
Companies with profits between £50,000 and £250,000 will pay tax at the main rate of 25% reduced by marginal relief. The marginal relief acts to adjust the rate of tax paid gradually increasing liability from 19% to 25%.
Planning note: Unfortunately, these bands – the £50,000 and £250,000 limits – are reduced if a company has associated companies or an accounting period of less than 12-months.
An associated company is loosely defined as a company in common ownership.
For example, if you have one company with taxable profits of £40,000 and one company with taxable profits of £5,000, the company with the taxable profits of £40,000 will not benefit from the small profits rate as the profits are above the lower limit of £25,000 that applies to a company with one associate. Merging the companies will mean that there is only one company and the combined profits of £45,000 will be charged at the small profits rate of 19%.
Change of accounting year end
In preparation for the introduction of Making Tax Digital for Income Tax Self-Assessment the basis period rules for unincorporated businesses are being abolished. Instead, unincorporated businesses will be assessed on the profits actually earned in the tax year.
The new rules take effect from 2024/25, with 2023/24 being a transitional year.
This will affect you if you run an unincorporated business (generally, if you are self-employed) and you currently prepare your accounts to a date other than one between 31 March and 5 April inclusive.
This change could create additional tax liabilities in the tax year that this realignment takes place. HMRC have agreed that these additional liabilities can be spread over five years.
Planning note: There is nothing in the legislation to stop self-employed traders considering this change and moving to an actual basis before the transitional year 2023/24. We recommend that a planning exercise be carried out to clarify the timing of the best-fit option to keep any tax increases to a minimum.
The transition to quarterly tax returns
Individuals with significant income – including the self-employed – are presently required to file one tax return a year.
From April 2024, HMRC’s Making Tax Digital program is being expanded to include self-employed individuals and landlords with business or rental income in excess of £10,000. This is described as MTD for ITSA (Income Tax Self-Assessment)
From April 2025, all other individuals subject to self-assessment will be drawn into the MTD for ITSA net.
Two points to consider:
Firstly, MTD directs that affected taxpayers will need to upload data to HMRC’s servers on a quarterly basis. This effectively increases the present, single reporting requirement to four separate filing events during each tax year.
Secondly, in order to upload data, taxpayers will need to keep their records in a digital format that has been programmed to synchronise with HMRC’s servers.
We would encourage all taxpayers who have not yet considered these changes to contact us as soon as possible. Although 2024 may seem to be some time away there is much to do to ensure you stay compliant.
HMRC warning to taxpayers
HMRC issued the following press release 8 March 2022:
“HMRC is warning customers not to share sensitive personal information online to avoid their identities being used to commit tax fraud.
“HMRC is aware that criminals are attempting to obtain customers’ Government Gateway logins and other personal details, enabling them to register for Income Tax Self-Assessment and submit bogus tax refund claims before pocketing the repayment.
“Individuals, ranging from teenagers to pensioners, are being targeted on social media platforms by fraudsters seeking to ‘borrow’ their identities. In return, the individual is promised a cut of the tax refund ‘risk-free’.
“Handing over sensitive personal information to criminals like this, even inadvertently, risks individuals involving themselves in tax fraud, and having to pay back the full value of the fraudulent claim.
Tax Diary April/May 2022
1 April 2022 – Due date for Corporation Tax due for the year ended 30 June 2021.
19 April 2022 – PAYE and NIC deductions due for month ended 5 April 2022. (If you pay your tax electronically the due date is 22 April 2022).
19 April 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2022.
19 April 2022 – CIS tax deducted for the month ended 5 April 2022 is payable by today.
30 April 2022 – 2020-21 tax returns filed after this date will be subject to an additional £10 per day late filing penalty for a maximum of 90 days.
1 May 2022 – Due date for corporation tax due for the year ended 30 July 2021.
19 May 2022 – PAYE and NIC deductions due for month ended 5 May 2022. (If you pay your tax electronically the due date is 22 May 2022).
19 May 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2022.
19 May 2022 – CIS tax deducted for the month ended 5 May 2022 is payable by today.
31 May 2022 – Ensure all employees have been given their P60s for the 2021/22 tax year.