We have some useful information for you this month if you are affected by Capital Gains Tax changes. You’re probably aware that the annual exempt amount is about to be significantly reduced – talk to us about how you can compliantly minimise your CGT liability. In more gloomy news, HMRC is increasing the interest rate levied on its late payments. We’ve included a summary on how close a limited company, depending on its solvency status. And finally our fourth article includes some helpful information if you have any credit gaps in your NI contributions. Check out the financial deadlines to be aware of, taking us up to April 2023.
If you need some help steering your business though these changing times, do get in touch and we’d be pleased to talk through your business and financial challenges.
CGT reliefs much reduced from April 2023
The annual exempt amount applicable to Capital Gains Tax (CGT) is to be more than halved from April 2023. This means that the exempt amount will be reduced from £12,300 to £6,000 from April 2023 before being further reduced to £3,000 from April 2024.
Taxpayers with small gains should consider the benefits of crystalising these gains before 6 April 2023 in order to fully utilise the £12,300 allowance for 2022-23. Married couples and civil partners both qualify for the £12,300 allowance in which case organising joint ownership of these assets before disposal may be beneficial if each individual partner is not fully utilising their annual allowance.
Transfers between spouses and civil partners are exempt from CGT. Making use of the full allowance can, in some circumstances, effectively double the CGT exemption before the end of the current tax year to £24,600.
CGT is normally charged at a simple flat rate of 20% and this applies to most chargeable gains made by individuals. If taxpayers pay basic rate tax on their income and make a small capital gain, they may be subject to a reduced rate of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT.
A higher rate of CGT applies to gains on the disposal of residential property (apart from a principal private residence). The rates are 18% for basic rate taxpayers and 28% for higher rate taxpayers.
Late tax payment interest rate rise
The Bank of England’s Monetary Policy Committee (MPC) met on 2 February 2023 and voted 6-3 in favour of raising interest rates by 50 basis points to 4% in a move to try and continue to tackle upward pressures on inflation. This is the tenth time in a row that the MPC has increased interest rates with rates now the highest they have been since November 2008.
This means that the late payment interest rate applied to the main taxes and duties that HMRC charges interest on increases by 0.5% to 6.50%.
These changes will come into effect on:
- 13 February 2023 for quarterly instalment payments
- 21 February 2023 for non-quarterly instalments payments
The repayment interest rates applied to the main taxes and duties that HMRC pays interest on will increase by 0.5% to 3% from 21 February 2023. The repayment rate is set at the Bank Rate minus 1%, with a 0.5% lower limit.
Closing a limited company
There are a number of reasons why you may look to close your limited company. This could be because the limited company structure no longer suits your needs, your business is no longer active, or the company is insolvent. You will usually need the agreement of all the company’s directors and shareholders to close down the company.
The method for closing down a limited company depends on whether it is solvent or insolvent. If the company is solvent, you can apply to get the company struck off the Register of Companies or start a members’ voluntary liquidation. The former method is usually the cheapest.
It is the responsibility of the company directors to ensure that all of a company’s assets and liabilities are dealt with before it is dissolved. For example, you have settled any outstanding bills and collected all debts owed to the business. Any assets or rights (but not liabilities) remaining in the company at the date of dissolution can pass to the Crown as ownerless property.
Where a company is insolvent, the creditors’ voluntary liquidation process must be used. There are also special rules where the company has no director, for example if the sole director has passed away.
A company can also elect to become dormant. A company can stay dormant indefinitely, however there are costs associated with this option. This might be done if for example a company is restructuring its operations or wants to retain a company name, brand or trademark. The costs of restarting a dormant company are typically less than starting with a new formation.
Gaps in your National Insurance record
National Insurance credits can help qualifying applicants to fill gaps in their National Insurance record. This can assist taxpayers to build up the number of qualifying years of National Insurance contributions which can increase the amount of benefits a person is entitled to, such as the State Pension.
This could happen if someone was:
- employed but had low earnings;
- unemployed and were not claiming benefits;
- self-employed but did not pay contributions because of small profits; or
- living or working outside the UK.
National Insurance credits are available in certain situations where people are not working and therefore, not paying National Insurance credits. For example, credits may be available to those looking for work, who are ill, disabled or on sick pay, on maternity or paternity leave, caring for someone or on jury service.
Depending on the circumstances, National Insurance credits may be applied automatically or an application for credits may be required. There are two types of National Insurance credits available, either Class 1 or Class 3. Class 3 credits count towards the State Pension and certain bereavement benefits whilst Class 1 covers these as well as other benefits such as Jobseeker’s Allowance.
Taxpayers may be able to pay voluntary contributions to fill any gaps if they are eligible.
Tax Diary March/April 2023
1 March 2023 – Due date for Corporation Tax due for the year ended 31 May 2022.
2 March 2023 – Self-Assessment tax for 2021-22 paid after this date will incur a 5% surcharge unless liabilities are cleared by 1 April 2023, or an agreement has been reached with HMRC under their time to pay facility by the same date.
19 March 2023 – PAYE and NIC deductions due for month ended 5 March 2023 (If you pay your tax electronically the due date is 22 March 2023).
19 March 2023 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2023.
19 March 2023 – CIS tax deducted for the month ended 5 March 2023 is payable by today.
1 April 2023 – Due date for Corporation Tax due for the year ended 30 June 2022.
19 April 2023 – PAYE and NIC deductions due for month ended 5 April 2023. (If you pay your tax electronically the due date is 22 April 2023).
19 April 2023 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2023.
19 April 2023 – CIS tax deducted for the month ended 5 April 2023 is payable by today.
30 April 2023 – 2021-22 tax returns filed after this date will be subject to an additional £10 per day late filing penalty for a maximum of 90 days.