A recent HMRC press release confirmed that sole traders and buy-to-let property businesses (but not incorporated businesses) will have an extra year to prepare for the digitalisation of Income Tax.

Recognising the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic, and having listened to stakeholder feedback, the government will introduce Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) a year later than planned, in the tax year beginning in April 2024.

A later start for MTD for ITSA gives those required to join more time to prepare and for HMRC to deliver a robust service, with additional time for customer testing in the pilot.

We also suspect that the delay will give HMRC’s under pressure staff more time to make the necessary changes to their IT systems and fully beta test their MTD ITSA processes.

Making Tax Digital for Income Tax will be mandated for sole traders and landlords with a business income over £10,000 per annum in the tax year beginning in April 2024.

General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed in the future.

In March 2021, the government announced a new, fairer system of penalties for the late filing and late payment of tax for ITSA. The new penalty system for those who are mandated for MTD for ITSA will now come into effect in the tax year beginning in April 2024, and in the tax year beginning in April 2025 for all other ITSA taxpayers.

This major change in the taxation of affected sole traders and landlords is thus deferred for a further twelve months.

However, we recommend that all mandated business owners and landlords who presently record their accounting details manually or on rudimentary spreadsheets, give urgent attention to adopting an approved digital accounts software that will be fit for purpose when the new implementation date arrives, April 2024.

We can help. Call now so we can assist with the choice and implementation of suitable software. As well as providing you with the means to comply with the new MTD ITSA requirements, using an appropriate accounts software package will also provide you with access to real-time data, information that can only help as we steer a path through present challenges.

The UK Government has announced that further measures will be put in place to help ease supply chain pressures as spikes in demand for fuel create a panic buying hysteria.

This added pressure to already stretched supply chains is a further blow to affected businesses across the UK.

The Government has announced the new measures in a bid to help ease issues currently affecting petrol stations across the UK, including the placement of a team of military drivers to improve delivery of fuel to out of stock petrol retailers.

Last week saw motorists across the UK panic-buy fuel after BP and Esso warned that their stations were experiencing a shortage of petrol and diesel deliveries due to the shortage of HGV drivers.

Despite efforts made by the UK Government to assure the public that there was no reason for concern or panic buying, cars descended in their thousands to petrol stations across the country to fill up their vehicles despite the Government’s advice.

Business Secretary Kwasi Kwarteng said:

“The UK continues to have strong supplies of fuel; however, we are aware of the supply chain issues at fuel station forecourts and are taking steps to ease these as a matter of priority.”

Transport Secretary, Grant Shapps, has authorised an extension to ADR driver licenses, which allow drivers to transport goods, such as fuel. This will aim to provide immediate relief to the shortage of HGV drivers, by allowing affected drivers to maximise their available capacity instead of being taken out of circulation for refresher training purposes.

It doesn’t stop with fuel, however. As a result of many EU drivers returning to their home countries due to COVID-19 and Brexit, a stock and supply shortage crisis has emerged in the UK, with an estimated shortfall of 100,000 drivers, according to the Road Haulage Association (RHA). Meanwhile, the existing workforce is rapidly ageing. The industry body is warning that about a third of the UK’s 380,000 drivers may retire within the next five years.

Last week, the Government announced a further package of measures to help ease supply chain pressures, including an introduction of short-term visas for HGV drivers, increasing HGV testing and establishing bootcamps to train up to 3,000 more people to become HGV drivers, providing more flexibility for the industry.

If you have been keeping up with announcements from Downing Street, you will know that from April 2022 the hybrid rates of Income Tax on dividend income are increasing by 1.25 percentage points.

The changes from April 2022 are:

• The first £2,000 of dividends received are free of any additional tax charge, no change here.
• If you are a basic rate tax payer, your dividend income in excess of £2,000 will be taxed at 8.75% (presently 7.5%).
• If you are a higher rate tax payer, any dividend income that falls into the higher rate band will be taxed at 33.75% (presently 32.5%).
• If you are an additional rate tax payer, any dividend income that falls into the additional rate band will be taxed at 39.35% (presently 38.1%).

Even with these increases, it is likely that director/shareholders adopting the high dividend, low salary strategy will still save on NIC costs.

Savers who have their funds in tax-exempt wrappers, ISAs for example, will be unaffected.

Other savers would need to have fairly significant portfolios outside tax exempt investments in order to pay any dividend tax. With average dividend yields running at approximately 3.5%, you would need to have a portfolio in excess of £57,000 to breach the £2,000 tax-free limit.

From April 2022, in line with announcements made last month, National Insurance Class 1 contributions (that will affect employed persons and their employers) and Class 4 contributions (that will affect the self-employed), are increasing by 1.25%.

These increases will affect all employed and self-employed workers that presently pay National Insurance.

This increase will only apply to NIC rates for one year. From April 2023, the 1.25% increase will be removed from Class 1 and Class 4 NIC rates and a new tax is being created to be known as the Health and Social Care Levy (HSCL).

The HSCL will appear as a separate item on payslips and tax statements for the self-employed. The Levy is the closest the UK will have to a hypothecated tax – a tax levied and applied to a specific funding objective, i.e., funds for the NHS and social care budgets.

Whilst payroll software providers will already be making changes to their code to accommodate this new tax, it will be interesting to see if HMRC can adapt their systems in time for the April 2023 launch date.

Many smaller company employers, those that can claim the £4,000 employment allowance, will likely escape payment of the 1.25% increase in employers’ Class 1 contributions. However, the increase will also apply to Class 1A NIC employer contributions and these are not covered by the employment allowance.

Note: Class 1A NIC is payable on the value of taxable benefits provided by employers and is levied at the end of each tax year.

In a recent press release issued by the Department for Digital, Culture, Media and Sport, with the leading title “Unleashing Data’s Power”, it was announced:

“The Information Commissioner’s Office (ICO) is set for an overhaul to drive greater innovation and growth in the UK’s data sector and better protect the public from major data threats, under planned reforms announced by the Digital Secretary Oliver Dowden today.

• Plans include tougher penalties for nuisance calls and text messages.
• Government wants new data regime “based on common sense, not box ticking” to cement UK’s position as a science and tech superpower.
• Consultation launched today will also examine what more can be done to mitigate algorithmic bias.
• World-leading experts appointed to the Centre for Data Ethics and Innovation’s advisory board to drive trustworthy innovation.

According to government sources the reforms will:

• Cement our position as a science superpower, simplifying data use by researchers and developers of AI and other cutting-edge technologies.
• Build on the unprecedented and life-saving use of data to tackle the COVID-19 pandemic.
• Secure the UK’s status as a global hub for the free and responsible flow of personal data – complementing our ambitious agenda for new trade deals and data partnerships with some of the world’s fastest growing economies.
• Reinforce the responsibility of businesses to keep personal information safe, while empowering them to grow and innovate.
• Ensure that the ICO remains a world-leading regulator, enabling people to use data responsibly to achieve economic and social goals.”

University students taking part-time jobs are at increased risk of falling victim to scams, HMRC is warning.

Higher numbers of students going to university this year means more young people may choose to take on part-time work. Being new to interacting with HMRC and unfamiliar with genuine contact from the department could make them vulnerable to scams.

In the past year almost one million people reported scams to HMRC.

Nearly half of all tax scams offer fake tax refunds, which HMRC does not offer by SMS or email. The criminals involved are usually trying to steal money or personal information to sell on to others. HMRC is a familiar brand, which scammers abuse to add credibility to their scams.

Links or files in emails or texts can also download dangerous software onto a computer or phone. This can then gather personal data or lock the recipient’s machine until they pay a ransom.

Between April and May this year, 18- to 24-year-olds reported more than 5,000 phone scams to HMRC.

1 October 2021 – Due date for Corporation Tax due for the year ended 31 December 2020.

19 October 2021 – PAYE and NIC deductions due for month ended 5 October 2021. (If you pay your tax electronically the due date is 22 October 2021.)

19 October 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2021.

19 October 2021 – CIS tax deducted for the month ended 5 October 2021 is payable by today.

31 October 2021 – Latest date you can file a paper version of your 2021 self-assessment tax return.

1 November 2021 – Due date for Corporation Tax due for the year ended 31 January 2021.

19 November 2021 – PAYE and NIC deductions due for month ended 5 November 2021. (If you pay your tax electronically the due date is 22 November 2021.)

19 November 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2021.

19 November 2021 – CIS tax deducted for the month ended 5 November 2021 is payable by today.

As well as increasing National Insurance contributions from April 2022 – the 1.25% increase announced earlier this month – the Treasury also increased the hybrid income tax rates applied to dividends received, by the same amount and from the same date.

The changes from April 2022 are:

• The first £2,000 of dividends received are free of any additional tax charge, no change here.
• If you are a basic rate tax payer, your dividend income in excess of £2,000 will be taxed at 8.75% (presently 7.5%).
• If you are a higher rate tax payer, any dividend income that falls into the higher rate band will be taxed at 33.75% (presently 32.5%).
• If you are an additional rate tax payer, any dividend income that falls into the additional rate band will be taxed at 39.35% (presently 38.1%).

These increases are unlikely to influence the present planning options available to director/shareholders of smaller companies that have adopted the high dividend, low salary approach to reduce exposure to NIC charges.

However, after tax income from dividends will reduce.

Other share owners who have their funds in tax-exempt wrappers, ISAs for example, will be unaffected by these changes.

Investors who have fairly significant portfolios outside tax exempt investments may suffer tax increases on these income sources.

With average dividend yields running at approximately 3.5%, you would need to have a portfolio in excess of £57,000 to breach the £2,000 tax-free limit.

HMRC is warning university students new to the world of working to be wary of potential scams.

With higher numbers joining university, we are likely to see more students take on part-time work. As many young people may be unfamiliar with HMRC and legitimate contact from the department could make them vulnerable to scams.

There have been almost one million reported scams to the HMRC over the past year, with nearly half including offers of false tax refunds or demands for tax payments – HMRC does not offer refunds or request personal data or payments by SMS or email.

Those behind such scams are generally trying to steal money or access personal information to sell on to others. Being a familiar brand, scammers abuse HMRC’s name to add credibility to their crimes.

Links, files and attachments can also download dangerous software onto a device. This can then gather personal data or lock the recipient’s machine until they pay an un-lock ransom.

Between April and May this year, 18 – 24-year-olds reported more than 5,000 phone scams to HMRC.

Head of Cyber Security Operations at HMRC, Mike Fell, said:

“Most students won’t have paid tax before, and so could easily be duped by scam texts, emails or calls either offering a ‘refund’ or demanding unpaid tax.

“Our advice is to be wary if you are contacted out of the blue by someone asking for money or personal information. We see high numbers of fraudsters contacting people claiming to be from HMRC. If in doubt, our advice is – do not reply directly to anything suspicious, but contact HMRC through GOV.UK straight away and search GOV.UK for ‘HMRC scams’.”

No surprises when the Prime Minister announced a hefty 1.25% increase in NIC Class 1 and Class 4 rates from April 2022. The announcement was widely predicted.

Effectively, this is a tax increase on earnings (employed or self-employed) and on costs for employers. It is odd that a 1.25% increase in Income Tax would have created a virtual storm of protest, not only from Conservative politicians and voters aggrieved by the back-peddling on election promises, but by tax payers generally. Whereas, an equivalent increase in National Insurance sails through parliament with hardly a ripple from back-benchers on the blue side of the room.

The Treasury seem wedded to this belief, that a rise in NIC is to be preferred to a rise in Income Tax.

So how will this increase affect business owners?

Employees will bear the brunt of this increase. Smaller employers may escape liability for employers’ contributions by claiming exemption proffered by the Employment Allowance (EA). The EA exempts employers from their Class 1 contributions if they do not exceed £4,000 in the current tax year.

Unfortunately, employers will have to pay the increase in Class 1A NIC which is payable as a fixed percentage of taxable benefits in kind it has provided to employees and staff. The current rate of 13.8% will increase to 15.05% from April 2022, although this charge is an allowable deduction for corporation tax purposes.

There is no equivalent of the EA for the self-employed. Profits chargeable to the Class 4 NIC charges will be subject to a 1.25% increase in the main rate (from 9% to 10.25%) and the higher rate (from 2% to 3.25%) from April 2022.

Surprisingly, from April 2023 this 1.25% increase is withdrawn from NIC rates, and instead morphs into the new Health and Social Care Levy. Does this mean that the Treasury now have two soft candidates for future tax increases on income?

Employed persons who have passed their State Pension age do not presently pay Class 1 NIC on their earnings. This will continue to be the case but, when the 1.25% increase becomes the Health and Social Care Levy from April 2023, this Levy will be deducted from their earning, presumably based on similar criteria to Class 1 NIC.

What about dividends?

Director/shareholders in private companies tend to take the bulk of their earnings as dividends in order to trim NIC costs (dividends are not subject to NIC). However, dividends are subject to a hybrid form of Income Tax and these hybrid rates will also increase by 1.25% from April 2022.

Is tax going to become less complicated as a result of these changes, clearly not. At a single stroke the government has created extra work for HMRC (to develop systems to calculate and collect the new Levy); created similar activity for payroll software developers and managed to introduced a new tax – something that we have not seen for some time – and that will be earmarked for the NHS and Social Care budgets, a so-called hypothecated tax.