Making Tax Digital has arrived – here’s what you need to do

Making Tax Digital (MTD) has finally arrived, having gone live on April 6, 2026, and it is going to change the way those affected need to file their returns to HMRC.

If you are self-employed, receive property income, or both, and have total qualifying income from self-employment and property above £50,000 – remember this isn’t profit, it is income – then you are likely to be an MTD taxpayer. Your total income will include payments from multiple sources, which is especially relevant if you are a landlord with more than one property.

If you’re not sure whether you qualify for MTD, then you can always ask your accountant. In fact, even if you know you qualify, it would be best to speak to your accountant to make sure you comply with all the different changes that MTD brings. Many people think it is just a change in the way you need to file your tax returns. But there is more to it.

Choose your software

Quarterly updates are the big change for people affected by MTD, and this is facilitated by accounting software that allows you to send your quarterly updates directly to HMRC from your system. If you don’t already use accounting software that allows you to send updates directly to HMRC, then you will need to choose it quickly to make sure you don’t miss the first deadline. This will be August 7, 2026, which covers the period from April 6, 2026, to July 5, 2026, if you use standard update periods.

Once you have chosen your software, which could be FreeAgent, QuickBooks or Xero among others, then you also need to link your bank accounts to it, so your transactions are brought into your accounting software and you can reconcile all transactions in one place.

If you haven’t done any of this yet, or you’re still using spreadsheets to do your accounts, then you need to act fast. Making these changes sooner rather than later will give you the information you need, where you need it, when the time to file comes. And planning ahead is much better than trying to make these changes in a panic. Remember, you need to link all your business accounts, if you have more than one.

Why is this so important now?

If you haven’t done any of this before you need to send your first quarterly update, then you will be playing catch-up – and that can become uncomfortable. You need to make sure all the data is flowing as it should be, rather than trying to reconstruct it later.

For the same reason, you should check the data you have already included in your accounting software for your year end. You should check all your expenses are coded correctly, and that all your eligible income is included in the right place.

If you have any personal spending that has gone through the business, you will need to identify this correctly so it isn’t included within your business accounts. You should also make sure there are no duplicated transactions in the accounts, as that can give you errors that might be difficult to unpick later. The closer you can get it to being exactly right before you start your quarterly updates, the better.

Review your accounts each month

If you want to really keep on top of things and ensure you’re doing everything right, then reviewing your accounts each month is a good idea going forwards. Take a day each month where you know you have less work to do, and use it as an admin day where you review your monthly transactions and make sure they are correctly categorised.

The latest accounting software can help you keep on top of your expenses more easily, as you can upload images of your receipts in real time. Taking a snapshot with your phone camera and uploading this will mean you don’t have to go through shoeboxes full of receipts when you get to the end of the quarter. As they can be categorised as you go, you will save yourself a lot of time when you need to send your update to HMRC.

The other important thing to do is decide what your accountant will do, and what you will do when it comes to MTD. It might be that you want to do the monthly bookkeeping, but you ask your accountant to check it for you. Or you may want your accountant to do the monthly bookkeeping, but this is likely to increase your costs. So, have a discussion now before you need to send your first quarterly update, to make sure you know who is doing what. It can save confusion later.

You can find out more about MTD on Gov.uk.

Contact us

If you would like to find out more about MTD and whether you are affected, then please get in touch with us and we will explain what you need to know.

£50,000 a year earners and landlords need to get MTD ready

New Making Tax Digital (MTD) rules coming into force in April mean around 850,000 landlords and self-employed people earning more than £50,000 a year, which would be declared on their 2024/25 tax return, are required to register for MTD by April 6, 2026, if they haven’t done so already.

The new rules mean taxpayers must give HMRC records of self-employment and property income and expenses every quarter, rather than once a year. But they still only pay their tax bill once a year as they do now.

The quarterly submission deadlines are August 7, November 7, February 7, and May 7, with a requirement to submit a final tax declaration by January 31 of the following year, in the same way someone would approach a self-assessment submission now.

However, this final declaration, within which any adjustments to the records can be made, will replace the annual self-assessment return for those affected.

Why doesn’t everyone have to sign up in April?

HMRC is getting people signed up to MTD over time. While landlords and self-employed people, or sole traders, earning over £50,000 of qualifying income must join from April 6, those with qualifying income of £30,000 or more will join from April 2027, and those earning £20,000 or more of qualifying income will be required to join from April 2028.

By that final date, around three million people will have to send quarterly reports to HMRC through MTD for income tax. These taxpayers will have to submit their tax information to HMRC by using compatible and approved software packages, as HMRC does not provide this software. You can find out more about approved software packages at Gov.uk.

If you don’t comply with the rules of the new regime, you will accumulate points and eventually could receive an automatic £200 fine. You will get points for late filing and/or late payment. The points will stay on your account for two years, and after this they will be removed. Any taxpayer can apply for a digital exemption if they believe they are digitally excluded.

Let us help you

If you think you might be affected by this change, then please get in touch with us and we will do what we can to help you.

Missed the January filing deadline? Here’s what to expect

Thousands of people once again took the chance to use some quiet time over the festive period to file their self-assessment tax returns, with 4,606 people even filing their return on Christmas Day.

In total, 37,435 people completed their return over the three days of festivities, Christmas Eve, Christmas Day and Boxing Day. But there are still thousands more taxpayers who are yet to file, which means they could be facing penalties for late filing after the January 31 deadline.

The penalties start as soon as you miss the deadline, whether there was any tax to pay to HMRC or not. If you are only due to file a self-assessment return to deal with the High Income Child Benefit Charge, there is a new PAYE digital service. If you had signed up to this before January 31, you could opt out of filing a self-assessment and chosen to pay back any money you owed through your tax code. But if you have missed the deadline, then for now, you still need to file a self-assessment.

How do the penalties work?

If you have to file a self-assessment tax return, you must file before January 31, 2026. If you missed this deadline, or you failed to pay your bill on time, then you will face a penalty.

You will immediately face a £100 penalty for filing late. If you still haven’t filed your return within three months, you will face additional daily penalties of £10 per day, to a maximum of £900. If you haven’t filed after six months, you will face a further penalty of 5% of the tax due, or £300, whichever is higher. If you haven’t filed within 12 months, then another 5% of the tax due is added, or an additional £300, whichever is greater.

If you’re filing your return as part of a partnership and it is filed late, then every partner will be charged a penalty. These are 5% of the tax due at 30 days, six months, and 12 months, plus interest on the amount owed.

What else do I need to know?

If you register for self-assessment after October 5, and also don’t file your return and pay your tax bill on time, you may get a ‘failure to notify’ penalty, according to HMRC. You can find more information on ‘failure to notify’ penalties on Gov.uk.

If you get a penalty, then you need to pay it within 30 days of the date on the penalty notice. You can appeal against a penalty if you disagree with it. However, if there is a good reason why you couldn’t file your self-assessment or pay your tax bill, such as being in hospital or losing a close relative, then you may be able to get the penalty waived.

If you find yourself in a situation where you are facing a tax penalty for any reason, then the best thing to do is speak to your accountant as soon as possible, and give as much information as you can to resolve the issue quickly.

We can help you meet your obligations

If you receive a penalty notice, or know you haven’t met your tax and filing obligations in good time, then please get in touch and we would be happy to give you the guidance you need.

Voluntary repayment window for Covid grants opens

Individuals and businesses that received Covid payments they weren’t entitled to have until December to pay back any money owed under a voluntary repayment scheme. This period offers the grace of a ‘no questions asked’ solution for people to repay any grants they shouldn’t have had. So, if you’re in this position, it would be best to act now.

This is the last chance for anyone owing money to come forward and repay before HM Treasury starts more severe recovery processes next year, which could include prosecution. There isn’t a set date for this window to close, we only know it will be open ‘until December 2025’ according to the Low Incomes Tax Reform Group (LITRG).

Grants covered in this window include a variety of Covid support payments, such as the Coronavirus Job Retention Scheme, the Eat Out to Help Out scheme, and the Self-Employed Income Support Scheme (SEISS).

What were the SEISS grants?

The SEISS support scheme helped self-employed people who were struggling and needed Government support during the pandemic. It ended in September 2021, and consisted of five separate grant payments for those who met certain eligibility criteria. You can find more details on who would have qualified for these grants and who may need to pay them back at Gov.uk.

Some self-employed people may have made mistakes on their grant applications in relation to fully meeting all criteria and tests that were specified. Someone may have inadvertently looked at the wrong criteria, or simply didn’t understand the rules properly when they applied.

If you think you might be in this position, then it would be wise to speak to your accountant to double check, and if you find you have made a mistake, then you should begin the process of paying the money back during this window.

How do you make a repayment under the scheme?

If you think you might have received Covid support money you shouldn’t have had, then the first step is to go to the relevant webpage for more information about each Covid support scheme. If the grant you need to pay back is an SEISS grant, then there is more information specifically about these and how to deal with repayments at Gov.uk.

Use the ‘start now’ button at the bottom of this page to begin the process and you will be asked a series of questions, which you will need to answer based on your circumstances. You will also need some specific information to hand before you start, including:

• Your Government Gateway user ID and password.
• Your Self-Assessment Unique Taxpayer Reference (UTR) number.
• Your grant claim reference number.

Source: LITRG

Your UTR is on your self-assessment tax return or in your personal tax account with HMRC. If you can’t find it, your accountant will be able to help. Your grant claim reference number is on the online copy of your grant claim according to the LITRG, which you would have got when you made your SEISS claim.

After you file the form, HMRC will come back to you with details on what to do next, and how to make the payment.

We can help you

If you think you may need to repay Covid grants, or you simply want reassurance that you have done everything correctly, then please contact us and we will do everything we can to assist you.

Around 600,000 HMRC penalties paid in five years by people owing no tax

Around 600,000 late-filing penalties have been paid to HMRC in the last five years by some of the lowest earners in the UK despite them not owing any tax, according to Tax Policy Associates.

Missing the filing deadline of January 31 for a self-assessment tax return will generate a £100 penalty, but if people are unaware or unable to deal with this swiftly, then the debt can snowball into thousands of pounds. One woman with severe mental-health difficulties ended up being pursued by HMRC for £10,000, while someone else was forced into bankruptcy by HMRC, according to Tax Policy Associates. HMRC makes more people bankrupt in the UK than any other organisation.

Tax Policy Associates put in a Freedom of Information request asking HMRC about the issue and for information about how much those affected by these penalties earn, and the information it received turned out to be alarming.

Why is this happening?

Failing to file your tax return on time automatically generates a £100 penalty, even if there is no tax to pay. Sadly, the people being affected most keenly by these penalties are those who are least able to pay tax as their incomes are so low.

For example, 50% of the penalties being charged on earners in the first three deciles – the lowest earners in the UK – are being paid. This amounts to around £28m over five years, and is being paid by people earning so little they don’t even pay tax. In total, 902,242 non-taxpayers were sent penalties by HMRC over this period, but 305,044 of these were successfully appealed.

Part of the problem seems to be that HMRC doesn’t make it clear in the letters sent out to notify people of the penalties that they can have the penalty reversed if they can show they shouldn’t have been penalised, or that they don’t earn enough to pay tax in the first place and should not be filing a self-assessment tax return. The current personal tax threshold is £12,570, and anyone earning less than this doesn’t have to pay tax on their income.

However, if you earn just £1,000 as a self-employed person, you are obliged to file a tax return, and if you are charged the £100 penalty and don’t file your return or pay the penalty within 12 months, then you could face a bill of as much as £1,600, according to Tax Aid.

How can this be stopped?

The easiest way to stop this happening – and something that is being called for by tax experts such as the Low Incomes Tax Reform Group, Tax Policy Associates and Tax Aid – is for HMRC to change its policy. But until that happens, it is vital that low-income earners, along with everyone else, realise exactly what their rights are if they are sent a penalty notice by HMRC.

The problem is also exacerbated because it has become more difficult to contact HMRC to get assistance, which is a wider problem affecting all taxpayers, and now even tax agents, such as accountants. Anecdotal evidence suggests these dedicated lines to HMRC are currently harder to get answered, with long waits before a call is answered.

Changes to the rules are in the pipeline, which will see penalties limited to a maximum of £200. But the timing of the implementation for all taxpayers is unclear. This change, among others, will come in as part of the Making Tax Digital regime. From April 2026, this will apply to people earning £50,000 or more. From April 2027, it will apply to those earning £30,000 or more, and to those earning £20,000 or more from April 2028.

More fundamentally though, it is important for everyone to know – not just low earners – that if you have a penalty from HMRC which you believe is incorrect, then you need to appeal it. Whether you do that yourself or with the help of an accountant will depend on your personal circumstances, but never simply pay a penalty you don’t agree with.

How do I appeal an HMRC penalty?

When you get the penalty notice, you have 30 days from the date the penalty was issued to contact HMRC to appeal it. If you file your appeal online, then HMRC will receive it immediately, so you don’t need to worry about your appeal getting lost in the post. You can appeal online at Gov.uk.

Before you begin the appeal process, you will need:

• The date the penalty was issued.
• The date you filed your Self-Assessment tax return (if you have submitted it).
• The date you paid your tax (if you have paid it).
• Details of your reasonable excuse for filing your return late or not making your payment on time.

Source: Gov.uk

You can also ask your accountant to make the appeal for you, which for many people will be easier.

Contact us

If you want to find out more about whether your HMRC penalty notification is valid or should be appealed, or whether you need to file a self-assessment return if you don’t already, then please get in touch with us and we will explain what you need to know.

Less than half of self-employed workers use simplified mileage rates

Less than half of self-employed workers who use their vehicle for work purposes are aware of HMRC’s simplified mileage rates, according to its own research. The flat rate deduction is 45p per mile for the first 10,000 miles and 25p for every mile after this, and these can be used to claim for car usage that is solely related to work.

HMRC undertook the research to get a better understanding of travel expenses associated with the self-employed, and to find out why some people don’t use the simplified mileage rates, and whether they might use them in future. The survey of 1,000 people covered the self-employed or those who are partners in a business partnership.

It found that just 43% of self-employed people were aware of the simplified mileage rates, with car users (49%) more likely to know about them than van users (27%). Even sole traders (44%) were more aware than those in partnerships (31%). Where they had heard of them, most had been advised about them by their accountant or tax agent, with less than one in 10 hearing about them from another source.

Who is using the simplified mileage rates?

The widest adoption of these rates among those who had heard about them came from smaller organisations with a turnover of less than £20,000 (74%) or those with revenue of between £20,000 and £49,999 (64%). Larger businesses with higher revenues were less likely to use them, according to the research.

For those people who knew about them but were not using these rates, the most likely explanation was because they preferred to keep exact records (23%). Around 20% calculated they would be worse off if they used them, while 14% felt the rates were too low compared to the real cost of using their vehicle for work.

That said, vehicle users were more than twice as likely to agree (45%) than disagree (20%) that these rates would be sufficient to cover their vehicle expenses associated with their business. Yet more than a fifth said these rates didn’t cover their vehicle expenses.

Most people still rely on manual record keeping for their travel expenses, but those who use simplified mileage rates were considerably more likely to use a digital recording method, HMRC found.

Whichever way you deal with your travel expenses, you should speak to your accountant to ensure you are claiming everything you should for travel expenses, and other work expenses you may not realise you can claim for.

Let us help you

If you want help to make sure you are claiming your full allowance for any work-related travel, or any other business expenses, please get in touch with us and we will do what we can to maximise your tax relief.

Record number of self-assessments sent in first week of tax year

Just under 300,000 self-assessment tax returns were filed in the first week of the 2025/26 tax year, according to HMRC, way ahead of the deadline of January 31, 2026.

A total of 299,419 tax returns were filed between April 6 and April 12 – 28,503 more than the same period last year. Some 57,815 people filed on the opening day, a Sunday, which was slightly down on the 67,870 who filed on the first day last year. But the figures were impressive during that week as you can see in the table below.

*weekend days

Source: HMRC

Who needs to file a self-assessment return?

There are many different scenarios that might result in you needing to file a self-assessment tax return, including people who:

• Are newly self-employed with a total income of over £1,000.
• Are self-employed and earn below £1,000 and wish to pay Class 2 National Insurance contributions (NICs) voluntarily to protect their entitlement to state pension and certain benefits.
• Have received any untaxed income over £2,500.
• Are renting out one or more properties.
• Claim Child Benefit and they or their partner have an income above £60,000.
• Are a partner in a business partnership.
• Have taxable income earned from savings and investments more than £10,000.
• Have dividend income of more than £10,000.
• Have Capital Gains Tax to pay on assets that were sold for a profit above the Capital Gains threshold.

A full list of who needs to complete a tax return is available on GOV.UK.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “Filing your self-assessment early means you can spend more time growing your business and doing the things you love, rather than worrying about your tax return.

“You too can join the thousands of customers who have already done their tax return for the 2024 to 2025 tax year by searching ‘self-assessment’ on GOV.UK and get started today.”

Filing early can help with financial budgeting and spreading the cost of the tax bill over the year if you prefer. You can also set up a budget payment plan to make either weekly or monthly direct debit payments towards your self-assessment tax bill, which will save you from facing a big bill at the end of January, just after the Christmas expense.

If you have overpaid tax, you can claim a refund as soon as the return is processed. If you use the HMRC app, you can check if you’re due a refund. Filing early also means your accountant will have more time to help you make sure your tax return is accurate, resulting in fewer mistakes and potential penalties.

HMRC has updated guidance on filing tax returns early and help around paying tax bills on Gov.uk. Remember, you shouldn’t share your HMRC sign-in details, as someone could use them to steal from you, or claim benefits or a refund in your name.

Let us help you

If you want to file your self-assessment early, then please get in touch and we will do whatever we can to help you maximise the benefits of filing early.

1.1m missed the January 31 deadline – can you appeal a penalty?

Around 1.1m of us missed the January 31 deadline to file our self-assessment tax returns for the 2023/24 tax year. For each person, this means at least a £100 penalty and potentially additional charges if the return continues to not be filed or the tax due paid for a longer period.

The £100 penalty is levied whether there was any tax to pay or not. It is simply for missing the deadline for filing the self-assessment return itself. If you had tax to pay though, you could also face interest charges if you also haven’t paid the bill on time.

Sole traders and partners in a partnership who contacted HMRC for help with the Basis Reform Period before December 31, 2024, should not receive a penalty as this change will make calculating their tax due more complex.

The ICAEW has been advised by HMRC that anyone in this position would have until February 28 to file their return using provisional figures without incurring a penalty. But the return should be updated when they have the correct figure and any tax due originally by January 31 that remains unpaid would face interest charges from February 1.

What other reasons would HMRC accept for late filing?

If you have a genuine reason for missing the deadline, then you should appeal any penalty. For example, if someone close to you has died – perhaps a partner or parent – then you would benefit from some leniency.

Other reasonable excuses would include:

• You had an unexpected stay in hospital that prevented you from dealing with your tax affairs.
• You had a serious or life-threatening illness.
• Your computer or software failed while you were preparing your online return.
• Issues with HM Revenue and Customs (HMRC) online services.
• A fire, flood or theft prevented you from completing your tax return.
• Postal delays that you could not have predicted.
• Delays related to a disability or mental illness you have.
• You were unaware of or misunderstood your legal obligation.
• You relied on someone elseto send your return, and they did not.

Source: Gov.uk

However, these wouldn’t be considered reasonable excuses, and you wouldn’t be able to challenge the penalty if:

• Your cheque bounced or payment failed because you did not have enough money.
• You found the HMRC online system too difficult to use.
• You did not get a reminder from HMRC.
• You made a mistake on your tax return.

Source: Gov.uk

Let us help you

If you’ve missed the deadline for filing your self-assessment and have received a penalty, then please get in touch as soon as possible and we will do everything we can to help you.

25,000 people filed tax returns on New Year’s Day

While most of us were ringing in the New Year with a chorus of Auld Lang Syne or nursing a hangover from the revelries, nearly 25,000 people filed their tax return on January 1, 2025, according to HMRC figures. Most people – 2,603 – filed their returns between 14:00 and 14:59. A further 38,260 people filed on New Year’s Eve, with the highest number of returns filed between 12:00 and 12:59, by 4,331 people.

At that stage, 5.4m people still needed to file their return, and anyone who misses the January 31 deadline can expect to pay a penalty and could face interest payments on top if they persist in not filing.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We know completing your tax return isn’t the most exciting item on your New Year to-do list, but it’s important to file and pay on time to avoid penalties or being charged interest.

“The quickest and easiest way to complete your tax return and pay any tax owed is to use HMRC’s online services… Some 97% of customers now file online and one benefit is that they don’t have to complete it all in one go – they can save what they have done and pick it up again later.”

What happens if I miss the deadline?

Anyone who misses the January 31 deadline could face an immediate £100 penalty for late filing, even if there is no tax to pay or any tax due is paid on time. They should file as soon as they can after this to avoid additional penalties racking up.

If the return is still not filed three months later, then additional penalties of £10 per day up to a maximum of £900 could be charged. After six months, a further penalty of £300 or 5% of the tax due, whichever is greater, could be charged. If the return still hasn’t been filed after 12 months, then another £300 or 5% of the tax due, whichever is higher, will be charged.

Extra penalties of 5% of the unpaid tax at 30 days, six months and 12 months will also be applied, and you will face interest payments on any unpaid tax in addition to these penalties. Anyone who is yet to file their tax return can do so online, via gov.uk, or contact your accountant for help.

Let us help you

If you’ve missed the deadline for filing your self-assessment then please get in touch as soon as possible and we will do everything we can to help you.

HMRC’s new Basis Period Reform could bring higher tax bills this January

A change in the way HMRC is calculating when tax is due to be paid on profits arising for the self-employed or members of a Limited Liability Partnership (LLP) mean they could be facing higher bills in January than they are expecting.

The new Basis Period Reform, which has been introduced as a way to standardise when non-incorporated businesses pay tax, will affect anyone who is self-employed or in an LLP with a tax year end outside of March 31 or April 5 each year. They will be expected to pay the tax due on the actual year of their trading rather than their chosen accounting period, which could increase the amount they need to pay in January 2025.

Does this mean paying more tax overall?

Those affected won’t be paying more tax than they otherwise would, but they may need to pay more than they expect in January, as they will need to bring themselves up to date for the 2023/24 tax year. This bill will need to be paid by January 31, 2025, so the main issue for those affected will most likely be cashflow.

However, given 2023/24 is a transitional year, it is possible to spread the transitional profits over a period of five years, which should improve cashflow by reducing the payment due in January. You may also be able to benefit from overlap profit relief if it is relevant. But reducing any liability for January 2025 would mean acting sooner rather than later and speaking to your accountant ASAP.

Critics claim there hasn’t been enough publicity surrounding this change, which could leave many self-employed people and LLP members in the dark about what their liabilities will be in January 2025, with little time to find the extra cash if they have not prepared correctly. You can find more information on the Basis Period Reform on Gov.uk.

Let us help you

If you’re going to be affected by this change, then please get in touch as soon as possible and we will do everything we can to help you prepare.

MTD to expand to income tax in 2026 – get ready!

The Making Tax Digital (MTD) regime is set to begin applying to income tax soon, and the first people to be brought into the regime will be the self-employed and landlords. Although April 2026, which is when relevant taxpayers must sign up to file digitally, sounds a long time away, it will arrive sooner than you think, and you need to be ready for the changes to avoid the chance of a penalty.

From April 2026, any self-employed person or landlord earning more than £50,000 a year from their self-employed income or property income, will need to sign up to the scheme and file their tax return digitally. Also, instead of filing once a year like you do now, you will instead be asked to send HMRC quarterly updates through compatible software. There are many different brands of software that would be suitable, so finding the right one for you is something you could start working on now in consultation with your accountant.

Even though the first sign-ups for MTD for income tax will be for those earning more than £50,000 a year, anyone earning income of more than £30,000 will also have to sign up to the regime by April 2027.

What if I earn less than £30,000?

If you earn less than £30,000 you can still sign up for the scheme voluntarily, but you will not be forced to join in these early stages. But there might still be some benefits to signing up early. Currently, HMRC is running a testing phase to find out how to make the expansion of MTD work best for the self-employed and landlords. This means if you sign up early, you may have a chance to help shape the outcome.

It will also help you to get to grips with the new system before you are obliged to use it, so you feel more confident in everything you need to do before the April 2026 or deadlines arrive.

You will also have access to a dedicated customer support team as an early adopter, who will help you understand and resolve any issues you have with filing under the new regime. Plus, you and your accountant would be supported through the process for your other tax affairs – including PAYE and self-assessment for the 2024/25 financial year.

How do I join up?

Around 780,000 people are expected to qualify to join the first phase of this round of MTD. The aim for HMRC is to improve record keeping, as you must file quarterly, and everything will be held digitally which should also reduce the number of errors on your taxes.

If you want to join up in this phase, then please contact your accountant and they can help you. They can sign up as many of their eligible clients as they want to, and this is the best way to access the new regime as you then have the backing and help of an expert to guide you through any problems. But if you want to sign up separately, you can do that providing you’re eligible.

To be eligible, there are various rules and regulations, so you need to check if any of them apply to you. These details are outlined on the Gov.uk website:

You can sign up voluntarily if (all the following):

• your personal details are up to date with HMRC
• you’re a UK resident
• you have a National Insurance number
• you have submitted at least one Self-Assessment tax return
• you’re up to date with your tax records — for example, you have no outstanding tax liabilities
• you use an accounting period that runs from 6 April to 5 April

You can also use an accounting period that runs from 1 April to 31 March, if the software you choose supports this. To use this accounting period, you must:

• select calendar update periods in the software before the first update is made
• make an adjustment at the end of your first tax year — so that your income and expenses from 1 April to 5 April are included in your tax return

If you sign up, during testing you will not be able to:

• claim carry back of losses
• change your accounting period
• change your accounting method

You cannot sign up voluntarily if you:

• have a High-Income Child Benefit Charge
• have a payment plan with HMRC
• are a partner in a partnership
• claim Married Couple’s Allowance
• claim Blind Person’s Allowance
• are currently, or are going to be, bankrupt or insolvent
• are an MP, minister of religion or Lloyd’s underwriter
• have income from being a foster carer or being in a shared lives scheme
• have income from a trust
• have income from a jointly owned property
• have income from a furnished holiday let
• are subject to a compliance enquiry
• use ‘averaging’ or other arrangements because your profits vary between years — for example, because you’re a farmer, writer or artist
• are signing up on behalf of someone else (unless you’re an agent) — this includes (but is not limited to) if you’re:
  • an insolvency practitioner
  • a nominee
  • a solicitor

Source: Gov.uk.

What software will I need to use?

There are many different types of software you can use to file digitally online, and some do not charge you to use them. But it isn’t as easy as just signing up to any software as which will suite you best will depend on what data you need to hold, how simple your tax affairs are, and how tech savvy you are.

All of the compatible software options can be found on Gov.uk, and while there are a few that are currently working, many more are being developed by some of the biggest names in online accounting. Again, you can ask your accountant for guidance on which would work best for you if you are unsure.

The new regime will mean more admin for those joining up, and collectively for everyone who is eligible and is earning more than £30,000, the cost of implementing the new regime is expected to be £561m as a one-off. But filing more regularly and keeping better records online is likely to help you with other areas of your finances too. So, there are additional benefits to signing up early.

Contact us

There are many aspects of the changes to the MTD regime that you may not feel comfortable with, but if you have any queries then please get in touch with us and we would be delighted to help you.

Rumours circulate over HMRC crackdown on eBay and Etsy sales

Rumours have been circulating online that HMRC is set to crack down on tax avoidance on sales of goods on the likes of eBay and Etsy, but the basic rules haven’t changed, and anyone who was trading on one of these sites should always have been declaring their earnings to the taxman.

What has changed is that from January 1, 2024, these sites are obliged to provide information to HMRC on sellers operating through the site before January 2025. So, if you have been using these sites to sell items and generating income that should have been taxed, you should get in touch with your accountant to find out what you need to do as soon as possible.

Confusion arises because many people will sell items they no longer want or need on eBay, for example, and in most of these cases there is no tax to be paid. But if you buy goods with the intention of selling them, or you make a capital gain on what you’re selling, then there could be tax to pay.

When would you need to pay tax?

In a useful update, HMRC has outlined the various scenarios that you may find yourself in if you are selling items on one of these sites, and when you would be most likely to need to pay tax. For example, if you are selling items that you own – perhaps because you are clearing out a shed or an attic – then this is likely to be a one-off activity, and you will most probably sell the items for the same or less than you bought them for. In this case, you wouldn’t need to pay tax.

However, let’s say you sold some unwanted clothes or other items you had in the house online to either raise money or simply reduce clutter in your home. You find that you are quite good at getting a good price for these items and decide to start buying items at car boot sales or elsewhere, and then sell them online for a profit. The original sale wouldn’t be considered trading, but the later sales would as you’re deliberately buying goods to sell. In this case, you could be liable to pay tax.

You would also be considered trading if you buy and then sell model cars – another HMRC example – or other items, or you import goods to sell online for a profit. You would even be trading if you make homemade gift cards that you sell online regularly with the intention of making a profit from them.

What other ways might you be liable to tax online?

There are other ways you might be selling that could leave you open to a tax charge. One would be if you are selling online services, such as teaching a language over Zoom or Teams, for instance, or if you generate revenue by offering other services online, such as proofreading. This may not be a service you offer through the likes of eBay or Etsy, but you would be liable to pay tax on income you generate from it just the same.

In fact, any online marketplace – which includes a website or a mobile phone app – would be considered as such by HMRC if any kind of transactional trading takes place on it. These online marketplaces will soon be generating copies of your transaction history that you can get hold of to check your liabilities yourself, but that will also be sent to HMRC directly under a wide-ranging set of internationally agreed guidelines. So, make sure you know if you are expected to pay tax on these transactions, and prepare for it accordingly so you don’t have any nasty surprises.

Are there any allowances?

One thing to consider is that there are certain allowances you might be able to benefit from if you are selling goods online. For example, if your total income from selling goods or services online was less than £1,000 before you take off any costs or expenses, then you wouldn’t need to tell HMRC about it or pay any tax on this.

This is because that amount comes under the Trading and Miscellaneous Income Allowance – which also gives you a £1,000 allowance for any property income under the same legislation. But if the amount you generate is above this, then you would need to inform HMRC and pay any tax due.

Remember though, you also have the Personal Allowance, which for the 2023/24 tax year is £12,570 per year. If you don’t have a full-time job, or you earn less than this across all the ways you generate income each year, then you would still have no tax to pay. But you must still register with HMRC and file a self-assessment return each year.

If you don’t know how to do this, or need to register and file a self-assessment return, you can find more information on Gov.uk

Contact us

If you are unsure whether any of your activities could generate a tax liability, then please get in touch with us and we would be delighted to help you understand your tax position.

Self-assessment deadline is looming again

The start of the year is always the time when anyone who needs to file a self-assessment return should get their skates on if they haven’t filed yet. The deadline for filing your self-assessment is January 31, and anyone not hitting the target could be setting themselves up for a fine and possible interest payments on any tax that is owed.

It may come as a surprise that a considerable number of people choose to deal with their tax return over the Christmas period. HMRC said that last year 22,000 people filed their tax return over Christmas, with 3,725 filing on Christmas Day itself. But whenever you choose to file your return, you should make sure you are claiming all the allowances you are entitled to, so you keep your tax bill to a minimum.

Reclaim tax relief on pension contributions

One of the reliefs that often gets forgotten is the tax relief on pension contributions. How much you can or need to claim will vary depending on your personal tax position, and how your pension tax relief is dealt with by your employer or pension provider.

Anyone who is a 20% taxpayer and is paid through PAYE will usually have the pension tax relief claimed on their behalf through the company pension scheme at source. But if you are a 40% or 45% taxpayer, you will need to find out whether your company scheme claims these additional reliefs for you, or whether this needs to be done via your self-assessment.

Typically, the additional 20% or 25% relief is the part that you may need to include on your self-assessment return. If you work for yourself as a sole trader or within a partnership, then you will need to claim all your pension tax relief on your return.

Tax relief on charitable donations

If you like to give money to good causes over the year, then you may have tax relief you can reclaim on the donations you have made. Any donation made through Gift Aid will ensure that the charity will receive the 20% tax relief directly. But again, if you are a 40% or 45% taxpayer, you can reclaim the difference on your self-assessment.

Once you get this rebate, which will be for the full gross value of the donation you made, you can decide whether you want to give it to the charity or not. This applies for both regular, and one-off donations, so keep any details of single donations you have made throughout the year too.

You can claim for donations for the entire tax year and up to the date you file your tax return. This means if you file on the last day, you can claim for donations made from April 6, 2022, to January 31, 2024.

Claim for any work-related expenses

If you are someone who pays their tax through PAYE, that doesn’t mean you can’t file a return, and if you pay for some of your work-related expenses out of their own pocket, then it is a sensible thing to do.

You can reclaim tax rebates on various items solely used for work, which could include memberships of professional associations, reading materials, or even clothing that you need to have for work but is paid for by you. These costs can add up, so it is wise to claim for these items if you can.

We can help you

If you want to find out what you can claim on your self-assessment, and make sure you’re complying with all the relevant tax legislation, then please get in touch with us and we will be happy to help you.

NICs changes to start from January 6

Just a quick reminder that the reduction of Class 1 National Insurance Contributions (NICs) will begin on January 6, 2024. From this date, the amount paid on Class 1 NICs will fall from 12% to 10%. This is the main rate of NICs paid by employees through PAYE.

The change was part of a range of measures announced by Chancellor Jeremy Hunt as part of the Autumn Statement in November, which included cuts to other forms of NICs including a reduction of Class 4 NICs for the self-employed from 9% to 8% from April 6, 2024, and the removal of the requirement to pay Class 2 NICs from the same date. The Government will ensure that contributory benefits, such as the State Pension, will be maintained.

Class 2 NICs can still be paid voluntarily

There is one group of people who pay Class 2 NICs on earnings below £6,725 so they can access the contributory benefits, and these people will still be able to make these payments voluntarily.

The Government claims these combined measures will cut tax for around 29m people in the 2024/25 tax year, giving the average employee on £35,400 more than £450 extra in their pocket, and saving the average self-employed person on £28,200 an extra £350. But the impact on individual taxpayers will vary, and this doesn’t take into account any other measures that affect how much tax each of us pays, such as ‘fiscal drag’ where tax thresholds fail to rise significantly and result in higher tax payments as wages increase.

Let us help you

If you want to know what you can expect personally in relation to these changes, then please get in touch and we will be happy to offer you the help and guidance you need.

Don’t miss the October 5 deadline to register for self-assessment

Anyone who has become self-employed, was in a business partnership, earned more than £100,000 or had to pay the High-Income Benefit Charge this year has until October 5 to speak to HMRC to register for self-assessment.

Millions of people each year need to do a self-assessment, and this includes anyone earning money outside of their PAYE job, including commission or tips, or you earn income from renting out a property.

What if I need to claim tax relief?

If you need to claim tax relief on anything, such as items you pay for out of your own pocket which are solely used for your PAYE employment, then you would also need to sign up for self-assessment. You may be due a tax rebate too if you have been made redundant, as you may not have been paid as much as expected across the whole year.

Other tax reliefs might come from Gift Aid donations you have made to charity, or reclaiming the additional tax relief on your pension contributions if you are a 40% or 45% taxpayer.

You can also claim tax relief on maintenance payments if you have to make them to your ex-spouse or civil partner, although this would only apply if one of you was born before April 6, 1935.

Check if you need to make a self-assessment payment by visiting the Gov.uk website.

Can I be fined if I miss this deadline?

If you fail to notify HMRC before the October 5 deadline, then you could face a penalty. If you fail to register and file your return before January 31 of the year following the tax year when the amount was due, you could face another.

The best thing to do is act now and check if you need to file a self-assessment. If so, then get your skates on and register before October 5. If you can’t, then do it as soon as you can afterwards and check if any penalties will apply.

We can help you meet your obligations

If you think you may have a self-assessment liability for 2023/24, then please get in touch and we will make sure you get everything you need in place.

New tax regime for sole traders and partnerships starts

HMRC is changing the way sole traders and partnerships need to calculate profits for their self-assessment returns. The Revenue will require the profits to be declared for the tax year in question, rather than the accounting year as is currently the case.

Any sole traders or partnerships with an accounting year ending at any point other than March 31 or April 5 will be affected by these changes and will need to amend the way they calculate and pay the tax due on their profits. These changes are not influenced by delays to the Making Tax Digital regime.

What do the changes mean?

This tax year – 2023/24 – is a transition year, so sole trader and partnership businesses must declare their profits for two accounting periods – their existing accounting period and any additional time that would take their trading activity to the end of the tax year.

HMRC states: “Businesses will need to declare the total profits from the end of the last accounting date in tax year 2022 to 2023 up to and including April 5, 2024. This means that profits generated over a longer period will be taxable in the transition year.”

However, from April 2024 to 2025 and any future years, the amount of profit made in each of the relevant periods where the accounting period may straddle the tax year will need to be allocated correctly.

Sounds complicated, how does it work?

It may be complicated initially while businesses get used to working out their profits and tax in a new way, but HMRC is working on an online form to make the returns easier. For now, sole traders and partnerships should rely on their accountant to help if they are unsure what to do.

Take an example – if your accounting date is December 31, 2023, then as a sole trader or partnership you need to declare profits from January 1, 2023, to April 5, 2024. This will give you a period for this return of 15 months rather than the usual 12 for the 2023/24 tax year. This must be filed and any tax due paid on or before January 31, 2025.

Some businesses may need to use provisional figures for this period, and they would have the usual amount of time to amend these to final figures on their tax return.

One benefit businesses will have if they need to make this change in the 2022/23 tax year is the ability to use any overlap relief due. Some may change their accounting dates to coincide with the tax year to make life easier. If this is done in the 2023/24 tax year, then the current change of accounting rules will apply.

HMRC stated: “In tax year 2023 to 2024, businesses can use any overlap relief resulting from overlap profit when the business first started. By default, any remaining additional profit can be spread over five years.”

If a business changes their accounting date from 2023/24 onwards, then these rules won’t apply. Also, any future changes can be made no matter what changes have been made in the past.

Get previous overlap relief figures from HMRC

HMRC should be able to provide you with overlap relief figures for any accounting date changes in the 2021/22 tax if you request them, provided they are recorded on its systems.

More staff are currently being trained to deal with these overlap relief queries and eventually HMRC will have a specific form to use to make these overlap relief requests more streamlined. In the meantime, if you want to get overlap relief data, HMRC is asking you to provide as much information as possible from the following list:

• Taxpayer name.
• National Insurance number or Unique Taxpayer Reference.
• Name and description of business.
• Whether the business is self-employment or part of a partnership.
• If the business is part of a partnership, the partnership’s Unique Taxpayer Reference.
• Date of commencement of the self-employment business, or date of commencement as a partner in partnership.
• The most recent period of account or basis period the business used.

Those sole traders or partnerships looking to change accounting dates in 2022/23 and 2023/24 will need to wait for additional information on the “provision of overlap relief figures for these tax years” said HMRC.

There is some additional background information in the ‘Basis period reform’ policy paper.

Contact us

These changes may create additional complications for your business in the short term, and you need to be sure you’re keeping on top of what you need to file to HMRC, and by when. If you need assistance with this, please just get in touch with us and we will support you.

MTD for ITSA delayed to April 2026 – what does this mean for you?

Making Tax Digital (MTD) has been on the cards for years now, with businesses already pushed towards dealing with their VAT this way. But plans to extend this for Income Tax Self-Assessment (ITSA) have been put on hold once again until April 6, 2026, eight years later than the original planned launch in 2018.

However, even when 2026 comes, the MTD for ITSA will be phased in rather than applying to everyone at once.

Who will have to go digital first?

The first people doing self-assessment who will need to go digital are landlords and the self-employed who are earning more than £50,000 a year. HMRC estimates that this will mean around 700,000 people are brought into the MTD regime at this point.

The next phase will kick in from April 2027, when landlords and self-employed people earning more than £30,000 a year will be expected to go digital – bringing another 900,000 people into the MTD regime according to HMRC.

What’s the plan?

Victoria Atkins, financial secretary to the Treasury, announced the delay in the House of Commons just before Christmas.

She said: “The government understands businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition to MTD for ITSA represents a significant change for taxpayers, their agents, and for HMRC.

“That means it is right to take the time needed to work together to maximise those benefits of MTD for small business by implementing gradually.

“The government is therefore announcing more time to prepare, so that all businesses, self-employed individuals, and landlords within scope of MTD for Income Tax, but particularly those with the smallest incomes, can adapt to the new ways of working.”

The needs of smaller businesses are going to be put under review to see how they can be helped to “fulfil their income tax obligations” Ms Atkins said in her statement. Once this review is complete and the various stakeholders – businesses, taxpayers, and their agents among others – have been consulted, the Government will outline further plans for MTD for ITSA, said Ms Atkins.

General partnerships will not be expected to go digital in 2025 now as previously expected, but they will see these changes brought in at a later date. But anyone who wants to sign up for MTD voluntarily before they are required to, has that option.

Contact us

There may be some benefits to using MTD earlier than you need to, but there could also be drawbacks for some people and businesses. If you want to find out more about the right decision for you, then please contact us and we will give you all the help, support, and information you need.

Self-Assessment – now is the time to get your tax return sorted

Yes, here we are again, the Christmas tradition of dealing with your self-assessment tax return is back for another year, and you need to get everything sorted as soon as you can. The final deadline for filing your self-assessment is January 31, 2023, for the 2021/2022 tax year, and you are expected to both file the return and make any payment due by midnight on that day. The tax year runs from April 6 to April 5 the following year.

If you miss this deadline, you could be facing a fine which will increase over time if you continue to either not file the return, not pay the tax due, or both.

Who needs to file a tax return?

Not everyone needs to file a tax return, but if you are one of the people who does, then make sure you get to grips with what is required as soon as you can. Those who need to file a return, according to the Gov.uk website, include:

• Anyone self-employed as a sole trader who earned more than £1,000 before costs.
• Partners in a business partnership.
• Anyone earning more than £100,000.
• Anyone with untaxed income from tips and commission, rental income from property, income from savings, investments and dividends or foreign income.
• Anyone who received COVID-19 support payments or grants during the pandemic.
• If you need to claim income tax reliefs, which could include professional body memberships and other expenses you pay solely to do with your work, even if you pay PAYE.
• To prove your self-employment status to claim Tax-Free Childcare or Maternity Allowance.
• If you or your partner’s income (if you have a partner) exceeded £50,000 and you need to pay the High-Income Child Benefit Charge.

If you are not sure whether you need to file a return or not, you can check on the Gov.uk website, or speak to your accountant who will be able to help you.

What is the penalty for not filing a tax return on time or paying late?

If you fail to file your tax return for up to three months, you will receive a fixed penalty of £100 but it can rise if you file later than this. You will also pay a penalty for paying your tax bill late and you can also be charged interest on late payments.

If you have a reasonable excuse, such as a close relative or partner dying close to the filing deadline, a hospital stay, or a life-threatening illness, for example, then you can appeal any penalty imposed. 

Contact us

Tax returns can be complicated, especially if you are looking to maximise the tax you are reclaiming, so working with an accountant makes sense. If you need help with your self-assessment, then please contact us and we will give you all the help, support, and information you need.

Tax year end – get your accounts ready before the rush

It’s that time of year again – the shops are playing Christmas music, there are Christmas films starting to appear on the TV, and for many of us, there is a tax deadline looming, whether that is personal or for our business.

This is the busiest time of year for accountants as so many people will leave their corporate or personal tax returns until the very last minute. So, if you know your business is coming up to its accounts filing date, or you have a self-assessment tax return that needs completing and filing before January 31, you need to start thinking about it sooner rather than later.

Do what you can to help

If you are coming up to your filing deadline, then you can really help us by sending the relevant information as soon as you can. That way, if we have any queries or you find there is something you have forgotten to send, there is plenty of time to deal with any issues.

Only pay the tax you owe

The best way your accountant can help you is by ensuring you only pay the tax you owe, no more and no less. We will help you maximise any tax breaks available and help to make sure you are claiming everything you can.

We can help you meet your obligations

Speak to your accountant and ask him or her to help you get the right information together so your accounts can be prepared in good time.

Self-Assessment – it’s getting to that time again

Self-assessment is an annual event, and it is always towards the back end of the year that you need to start thinking about it. Many people will already be registered for self-assessment, but there are others who will need to register for the first time this year, either because they have set up a new business, or become self-employed for the first time.

Anyone in this position needs to get in touch with HMRC before October 5 to let the taxman know you need to do your first self-assessment tax return. For those dealing with their self-assessment on a paper return, the completed paperwork needs to be with HMRC before October 31. However, you have until January 31, 2023, to make the payment – which is also the deadline for online filing and payment.

Who needs to register?

If you are employed, you may still need to file a self-assessment return if you have income from outside of your PAYE income, for example from a property, foreign income, or you have income from dividends or savings.

Remember though, you may also need to file a self-assessment return if you need to claim money from the taxman. For example, if you are a 40% or 45% taxpayer and your employer does not claim the additional tax relief above 20% that you should receive on pension contributions up to £40,000 a year, then this can be claimed through your self-assessment form.

Claim money for expenses from your own pocket for work

If you need to pay out of your own pocket for work expenses – such as uniforms, travel and professional insurance or subscriptions, you can also claim tax relief on these via your self-assessment form.

One particularly important expense to claim if you work from home is the cost of energy used to heat the room you work in. With the average energy bill rising to £3,549 from October 1, according to the latest price cap announcement from Ofgem, this is one item that could help you deal with the rising cost-of-living expenses.

How much can you claim for your energy costs?

There is a base amount you can claim for the energy costs which is £6 per week, which in the current climate may be a lot less than it is really costing you. So, if you prefer, you can instead claim the actual amount you are having to pay for your energy while you are working from home, but you would need to keep your bills and receipts to back up your claim.

The one thing to remember though is that you cannot claim this if you choose to work from home, or if your employment contract allows you to work from home some or all of the time under HMRC rules. You can claim this if your employer does not have an office, or if your job requires you to live far away from your employer’s office.

We can help you

If you are unsure about what you can and cannot claim for expenses outside of your PAYE, speak to us and we will help you through the process, so you can claim everything you are due.

Are you claiming everything you are entitled to from the taxman?

Tax is something that is a certainty in life, as former US President Benjamin Franklin said, but there are lots of ways you can reduce the amount of tax you have to pay by claiming for expenses you may not realise you could.

Those of us who are self-employed or own businesses are more likely to claim the majority of costs and expenses against tax that we can. But what many PAYE employees do not realise is that they can also claim certain expenses if they are not covered by their employer, and they are specifically relevant to their work.

What can be claimed?

For example, let’s say you are a nurse, an engineer, a psychologist or simply an employee who happens to use their car for work purposes sometimes. In each of these cases, there are likely to be things that you are paying for that you could claim if your employer is not repaying you for them.

It could be fees you pay to be a part of a professional institution, or professional indemnity insurance, or uniforms that you need to buy yourself, shoes, books you need to study for your work, toys that you may need to use to encourage children to talk to you in the case of a child psychologist, for instance. The list would include anything and everything that you need to buy yourself that solely relates to your work.

While many of these may be relatively small amounts individually, they will soon add up, and if you consider how much they add up to over a long period of time, there is every reason to reclaim that money.

How do you claim them?

Understandably, many people are nervous about dealing with the taxman because they think automatically that it is going to end up costing them money. But that is not always the case. Reclaiming these amounts that are legitimate allowances could put a significant amount of money back into your pocket.

To claim these, you would need to do a self-assessment form. This is something many people who pay tax through PAYE would not be familiar with. You can speak to your accountant for more information if you need it, or you can ask HMRC directly about how you claim for these costs on your self-assessment.

Don’t be nervous, and go back as many years as you can

You do not need to be nervous when dealing with the tax office as you are not doing anything wrong. This is money you are owed, and you would be doing yourself a disservice by not getting this money back into your own pocket.

If you have not been claiming this money back before, then you can go back up to four previous tax years. This means you can reclaim overpaid tax from 2018/19 if you make the claim before April 5, 2023. If you had an average of £1,000 that you could have reclaimed for each of these years, then you would get a £4,000 rebate from the taxman by making the claim.

In the current economic climate, even relatively small amounts that you can reclaim will make a difference. But remember, you must have proof of the purchases you made. Usually these would need to be receipts, but if you do not have these, then you can prove any payments made using bank statements if you need to. If you bought anything online, you may have records there in your email or, say, an Amazon account.

We can help you

If you are unsure about whether you can claim some of the expenses for your work or want to know you have claimed everything that it is possible to claim, then please get in touch with us and we will help you through the process.

Last chance to make sure your business is ready for MTD

Companies and sole traders who have not yet finalised their plans to comply with Making Tax Digital are in the last chance saloon this month, and the very latest date you have to comply with MTD for paying VAT is August 7.

That is the latest date on which you will need to make your first – if you are not already doing this – MTD VAT return. So, if you have not already done so, you have very little time left to make sure you comply with this legislation.

Your responsibilities

Whether you are required to pay VAT – because your business turnover is above the £85,000 threshold at which you are required to register – or because you have voluntarily registered, you now must keep your records and file your returns electronically.

How do I file?

From April 1, you will need to have filed any VAT due through MTD-compatible software, which includes the likes of QuickBooks and Xero, among others. If you are not able to file your return this way, then HMRC can currently issue a £400 fine. But from January next year, HMRC is due to bring in a points system, which means you accrue points each time you miss a deadline. Once you hit a certain number of points, you will face a £200.

So, the best thing you can do is prepare yourself properly. If you have not sorted this out already, you really are running out of time.

We can help you meet your obligations

If you are not yet registered to deal with MTD through relevant accounting software, then we can help you. But there is no time to lose. Please get in touch with us as soon as you can, and we will do everything in our power to help you meet your filing deadlines.

Change in National Insurance contribution levels in July

A change in National Insurance contribution (NICs) levels comes into force at the beginning of July, which should save around 30m people £330 each, according to the Government.

From July 6, the amount you can earn before you start paying NICs will increase, which means the amount of overall tax – since NICs is a tax in all but name – will reduce.

What are the new thresholds?

From July 6, the threshold for Class 1 NICs, which are paid by those who are employed, and Class 4 NICs, which are paid by the self-employed, rises from £9,880 to £12,570. This means you can earn an additional £2,690 before you need to start paying NICs.

The new NICs threshold is now in line with the starting point for income tax, but the NICs rate you will pay has not changed and still includes the 1.25% addition for the Health and Social Care Levy made earlier this year. So, everything you earn between £12,570 and £50,270 will be charged NICs at 13.25%. Anything above this higher threshold will be charged at 3.25%.

Part of a £15 billion package of assistance

The additional savings we will see in our pockets thanks to this change will help considerably with the cost-of-living crisis. In fact, along with the council tax rebate that has been announced, energy bills assistance worth at least £400 and support for the most vulnerable households of at least £1,200, this should go some way to easing the problems associated with the current high inflation.

Inflation reached 9.1% in May according to figures from the ONS, up from 9% in April and 7% in March. The current rate is the highest level of inflation since 1982.

BoE base rate rises to 1.25%

The Bank of England increased the base rate to 1.25% in June, taking rates to the highest level in 13 years. While this is good news for savers who are likely to see more interest being paid on their accounts, it is potentially bad news for some people with mortgages. If you are on a fixed rate mortgage that is still within the fixed-rate term, then you will not see any change in your mortgage payments. But you may find it is more expensive to borrow when you come to change your mortgage in future.

If you are on a tracker rate, then you will automatically see the interest rate you are paying rise, which could be a considerable cost depending on how much you have borrowed.

How much will you save?

However, if you want to find out how much more money you will have in your pocket thanks to the change in the NICs thresholds, the Government has created a handy calculator that you can use to determine what you will save on the Gov.uk website. But if you are self-employed, this calculator will not work for you, so you are best to contact your accountant to find out what the change means for you.

Contact us

If you are an employer, employee or self-employed, and want to know more about how the NICs changes affect you and what you can expect to pay, then contact us and we will give you the information you need.

Deal with your tax return early and help with your cashflow

There is a tendency for many of us to leave our tax returns until the last minute. It’s human nature to want to delay dealing with something we find uncomfortable.

However, if you get your tax return for the 2021/22 tax year completed sooner rather than later, you will have some benefits that could help you through the cost-of-living crisis.

Benefits

A primary benefit to dealing with your tax return early is knowing it is out of the way. For some this may be less of an issue, but as accountants get busier as the tax payment deadlines approach, it can be difficult to give a return as much attention as we could at other times.

By getting your tax return calculations done early, not only are you helping your accountant to spread his or her workload in a more manageable way, more importantly for you, you will know exactly what your bill is going to be early in the year. This may make it possible to free up some of the money you had set aside to pay the bill if it is lower than you had expected.

For businesses, this could mean having extra cash to invest in expanding the business, paying off debt, or hiring an extra full or part-time employee to move the business forwards. For individuals, this money could help offset the current cost-of-living crisis we are in by giving you extra cash to cover rising energy or food bills.

Paying tax early

Remember, just because you have had the tax return completed, it does not mean you have to file it with HMRC straightaway. If you want your accountant to hold off on this part and file it later in the year – especially if you think there may be any changes necessary to the tax return down the line – then that is not a problem.

If you prefer to pay early and get it out of the way, then that is also fine. The big benefit to you is that you have the option. It may be that you do not have enough money put aside for your tax bill when you find out what it is. So, the extra time you have built in before the tax needs to be paid means you have time to get those funds together. It could be the difference between setting aside an extra amount each month to pay the bill while storing money for the next tax year or having to saddle your company with a loan that will cost in interest payments too.

Tax reliefs

It will also ensure your accountant can maximise any tax reliefs you or your business can benefit from. This could include pension payments or offsetting costs against tax that may otherwise be difficult to include if the information is not given to him or her in a timely manner, in the last-minute rush to get the data to the accountant.

It may also mean, depending on how your accountant works, that you could benefit from having more time to pay your accountant’s bill too. Spreading this cost will also help with cashflow.

Take your time

Overall, it will mean that tax is a much more leisurely affair than it often is and that is never a bad feeling. Stress is not good for any of us and building in time to deal with something that is – for many – inherently stressful anyway is a good plan.

Contact us

If you want us to start working on your tax return now or have a question about ways in which we can make your tax less taxing, please get in touch.

Basis Period Reform – what it is and how it could affect you

Unincorporated businesses – including sole traders, trusts and those businesses working as partnerships, and anyone else that pays tax on trading income – face a major change that will affect the way and the time they are taxed on their profits.

The so-called Basis Period Reform will ultimately take effect from the 2024/25 tax year, but sole traders and other organisations need to start thinking about how this change could impact them sooner rather than later.

Transition

The 2023/24 tax year is going to be a transitional period, and the new rules will change the time that underlying profits or losses become subject to tax and bring forward when tax due on profits needs to be paid.

The aim of the rule change, which was set out initially in the Finance Bill 2022, is to remove complexity relating to basis periods and overlap profit, and make sure tax payments are made closer to when profits are generated.

Implementation has been delayed by a year

Originally, the changes were due to be made a year earlier, but after a consultation period the Government delayed the proposals to allow taxpayers to prepare for the transition to the new basis period.

New end-of-year account period

The change will move the taxation periods for all sole traders, partnerships and trusts from dealing with tax on an accounting-date basis ending in a tax year, to taxing profits on these businesses that arise in a tax year.

For the 2023/24 tax year, there will be additional tax liabilities on the additional profit to be taken into account. Any taxpayer or organisation in this position should plan ahead for these additional bills that will be coming sooner than might have been expected.

Difficult for international partnerships

There are some difficulties that remain, particularly for large international partnerships that cannot change their accounting date to match the tax year, according to the ICAEW, which is engaging with HMRC to explore the possibility of additional changes being introduced to mitigate these problems.

The details

If your business has an accounting year date ending outside of March 31 to April 5, then you need to pay attention. You will have two elements to be considered for taxable profits:

• The standard part which covers the full 12 months of trading in the transitional year based on your existing basis period.
• Plus, the transitional part of the profits which go directly from the end of the basis period end up until April 5, 2024.

Example

Source: ICAEW

If any business has overlap profits, these must be offset against the profits of the 2023/24 tax year, according to the ICAEW.

There are many other aspects to consider with this transition, including how to deal with losses in the 2023/24 tax year, and whether it will be possible to spread these transition profits across five tax years to help with cashflow, although this could impact on any credit claimed for overseas taxes.

We can help you

This is a very complex area and if you are affected by this, you should contact us so we can help you navigate this change in good time, and with the least amount of difficulty.

Taxpayers get extension to self-assessment filing dates

Millions of taxpayers who are yet to submit their completed Self-Assessment tax return which is due before January 31 are being given a grace period to file until February 28.

More than 12.2 million customers are expected to complete a tax return for the 2020/21 tax year according to HMRC, and would usually face a penalty and interest if the return and payment in full is not made by January 31.

Deadline extended but not without cost

However, HMRC has announced it will waive penalties for a month, meaning those who cannot file before January 31 will not receive a penalty if they file before February 28, and will not receive a late payment penalty if they pay their tax in full or set up a payment arrangement before April 1. But they will still face interest payments of 2.75% on outstanding balances from February 1, so where possible it is best not to delay payment.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We know some customers may struggle to meet the Self-Assessment deadline on 31 January which is why we have waived penalties for one month, giving them extra time to meet their obligations. And if anyone is worried about paying their tax bill, they can set up a monthly payment plan online – search ‘pay my Self-Assessment’ on GOV.UK.”

Remember to include all SEISS payments in your return

Like businesses, any self-assessment taxpayer who has benefited from COVID-19 support payments will need to ensure they are also included in their tax return. Any payments made under the Self-Employment Income Support Scheme (SEISS) or any other COVID-19 support payments must be included in a self-assessment. Taxpayers who have benefited from these payments and need to file a self-assessment can check what changes might need to be made on their tax return to ensure all these payments are correctly included as income.

Which payments must be included?

The payments that need to be included in the 2020/21 tax return if they were paid before April 5, 2021, according to HMRC are:

• Self-Employment Income Support Scheme;
• Coronavirus Job Retention Scheme;
• other COVID-19 grants and support payments such as self-isolation payments, local authority grants and those for the Eat Out to Help Out scheme.

However, anyone receiving the £500 one-off payment for working households receiving tax credits does not need to report this payment.

It is particularly important for those receiving SEISS grants to make sure they are included as they were paid directly to the individual rather than to a business, so these are not included in the accounts of a sole trader or partnership. Instead, they need to be added back in as an adjustment to profits in the self-assessment tax return.

HMRC has also said it will not charge late filing penalties for paper-based SA700s, SA970s that are received in February, or for SA800s and SA900s if these are filed online before the end of February.

There are a number of online facilities that HMRC has set up for anyone who needs support in relation to filing their tax returns. You can access live webinars or recordings on GOV.UK, and HMRC has also produced resources to help customers meet their obligations including YouTube videos and Self-Assessment guidance.

We can help you

If you would prefer to let someone else take the strain of dealing with your accounts, then please get in touch with us. We will help you make sure all of the relevant information is included and work to maximise your allowances, so you only pay the tax due, no more.

Businesses helped by COVID-19 support could face unexpected tax bills

Businesses and self-assessment taxpayers are being reminded they need to include all grants paid as part of the COVID-19 support payments in their tax returns, as some may think these were non-taxable.

Have you set money aside to deal with tax on support grants?

HMRC has highlighted that all money paid for test and trace or self-isolation payments in England, Scotland or Wales are taxable, as are Coronavirus Statutory Sick Pay Rebates. The Coronavirus Business Support Grants – also known as local authority grants or business rate grants – must also be included on tax returns as these are considered income for tax purposes.

Companies that received the Coronavirus Job Retention Scheme (CJRS) grant or a payment under the Eat Out to Help Out payment scheme will need to include both as income in their CT600 tax return and reported in the relevant boxes on their Company Tax Return.

Myrtle Lloyd, HMRC’s Director General for Customer Service, said: “We want to make sure companies are getting their tax returns right first time, including any COVID-19 support payment declarations. Support and guidance is available on GOV.UK, just search ‘file my company tax return’.”

Many companies will have been communicating with their accountants throughout the year and realise these grants are taxable. But there are concerns that those who deal with their accountant less often may not realise they should have been putting some of this money aside for tax purposes. This would leave them exposed to a bill that has not been planned for.

An outline of the costs employers could face for CJRS

While the CJRS scheme helped to reduce the number of redundancies companies may otherwise have been forced to make during COVID-19 lockdowns, there were a number of hidden costs involved with these grants. These include employer’s National Insurance contributions and employer’s pension contributions.

For example, if an employee had a normal monthly salary of £2,000 and was on full furlough, then based on 80% of their salary this would have fallen to £1,600 gross. At the rates applied in the 2020/21 tax year, the costs to the employer for this CJRS grant would be:

• £119.78 of Employer’s Class 1A National Insurance;
• £32.40 of Employer’s Pension Contributions (based on the 3% minimum under auto-enrolment);
• There is also the potential cost of accrued holiday, which is £153.80 – calculated based on 4/52 weeks (this is the maximum amount of holiday that can be carried forward into the following year) x monthly salary.

Where holiday has been carried forward to the following year, businesses that are struggling to recover from the pandemic also have to contend with up to four weeks of holiday that can be passed into the following tax year. If an employee leaves the business, this could result in the employer having to find sums potentially into the thousands of pounds to account for this in the employee’s final payslip.

HMRC said to be sympathetic to companies struggling to pay tax bills

Reports suggest that HMRC is being sympathetic in relation to any tax bills that are difficult for companies to meet, with even debt collectors looking to offer solutions to deal with the debt rather than collecting it on the spot.

The deadline for customers or agents filing company tax returns (CT600) is 12 months after the end of the accounting period it covers. The deadline to pay Corporation Tax will depend on any taxable profits and when the end of the accounting period occurs. Information on which support payments need to be reported to HMRC and any that do not is available on GOV.UK.

Contact us

If you think you will struggle to meet any of your tax liabilities this year, then please contact us as soon as possible to get advice on the best course of action.

File your 2020/21 tax return by 31 January 2022

If you need to file a self-assessment tax return for the year to 5 April 2021, you have until midnight on 31 January 2022 to file your return if you have not already done so. You must also pay any tax that you owe for 2020/21 by the same date.

Do I need to file a return?

You will normally need to file a tax return if you have income in respect of which the associated tax is not collected at source. This will be the case if you are self-employed, or if you are a partner in a partnership. You will also need to file a self-assessment tax return if you have income from property, or if you have realised capital gains in the tax year, or if you have other sources of untaxed income, such as dividends, investment income or foreign income.

You can also choose to file a self-assessment tax return if you want to claim income tax reliefs.

If you or your partner received child benefit in 2020/21, check whether you fall within the scope of the high income child benefit charge. If you do, you will also need to file a return.

New source of income

If you started trading in 2020/21 or became a landlord, you should have registered for self-assessment by 5 October 2021. If you have not done so, you should register as soon as possible so that you can file your return without delay.

COVID-19 support payments

If you received COVID-19 support payments in 2020/21, for example, grants under the Self-Employment Income Support Scheme (SEISS) or hospitality and leisure grants, you will need to report these on your 2020/21 tax return. The support payments are taxable. Grants received under the SEISS should be entered in the dedicated box in your self-assessment tax return, while any other taxable COVID-19 payments should be entered in the ‘any other business income’ box. Remember, to enter the amount that you received between 6 April 2020 and 5 April 2021, regardless of the date to which you prepare your accounts.

If you are employed and received grant payments under the Coronavirus Job Retention Scheme (CJRS), you do not need to enter these payments separately on your return – they are included in the figures on your P60.

Later deadline where notice to file received after 31 October 2021

The tax return filing deadline is the later of 31 January after the end of the tax year and three months from the date on which the notice to file a return was issued by HMRC. Where this is after 31 October 2021, the filing deadline will be later than 31 January 2022. For example, if the notice to file a return was issued on 1 December 2021, the return must be filed by 1 March 2022.

File online

The deadline for filing a paper tax return was 31 October 2021 (or three months from the date of the notice to file where this was received after 31 July 2021). If a paper return is filed after that date, even if it is filed before 31 January 2022, it will be deemed to be filed late and a late filing penalty will be charged. Consequently, if you are filing your return to meet the 31 January 2022 deadline you must file it online. Remember that you must be registered with the Government Gateway and will need your details to login – make sure that you have these available in good time.

Late returns

If you file your tax return online after midnight on 31 January 2022 (unless an extended deadline applies because the notice to file was issued after 31 October 2021) you will receive an automatic penalty of £100, even if you have no tax to pay. If you think you have a reasonable excuse for filing late, you can appeal against the penalty. However, HMRC usually take a harsh line on what they consider a reasonable excuse. Further penalties are triggered if your return remains outstanding three months, six months and 12 months after the deadline.

Contact us

If you need help in filing your 2020/21 tax return, please get in touch. However, we suggest that you do not leave it until just before the filing deadline.

Basis period reform

HMRC have been consulting on the reform of the basis period rules in preparation for the introduction of Making Tax Digital for Income Tax Self-Assessment (MTD ITSA), which comes into effect from April 2023. A consultation paper was published in July 2021, which sets out new simplified basis period rules. Comments were sought by 31 August 2021 on how best to implement the reforms.

Existing rules – the current year basis

Once an unincorporated business is established, it is taxed on the current year basis. Special rules apply in the opening and closing years of the business. Under the current year basis, the profits that are taxed for a particular tax year are those for the accounting period that ends in that tax year. Consequently, if the business prepares its accounts to 30 June each year, for the 2021/22 tax year, it will be taxed on its profits for the year to 30 June 2021, as this is the year that ends between 6 April 2021 and 5 April 2022.

Under the existing rules, some of the profits of the business may be taxed twice in the opening years. These profits are known as ‘overlap’ profits. Relief for the double taxation of these profits, known as ‘overlap relief’, is given when the business ceases, or earlier if there is a change of accounting date.

New rules – tax year basis

The reforms will mean that unincorporated businesses will be taxed on the profits arising in the tax year – i.e., the profits for the period from 6 April to the following 5 April. Where the business prepares accounts to 31 March, these will be deemed to correspond to the tax year (as will the preparation of accounts to any date between 31 March and 5 April).

If you prepare accounts to a date other than 31 March/5 April, you will need to apportion your profits so that they correspond to the tax year. For example, if you prepare your accounts to 30 June, for 2023/24, you will be taxed on 3/12^th of the profit for the year to 30 June 2023 (covering the period from 6 April 2023 to 30 June 2023) plus 9/12^th of the profit for the year to 30 June 2024 (covering the period from 1 July 2023 to 5 April 2024).

The tax year basis will apply from 2023/24, with 2022/23 being a transitional year.

Estimation of profits

If you have an accounting date late in the tax year and prepare accounts other than to 31 March/5 April, you may not have the second set of accounts available when you come to complete your tax return. For example, if you prepare your accounts to 28 February, for 2023/24 you will be taxed on 11/12^th of your profit for the year to 28 February 2024 and 1/12^th of your profit for the year to 28 February 2025. The accounts to 28 February 2025 will not be available by 31 January 2025, and you would be expected to file a provisional return, which would be amended later when the information is available.

This will create extra work, and HMRC are looking at alternative estimation approaches, such as making an estimate based on the profits for the quarterly updates submitted under MTD ITSA, extrapolating the profits for the ‘known’ part of the tax year, and allowing the final figures to be provided as part of the following year’s return.

To overcome this, you may prefer to change your accounting date and prepare accounts to 31 March/5 April. This will avoid the need for an apportionment calculation and reduce your workload.

Transitional rules

Transitional rules are needed to move from the current year basis to the tax year basis. The transition year is 2022/23.

For the transition year, the taxable profits for a business that does not have a 31 March/5 April year end will comprise the sum of:

• the standard component (which is the profit assessable in 2022/23 under the current year basis); and
• the transition component (which is the profit for the period from the end of the current year basis period to the end of the 2022/23 tax year).

Any historic overlap relief can be claimed in the transition year by deducting overlap profits from the result of the above calculation.

For example, if you prepare accounts to 30 June each year, for 2022/2023, you will be taxed on the profits for the year to 30 June 2022 (the basis period for 2022/23 under the current year basis) plus profits for the period from 1 July 2022 to 5 April 2023 (the transition component), less any overlap profits. The overlap relief will cover the period from the date on which the business started to the following 5 April.  

Spreading excess profits

In the transition year, your profits may be higher than normal. This will be the case if your transition component is more than your overlap relief. If you started your business some time ago, the impact of inflation may mean that your overlap profits are considerably less than the profits of the transition component, even if they both cover the same number of months. If your profits are higher than normal, your tax bill will also be higher, and you may pay tax at a higher marginal rate as a result.

To mitigate the effect of the transition year on cash flow, HMRC plan to allow businesses to elect to spread any excess profits in the transition year over five years.

Equivalence rules

As part of the simplification reforms, HMRC propose that the statutory rule which deems 31 March to be equivalent to 5 April in the first three years of a trade is extended so that it applies to all the years of the trade. This will mean that where accounts are prepared to 31 March, the business would not need to make small adjustments for the profits of the business to correspond to the tax year, which runs to 5 April. The consultation sought views on whether this equivalence rule should be extended to property businesses.  

We can help

Please talk to us about what the reforms will mean for your business, and what you need to do to prepare for the introduction of MTD ITSA.

Reporting SEISS payments on your tax return

If you have received one or more grants under the Self-Employment Income Support Scheme (SEISS), it is important that you report the payments correctly on your tax return.

2020/21 self-assessment tax return

SEISS grants that were received in the 2020/21 tax year (i.e., between 6 April 2020 and 5 April 2021) should be reported on your 2020/21 self-assessment tax return, regardless of the date to which you prepare your accounts. The return must be filed online by midnight on 31 January 2022 (or by 31 October 2021 if you file a paper return). The first three grants under the scheme were paid in the 2020/21 tax year.

If you have already filed your 2020/21 tax return, HMRC may adjust your return if the information that they hold on the SEISS payments that have been made to you does not match what is shown on your return.

How to report SEISS payments

Grant payments received under the SEISS should not be included in turnover. Instead, they should be reported separately on the 2020/21 tax return in the box for Self-Employment Income Support Scheme grants. The location of the box depends on which self-assessment tax return is completed. It can be found:

• on page 2 of the ‘other tax adjustments’ section on the self-employment pages (SA103F) of the full return;
• in the ‘other tax adjustments’ section of the self-employment (short) page (SA103S);
• on page 2 of the ‘trading or professional profits’ section of the partnership return; and
• in section 3.10A of the SA200 short tax return.

HMRC corrections

HMRC will check the SEISS grants payments reported in the return against their records of the grants that have been paid to you.

If you have already submitted your 2020/21 tax return, and the amount of the SEISS payments that you reported on your return did not tally with HMRC’s records, HMRC will adjust your return to match their records and they will send you a revised tax calculation.

It is advisable that you check the figures on HMRC’s revised calculation against your records of the grants received. You can check the amounts that you have received either by logging into the SEISS claims service or against your bank statements for the account into which the payments were made.

If you do not agree with HMRC’s revised figures, you should contact their Coronavirus (COVID-19) helpline for businesses and self-employed people.

Failure to report SEISS payments

If you received one or more grants under the SEISS in 2020/21 and do not include them on your self-assessment tax return for that year, HMRC will adjust your return to reflect the payments and send you a revised tax calculation. As a result, you may find that you owe more tax than you expected, have an unexpected tax bill, or that the tax repayment you were expecting is reduced.

SEISS payments reported in the wrong box

If you included SEISS payments in your 2020/21 tax return, but did not enter the amount that you received in the designated box, for example, because you included it in turnover or entered it in one of the ‘other income’ boxes, you will need to amend your self-assessment tax return so that the grants are entered in the correct box and removed from the wrong box. If you do not do this, the grant income will be assessed twice, as HMRC will adjust the return to enter details of grants received in the correct box (but will not remove the income from elsewhere in the return). 

Failure to complete a self-employment or partnership page

To qualify for the SEISS grants for 2020/21, you had to be trading in that tax year. If you have not completed a self-assessment or partnership page, HMRC will assume that you were not trading, and therefore ineligible for the grants. Consequently, they will seek to recover any grants that were paid to you.  

If you were trading, but omitted to complete the relevant pages, you should amend your tax return to reflect this.  

Appeal if you disagree with HMRC’s adjustments

If you do not agree with the changes that HMRC have made to your tax return in respect of your SEISS grant payments, you can appeal. However, you must do this within 30 days of the date on the SA302 letter advising you of the changes that they have made to your return.

HMRC have not yet taken account of changes that were made to 2020/21 tax returns before 19 June 2021. If you corrected your return before that date, you do not need to contact HMRC as they will process the amendments separately.

Speak to us

Contact us if HMRC have adjusted the SEISS payments reported in your 2020/21 tax return. We can help you check whether the figures are correct, and take action if they are not.

Voluntary Class 2 NICs where 2019/20 tax return filed after 31 January 2021

If you are self-employed, you will pay Class 2 and Class 4 National Insurance contributions if your profits exceed the relevant thresholds. Class 2 National Insurance contributions are the mechanism by which you build up qualifying years to earn entitlement to the state pension and certain contributory benefits. If your profits are below the small profits threshold, you can opt to pay Class 2 National Insurance contributions voluntarily to maintain your National Insurance record.

Extended deadline for filing 2019/20 tax return

The normal filing deadline for the 2019/20 self-assessment tax return was 31 January 2021. However, to help taxpayers affected by the COVID-19 pandemic, HMRC waived the late filing penalty that would usually apply where a return was filed after 31 January, as long as the return was filed by midnight on 28 February 2021. This effectively extended the filing window by one month.

This had unintended consequences for self-employed taxpayers who opted to file their 2019/20 tax return in February 2021, and who chose to pay Class 2 National Insurance contributions voluntarily where their profits for 2019/20 were below the small profits threshold for that year of £6,365.

Nature of the problem

HMRC’s systems were unable to deal with the payment of voluntary Class 2 contributions where the 2019/20 tax return was filed after 31 January 2021. They did not have time to implement alternative procedures either.

The normal deadline for paying Class 2 National Insurance contributions for 2019/20 was 31 January 2021.

If you opted to pay Class 2 National Insurance Contributions voluntarily and paid by this date but before the return was filed, they could not be processed as HMRC were unaware of what the payment related to. This may be the case if you made the payment before the 31 January 2021 deadline, but filed your tax return in February 2021.

If you filed your return in February 2021 and paid your voluntary Class 2 National Insurance contributions when you filed your return, the contributions were paid late as they were paid after 31 January 2021. In this situation, HMRC corrected your return to remove the voluntary contributions.

Payments made in respect of voluntary Class 2 contributions in these circumstances were allocated elsewhere, held on account or refunded.

The solution

If you have been affected by this issue, you should contact HMRC on 0300 200 3500 as soon as you become aware that this is the case, for example, when you receive a refund, or see from your personal tax account that your contributions have been allocated against another payment.

If you have already received a refund, HMRC will let you know how you can pay Class 2 contributions voluntarily. If you have not already received a refund, they will ensure that the payment is correctly recorded as Class 2 National Insurance contributions.

Check your National Insurance record

It is advisable to check your National Insurance record to see if you have any gaps. Failure to contact HMRC if you have been affected by the above issue may mean that you do not receive a credit for 2019/20, resulting in a gap in your contributions record.

Contact us

Contact us if you paid voluntary Class 2 National Insurance for 2019/20 and filed your return in February 2021 to check that your contributions have been credited to your account.

Extended carry-back for losses

To help businesses which have suffered losses as a result of the COVID-19 pandemic, the period for which certain trading losses can be carried back is extended from one year to three years. The extended carry-back period applies for both income tax and corporation tax purposes. If you have made losses as a result of the impact of the pandemic, you may be able to take advantage of the extended carry-back period to generate a welcome tax repayment. Guidance on the rules can be found on the Gov.uk website.

Income tax

Where a trading loss is made by an unincorporated business, there are a number of options available to relieve that loss. The options open to a particular business depend on when in the business lifecycle the loss is incurred, and also whether the business prepares its accounts using the cash basis or the accrual basis. The loss can be set against general income of the current and/or previous year, and also against future trading profits of the same trade, with special rules applying to relieve losses incurred in the early years of the trade, and in the final year.

One option for obtaining relief for a trading loss is to set the loss against general income of the year of the loss and/or the previous year. However, where accounts are prepared using the cash basis, sideways loss relief against other income or relief against capital gains is not permitted – the loss can only be set against trading profits of the same trade.

The temporary extension to the carry-back rules extends the period for which the loss can be carried back from one year to three years. Where a claim is made under the new rules, losses are set against the trading profits of a later year before those of an early year. Any loss carried back under the temporary carry-back rules can only be set against previous trading profits of the same trade – there is no extension to other income.

Relief for a 2020/21 loss

Unless the business is a new business to which the opening year basis period rules apply, a loss for the 2020/21 tax year will be a loss for an accounting period ending in that year, i.e., between 6 April 2020 and 5 April 2021.

The extended carry back is available where a claim is made to relieve the loss against general income of 2020/21 and/or 2019/20 and income in these years is insufficient to utilise the full loss. The unrelieved loss can be carried back and set against trading profits of 2018/19 and, to the extent that any of the loss remains unrelieved, against trading profits of 2017/18. It is not possible to tailor the loss to preserve personal allowances — it must be set in full against the available trading profits.

To the extent that the loss remains unrelieved after making a claim under the extended carry-back rules, it can be carried forward for relief against future profits of the same trade.

Relief for a 2021/22 loss

The extended carry-back period is also available for a 2021/22 loss. For an established business, this will be a loss for an accounting period which ends between 6 April 2021 and 5 April 2022.

As with a loss for 2020/21, the temporary rules allow a loss for 2021/22 which cannot be fully relieved against income of 2021/22 and 2020/21 to be carried back. The unrelieved loss can be set first against trading profits of the same trade for 2019/20 and, to the extent that any of the loss remains unrelieved, against trading profits of 2018/19.

If a claim has been made to relieve a 2020/21 loss against general income of 2019/20, this takes precedence over a claim to carry back a 2021/22 loss against trading profits of 2019/20 under the new rules.

Cap on loss relief

The normal cap on loss relief of £50,000 or, where higher, 25% of adjusted net income, does not apply to losses relieved under the extended carry-back rules. Instead, the loss that can be carried back for each year is capped at £2 million.

Corporation tax

For corporation tax purposes, a loss can be carried back and set against profits from the same trade for the previous accounting period or carried forward and set against future profits of the same trade. The period for which losses can be carried back is extended from one year to three years for a limited period.

The extended carry-back period applies to losses for accounting periods ending between 1 April 2020 and 31 March 2022. For each accounting period, the loss that can be carried back under the new rules is capped at £2 million. Where a company is part of a group, the cap applies to the group as a whole. Losses carried back must be set against the profits of a later period before those of an earlier period.

Benefits of carrying a loss back

The ability to carry a loss back can be beneficial where this generates a repayment of tax already paid for a previous year. This will be particularly true for companies within the charge for corporation tax.

For unincorporated businesses the position is more complex where carrying back a loss results in personal allowances being wasted. Where this is the case, and the trader expects to return to profit, it may be preferable to carry the loss forward for use against future trading profits of the same trade. The best result will depend on individual circumstances and priorities, and there is no substitute for doing the sums.

Speak to us

If you have realised a loss, or expect to, as a result of the impact of the COVID-19 pandemic, speak to us to find out how best to obtain relief for that loss.

Further grants available under the SEISS

The Self-Employment Income Support Scheme (SEISS) provides grant support to eligible self-employed taxpayers who have been adversely affected by the COVID-19 pandemic. A further two grants are to be paid under the scheme. In addition, the scheme has been expanded to include those who commenced self-employment in 2019/20. Guidance on the grants can be found on the Gov.uk website.

Fourth grant

The fourth grant covers February, March and April 2021 and is worth 80% of average profits for three months, capped at £7,500. The grant can be claimed from late April 2021, and will be paid in a single instalment. The claim window will run until 31 May 2021.

A trader will be eligible to claim if they have been adversely affected by the COVID-19 pandemic. This test will be met if the trader is currently trading but has suffered reduced demand as a result of the pandemic, or if they have been trading but are unable to do so temporarily due to Coronavirus. Suffering additional costs where demand has not fallen does not qualify the trader for the grant.

As previously, a trader can only benefit from the scheme if their trading profits are no more than £50,000 and comprise at least 50% of the trader’s total income. HMRC will look first at the trader’s profits as returned on their tax return for 2019/20. Where these are more than £50,000, HMRC will look at average profits over 2016/17 to 2019/20. The rules are modified if the trader did not trade in all of those years.

Fifth grant

The fifth and final grant covers the period from May to September 2021. Unlike the previous grants, the amount of the fifth grant depends on the extent to which turnover has fallen as a result of the COVID-19 pandemic. Traders will be able to claim the fifth grant from late July.

Turnover has fallen by at least 30%

Where the trader’s turnover has fallen as a result of the COVID-19 pandemic by at least 30%, the fifth grant will be worth 80% of three months’ average profits capped at £7,500.

Turnover has fallen by less than 30%

Traders who have been less severely affected by the pandemic will receive a lower grant. Where turnover has fallen by less than 30%, the fifth grant will be worth 30% of three months’ average trading profits, capped at £2,850.

The Government will publish further details on the fifth grant in due course.

Newly self-employed

When initially launched, the scheme was only available to traders who had filed their 2018/19 self-assessment tax return by 23 April 2020. However, as the deadline for filing the 2019/20 tax return has now passed, taxpayers who commenced self-employment in 2019/20 are able to claim the fourth and fifth grants, as long as they meet the usual eligibility criteria and they traded in both 2019/20 and 2020/21 and submitted their 2019/20 tax return by midnight on 2 March 2021.

Contact us

Contact us to find out whether you are eligible for the fourth and fifth grants under the SEISS, and what the grant is worth to you.

SEISS grant increased

The Self-Employment Income Support Scheme (SEIS) will now run until 30 April 2021, providing two further grants – one for the three months from 1 November 2020 to 31 January 2021 and one for the three months from 1 February 2021 to 30 April 2021. Since the extension to the scheme was originally announced, the amount of the first of these grants has been increased several times. The amount of the final grant has yet to be set.

Amount of the third grant

The third grant payable under the SEISS will now be set at 80% of three months’ average trading profits, capped at £7,500.

As for the first two grants, the amount of the third grant is calculated by reference to average profits over the 2016/17, 2017/18 and 2018/19 tax years, with the calculation modified if you did not trade in all three of these years.

Claiming the grant

The qualifying conditions for the scheme remain the same. You can claim the third grant if you are currently actively trading but demand has fallen as a result of Coronavirus, or if you were trading previously, but are unable to do so as a result of Coronavirus. You do not need to have made a previous claim.

You can claim the third grant from 30 November 2020.

How we can help

Although we cannot make the claim on your behalf, we can help you work out whether you are eligible for the third grant and the amount to which you are entitled. Get in touch to find out more.

Further extension to the SEISS

To help self-employed individuals who continue to be affected by the COVID-19 pandemic, the Self-Employment Income Support Scheme (SEISS) has been extended for a further six months, from November 2020 to April 2021.

Grants payable under the extended scheme

The extended scheme will provide two taxable grants for the self-employed. Availability of the grants is limited to those who meet the eligibility conditions for the scheme and who are actively continuing to trade, but are facing reduced demand as a result of COVID-19.

The first grant covers the three-month period from 1 November 2020 to 31 January 2021. It will be based on 40% (rather than 20%, as originally announced) of average monthly profits for a period of three months, capped at £3,750 in total.

The second grant will cover the three-month period from 1 February 2020 to 30 April 2021. The level of the second grant has yet to be set.

As with the earlier grants, any grant that you receive under the extended scheme is taxable and subject to National Insurance.

HMRC are to provide details in due course on claiming the grants.

Talk to us

Contact us to find out whether you are eligible for a grant under the extended SEISS scheme.

Final SEISS grant

The Self Employment Income Support Scheme (SEISS) provides grants to self-employed taxpayers whose business has been adversely affected by the Coronavirus pandemic. Eligible taxpayers can now claim the second and final grant under the scheme. Grants paid out under the scheme are taxable.

Eligibility

To qualify for the second grant, you must be a sole trader or a partner in a partnership and your business must have been ‘adversely affected’ by the Coronavirus pandemic on or after 14 July 2020. As for the first grant, you must have:

• traded in the 2018/19 tax year and submitted your self-assessment tax return for that year no later than 23 April 2020;
• traded in the 2019/20 tax year; and
• traded in the 2020/21 tax year or intend to do so.

The scheme is only open to self-employed taxpayers whose income from self-employment comprises at least 50% of their total income and is not more than £50,000. The £50,000 limit is initially applied for 2018/19 and the test is met if profits for that year are £50,000 or below. However, where profits for 2018/19 are more than £50,000, average profits for 2016/17, 2017/18 and 2018/19 are considered. You will qualify if the average profits for these years do not exceed the £50,000 threshold.

If you meet the eligibility conditions for the second grant, you can make a claim, even if you did not claim for the first grant.

Meaning of ‘adversely affected’

The second grant is only available to businesses that have been ‘adversely affected’ by the Coronavirus pandemic on or after 14 July 2020. HMRC have published guidance, together with examples, setting out the circumstances in which they consider a business to have been ‘adversely affected’ by the pandemic.

As a general guide, a business will be ‘adversely affected’ if it has experienced lower turnover or higher costs as a result of Coronavirus. This may be because you were unable to work because you were sick, self-isolating, shielding or caring for someone because of the virus. The business may also suffer a reduction in trade or an increase in costs because of interruptions to the supply change, a reduction in customers or the need to incur additional costs to make the business COVID-secure or to meet social distancing requirements.

Need to keep records

To support a claim for the second grant under the SEISS, you should keep evidence to show how and when the business was ‘adversely affected’ by Coronavirus. This may include:

• business accounts showing a reduction in turnover or an increase in expenditure;
• confirmation of any Coronavirus-related loans that the business has received;
• any dates that the business had to close as a result of lockdown restrictions; and
• any dates that the staff were unable to work because they had Coronavirus symptoms, were self-isolating, shielding, or had caring responsibilities as a result of the virus.

How much is the second grant?

As with the first grant, the second grant is based on average profits over the three tax years 2016/17, 2017/18 and 2018/19. If you did not trade in 2016/17 or file a return for that year, the grant is based on average profits for 2017/18 and 2018/19; if you did not trade in 2017/18 or file a tax return for 2017/18, the grant is only based on profits for 2018/19, regardless of whether you traded in 2016/17.

The second grant is worth 70% of three months’ average profits, to a maximum of £6,570.

Claim online

HMRC have written to all traders who they believe to be eligible to make a second claim under the scheme, telling them the date from which they can make their claim. Claims can be made online via the claim portal, which opened on 17 August 2020. The last date on which a claim can be made under the scheme is 19 October 2020.

As with the first claim, you must make the claim yourself; claims by agents are not permitted. However, we can advise you on how to make the claim, whether you qualify and what records you need to keep.

Bonus for employers who retain furloughed staff

The Chancellor, Rishi Sunak, presented A Plan for Jobs at the time of the Summer Economic Update on 8 July 2020. This included incentives for employers who retain furloughed staff and who offer training and apprenticeships.

Job Retention Bonus

The Coronavirus Job Retention Scheme (CJRS) is now in its final phase. Government support under the scheme is withdrawn gradually from August and the scheme comes to an end on 31 October 2020. Where staff are still furloughed in October, employers will need to decide whether they can bring their furloughed employees back to work.

To encourage employers to retain furloughed staff, a bonus – the Job Retention Bonus – of £1,000 will be paid to the employer for each furloughed employee who is employed continuously from the end of the CJRS until 31 January 2021. However, to qualify for the bonus, the employer must pay the employee, on average, earnings that are at least equal to the lower earnings limit for Class 1 National Insurance purposes, set at £120 per week (£520 per month) for 2020/21.

The Government will pay the bonuses from February 2021.

The scheme is not without its critics, with Jim Harra, Chief Executive of HMRC, questioning whether it offers value for money. Some employers, including Primark and Rightmove, have stated that they will not claim the bonus.

Kickstart Scheme

The Chancellor also unveiled plans to fund a new Kickstart Scheme providing £2 billion of funding to create high-quality work placements aimed at young people between the ages of 16 and 24 who are on Universal Credit and who are deemed to be at risk of long-term unemployment. Funding for each job will cover 100% of the relevant National Minimum Wage for 25 hours a week, plus the associated employer’s National Insurance contributions and employer pension contributions under auto-enrolment (where relevant).

Traineeships

Funding of £111 million is to be made available to fund work placements and training for 16 to 24 year olds. The Government will pay employers who provide trainees with work experience £1,000 per trainee. The funding will expand the provision of and eligibility for traineeships for those with Level 3 qualifications and below.

Apprenticeships

Employers who hire new apprentices will also receive funding from the Government. Where employers take on a new apprentice between 1 August 2020 and 31 January 2021, they will receive a payment of £2,000 for each new apprentice under the age of 25 that they hire and £1,500 for each new apprentice aged 25 and over. These payments are in addition to the existing £1,000 provided by the Government for apprentices aged 16 to 18 and to those aged under 25 with an Education, Health and Care Plan.

Contact us

Contact us to find out how you can benefit from the incentives on offer.

NIC implications of COVID-19 support payments

Various support payments have been made to help those affected by the COVID-19 pandemic. How are those payments treated for National Insurance purposes?

Grant payments under the CJRS

Where an employer claims a grant payment under the Coronavirus Job Retention Scheme (CJRS), the full amount of the grant (topped up to 80% of wages in the last two months of the scheme) must be paid over to the employee. As far as the employee is concerned, this is treated in the same way as a normal salary payment. The employer deducts Class 1 National Insurance and pays it over to HMRC.

The payment is also liable to employer’s Class 1 National Insurance to the extent that it is not covered by the employment allowance. For pay periods prior to 1 August 2020, the employer can reclaim the associated employer’s National Insurance on grant payments from the Government under the CJRS. The employer’s National Insurance must be paid over to HMRC in the usual way.

Grants under the SEISS

Grants under the Self-Employment Income Support Scheme (SEISS) should be taken into account in computing profits for 2020/21. Where those profits exceed £9,500, Class 4 National Insurance contributions will be payable. If the profits for 2020/21 are more than £6,475, you must pay Class 2 contributions.

As a result of the pandemic, profits may be lower in 2020/21 than previously. If profits are below the small profits threshold, set at £6,475 for 2020/21, there is no obligation to pay Class 2 contributions. However, it may be worthwhile to do so voluntarily to ensure that 2020/21 remains a qualifying year for state pension and contributory benefit purposes. This is much cheaper than paying Class 3 contributions to make up a shortfall.

Other grants

Businesses may also receive other grants, such as those payable to businesses qualifying for small business rate relief or payable to specific sectors, such as the hospitality and leisure sector. For self-employed taxpayers, these are taken into account in calculating profits, which in turn will determine whether a liability to Class 2 and Class 4 National Insurance contributions arise.

Talk to us

Speak to us to ascertain the effect of grant payments on your National Insurance bill.

Claim SSP for Coronavirus-related absences

Smaller employers who have paid statutory sick pay (SSP) to employees who were absent from work due to a Coronavirus-related absence can now claim a rebate from the Government. The claim portal went live on 26 May 2020.

Who can claim?

Employers are eligible to make a claim if they have a payroll scheme that was created on or before 28 February 2020 and had fewer than 250 employees on the payroll at that date. They can claim back up to two weeks’ SSP paid to an employee who was absent from work due to Coronavirus.

What can you claim?

An absence counts as a Coronavirus-related absence if the employee is unable to work for one of the following reasons:

• they had Coronavirus (COVID-19) symptoms;
• they were self-isolating because someone in their household had Coronavirus symptoms; or
• they were shielding and have a letter from either the NHS or their GP telling them to stay at home for at least 12 weeks.

Claims are capped at two weeks’ SSP per employee, even if the employee is absent for work and receiving SSP for longer than this, for example, because they are shielding. Claims can be made for periods of sickness starting on or after 13 March 2020 where the employee either had Coronavirus symptoms themselves or were self-isolating because someone in their household had symptoms, and in relation to periods of absence starting on or after 16 April 2020 where the employee is shielding. If you have paid more than the weekly SSP rate (for example if you pay employees their full pay while sick), the claim is limited to the SSP rate, set at £95.85 per week from 6 April 2020 and at £94.25 before that date. For Coronavirus-related absences, SSP can be paid from the first qualifying day once a period of incapacity for work has been established – the usual three waiting days do not need to be served.

Where SSP is paid for an absence which is not a Coronavirus-related absence, the employer cannot claim it back under the rebate scheme. Normal rules apply in relation to absences that are not related to Coronavirus and the employer must meet the cost of any SSP paid to employees who are absent other than for one of the reasons listed above. Claims can be made for employees in respect of whom a grant has been claimed under the Coronavirus Job Retention Scheme; although a claim for a grant and an SSP rebate cannot be made for the same period.

How do we claim?

Claims can be made via the online portal. To claim, you will need:

• your Government Gateway User ID;
• employer PAYE scheme reference number;
• UK bank or building society details for the account into which the rebate is to be paid;
• the total amount of SSP paid to employees for Coronavirus-related absences;
• the number of employees in respect of whom a claim is being made; and
• the start and end date of the claim period.

When claiming, you will also need to provide a contact name and telephone number. Claims can be made at the same time for multiple pay periods and multiple employees.

HMRC will check claims and if satisfied pay the money into the designated account within six working days of the date on which the claim was made.

Do we need records to support the claim?

You do not need to provide evidence when making the claim. However, you do need to keep records of:

• the dates on which the employees were absent from work;
• which of those dates were qualifying dates;
• the reason for their absence, i.e. whether they had symptoms or were shielding; and
• the National Insurance numbers of the employees in respect of whom a claim is being made.

You do not need to obtain a Fit Note for Coronavirus-related absences.

Records should be kept for three years from the date on which you received the rebate.

Further help

The good news is that HMRC has confirmed that if you have authorised us to do PAYE online for you, we can complete the claim on your behalf. Alternatively, if you prefer, we advise if you are able to make a claim and how to go about it.

National Insurance contributions for 2020/21

The starting point for paying National Insurance is to increase to £9,500 for 2020/21 for employees and for Class 4 contributions payable by the self-employed. This is in line with a Government commitment to increase the starting threshold to £12,500 – the level of the personal allowance for tax purposes.

Employees and Employers

Class 1 National Insurance contributions are payable on an employee’s earnings by the employee (primary contributions) and by the employer (secondary contributions). The rates and thresholds applying for 2020/21 are shown in the table below.

For 2020/21, the primary and secondary thresholds are no longer aligned. This means that the point at which employer contributions for employees over the age 21 kicks in is £169 per week (£732 per month), while employee contributions are not payable until earnings reach £183 per week (£792 per month). On earnings between these limits, employer contributions are payable but not employee contributions.

The rate of Class 1A contributions (payable on benefits in kind) and Class 1B contributions (payable on items included in a PAYE settlement agreement) remains at 13.8%.

The self employed

The self-employed pay flat-rate Class 2 contributions and also Class 4 contributions on their profits.

For 2020/21, Class 2 contributions increase by 5p per week to £3.05 per week. Contributions are only mandatory if profits exceed the small profits threshold. This is set at £6,475 for 2020/21. However, they can be paid voluntarily where profits are less than this level.

As with employees, the starting point at which Class 4 contributions become payable on the profits of the self-employed – the lower profits limit – increases to £9,500 for 2020/21. Contributions are payable at the main rate of 9% on profits between this level and the upper profits limit, which remains at £50,000 for 2020/21. Above this, contributions are payable at the rate of 2%.

Voluntary contributions

Voluntary (Class 3) contributions can be paid to make up a shortfall in your contributions record and preserve your entitlement to the state pension. Class 3 contributions rise to £15.30 per week for 2020/21.

Check your contributions record

Speak to us about whether you need to pay additional contributions to ensure that you will qualify for the full state pension when you reach state pension age. You can obtain a pension forecast online.