HMRC is getting cannier at detecting and penalising people who make extra income but don’t declare it.

And in 2024 they are set to clamp down on sellers flogging their pre-loved items through sites such as Etsy, Depop, eBay and Vinted.

Will this impact you?


Big brother is watching

Fresh new HMRC rules will mean from January 1st 2024 onwards, these sites will have to collect information regarding how much money individuals are making online.
HMRC will then use this information to determine if the sellers are declaring this income and paying the correct amount of tax and NI.

 

A HMRC spokesperson recently said: ‘For people selling personal possessions online, absolutely nothing has changed. 

‘The reason we’re asking digital platforms to share information with us is to ensure businesses operating via these platforms pay the correct amount of tax, and do not have an unfair tax advantage over high street and other traditional businesses.’

A bit on the side

If you start a small side venture to make some extra cash, is it always necessary to declare it to HMRC?
  • If your trading income does not exceed £1,000 in the tax year, the trading allowance exempts it from tax. This means that you don’t need to report anything to HMRC.
  • However if your income exceeds £1,000 then yes, you will need to include this in your self-assessment tax return.
Trading income is the GROSS amount you receive from the sale of your goods or services.

What counts as trading income?

HMRC considers you to be trading if you are carrying out business activities, in a trade or profession, or buying and selling goods or services with a view to making a profit or surplus.

Remember, just because your business does not make a profit doesn’t mean you aren’t trading!

Tip. If you are trading and make a loss it may be possible to use this to reduce your tax bill on your other income.

Examples.

1. Emma earns £60,000 per annum and sells handmade jumpers on Etsy for which she received £870 in 2022/23. She also lets out her driveway for £800.

Emma does not need to report either of these minor income sources on her tax return as they fall beneath the £1,000 trading allowance.

2. John also earns £60,000 per annum and sells vintage toys on eBay.  In 2022/23 he received £1,400, his trading costs are just £100.

Instead of paying tax on the actual profit of £1,300, John can just his trading allowance to reduce the profit to just £400 (£1,300 – £1,000).  This will be declared on his self-assessment tax return.

3. Susan makes a living from her Vinted account.  She travels around car boot sales and charity shops looking for bargains, which she then cleans and posts online for sale.  Each year she averages trading income of £12,000 and has typical business costs.

Susan will need to keep book-keeping records and declare her income and expenditure in her self-assessment tax return.

Having a clear out?

Finally, don’t worry if you sell your unwanted personal possessions online, this isn’t taxable as trading income.

It could become liable to capital gains tax (CGT) if sold for more than you paid for it and where the gain exceeds your capital gain threshold (in 2024/25 this is £3,000).  But generally this will only relate to high end items such as jewellery or art work.


To discuss the above, or any aspect of your accounting affairs, call us on 01737 652 852.

Historically, you may have had to file a tax return if your income exceeded the point where the personal allowance starts to be tapered away.

This has changed for 2023/24 and  a further change will apply from 2024/25.

What’s the full story?


If your tax affairs are relatively straightforward, it can be very frustrating to have to complete a tax return every year.

In the past, HMRC has insisted on issuing returns for the following reasons, irrespective of other circumstances:

  • Income exceeds £100,000 (the personal allowance abatement threshold);
  • There is a liability to the high income child benefit charge (HICBC);
  • The individual is a company director.

 

HMRC now accepts that being a company director is not a valid reason to issue a tax return in and of itself.

For 2023/24, it was announced that the income threshold would increase to £150,000, meaning you may be able to request your return for this year be withdrawn if the only reason you have been in self-assessment was that your earnings were more than £100,000.

However, the other criteria for self-assessment remain unchanged, so if you have earnings of, say, £120,000 but also have untaxed income of £5,000, you will still need to complete a return.

The 2023 Autumn Statement announced that for 2024/25 the income threshold will be removed altogether.

The government is also intending to allow those liable to the HICBC to pay it via a PAYE coding adjustment, though there is no current timetable for this.

The Chancellor of the Exchequer, Jeremy Hunt, presented his 2023 Autumn Statement to Parliament on 22nd November 2023.

What key changes were announced and how will they impact you?


Income tax

No changes

National Insurance

  • The main rate of employee NICs (Class 1) will be cut from 12% to 10% from 6th January 2024.
  • The self-employed will also see Class 4 NIC cut from 9% to 8% from 6th April 2024.
  • No change to Employer’s NIC, which remains at 13.8%

Dividend tax

No changes

Corporation tax

No change to the amount of tax a limited company pays.

Capital Allowances

At the Spring Budget 2023, the government replaced the super deduction regime with ‘full expensing’ for 3 years from 1st April 2023, allowing businesses to write off the full cost of qualifying plant and machinery investment against their taxable profits.

The government is now making this change permanent with a 100% first year allowance for main rate assets and 50% first year allowance for special rate (including long life) assets.

National Living Wage (NLW)

From 1st April 2024, the NLW will increase to £11.44 an hour for eligible workers aged 21 and over.

Other announcements

  • Business rates – including extending the current 75% business rates relief for eligible retail, hospitality and leisure properties for one year in 2024/25 and freezing the small business rates multiplier for business in 2024/25.
  • Freeports – extending the duration of tax reliefs available from five to ten years.
  • Investment zones – extending the programme from five to ten years.
  • Alcohol duties – freezes alcohol duties until 1 August 2024 and delays the annual uprating decision to the 2024 Spring Budget.
  • A package of welfare reforms, including a strengthening of work search requirements for some, designed to increase employment.
  • Local housing allowance – rates will be increased to equal the 30th percentile of an area’s market rents in 2024/25. Rates will then be maintained in cash terms in subsequent years.
  • Planning – including plans for accelerated planning decision dates for major developments in England to be guaranteed in exchange for a fee.

Reference

For the full Autumn Statement 2023 policy documents visit  Budget documents.

HMRC has launched an online application process for VAT time to pay arrangements.

Is this option available for your business?

*********************************

Eligible businesses no longer need to call HMRC and plead for, or justify, an extension to their VAT payment deadline.  Instead you can submit an online time to pay request using this link – https://www.gov.uk/difficulties-paying-hmrc/pay-in-instalments

However, it is necessary to take action swiftly, if you are struggling to pay.

A business can set up its VAT payment plan online if:

  • the latest VAT return has been filed
  • less than £20,000 is outstanding
  • the request is made within 28 days of the payment deadline
  • it does not have any other payment plans or debts with HMRC; and
  • it plans to pay off its debt within six months.

Ineligible businesses can still contact HMRC to agree a payment plan, but will likely need to justify the need to do so.

Note that late payment interest will still be charged, and, as interest rates are increasing, paying sooner rather than later is recommended wherever possible.

HMRC telephone lines are being closed, due to staff shortages.

How will this imact you?  And what can you do if you have queries?

*********************************

Self-Assessment

HMRC’s self-assessment helpline (0300 200 3310) will be unavailable from 12th June until 4th September 2023.

The agent dedicated line is available, but calls are very rarely answered.

VAT

The VAT registration helpline was closed recently, with no indication of if / when this will reopen.

Industrial Action

These recent telephone line closures follow a month of strikes by HMRC workers, which has seen very little movement on tax rebates, VAT or PAYE registrations and other outstanding queries.

Under Pressure

We understand that HMRC are under huge pressure, due to staff shortages, and whilst the summer is typically a quieter time for tax return filing etc the turnaround times are the longest we’ve ever seen.

 

How to get help

With the phone lines closed the only way to get help currently is by writing to HMRC (expect at least a 6-week response time) or you can use the online Web Chat service (but brace yourself for a long wait).

 

We are aware that these HMRC service issues have a knock on effect to the service we are able to offer our clients, and we are sorry for any inconvenience this may cause.

Unfortunately, HMRC made this announcement without any prior consultation with the accounting regulators and there is lobbying of Parliament underway, to overturn this decision

Sadly there isn’t much we can do, but if you have any concerns that you want to discuss we are very willing to listen.

You may experience difficulty or severe delays contacting HMRC’s helplines over the next few weeks, with several strikes planned.

What are the scheduled dates, and how else might you resolve queries?

*********************************

HMRC helplines are already under huge pressure. One of the most common complaints is the long wait times experienced, which can increase costs and eat into time that could be better spent elsewhere in your business.

Unfortunately, the next three weeks are set to be significantly worse, as strike action will mean over 400 workers walk out in disputes over pay, job security and pensions.

This is likely to affect you if you need to contact HMRC about self-assessment, PAYE, NI, or the construction industry scheme.

The strike dates are:

  • May – 15, 16, 17, 18, 19, 22, 23, 24, 25, 26, 29, 30, 31
  • June – 1, 2

Remember that a lot of information can be obtained via your personal tax or business tax account.  Otherwise, HMRC has a number of other methods of contact that can help.

Rates and Thresholds in 2023/24

The tax year runs from 6th April 2023 to 5th April 2024 and as always there have been some tweaks to the bands and thresholds.

What impact will it have on you?


National Insurance (NI)

Description

Threshold

Lower Earnings Limit (LEL)

Salary above this qualifies towards State Pension

 

£6,393

Primary Threshold

The point at which employees start paying NI on any earnings above the threshold

 

£12,570

Secondary Threshold

The point at which employers start paying NI at a rate of 13.8%

 

£9,100

Upper Earnings Limit (UEL)

Earnings above the Primary Threshold up to (and including) the Upper Earnings Limit incur NI at a rate of 12%

 

£50,270

Earnings above the Upper Earnings Limit

Salary above this incurs NI at a rate of 2%

 

£50,271

Employment Allowance

Employers can claim up to this amount to cover their employer’s NI.  To be eligible there must be at least 1 employee or 2 directors on the payroll.

 

£5,000

 

Income Tax

The table below shows the income tax rates and band thresholds for 2023/24 in England, Wales, and Northern Ireland.

Be aware that Scotland uses different tax bands and thresholds!

Tax Band

Tax Rate

2023/24

Personal Allowance

 

0%£12,570
Basic Rate

 

20%£12,571 – £50,270
Higher Rate

 

40%£50,271-£125,140
Additional Rate

 

45%£125,141 upwards

Corporation Tax

From April 2023 Corporation Tax rates are changing.

  • There will be a small companies tax rate of 19% for profits under £50,000.
  • Profits above £250,000 will be taxed at 25%
  • In between there will then be an effective rate of tax of 26.5% (profits between £50,001 and £250,000)

Why is the effective rate of 26.5% higher than the main rate of 25%?

This is to ensure that when profits exceed £250,000 that 25% is charged on the full amount, for example:

  • Profits of £250,000 taxed at 25% = £62,500
  • First £50,000 taxed at 19% = £9,500
  • Next £200,000 taxed at 26.5% =£53,000
  • £9,500 + £53,000 = £62,500

 

Estimating your Corporation Tax liability within the year will be more complex from April 2023 and therefore we urge you to save as much as you can towards this liability.

The final Corporation Tax bill will be confirmed when your annual accounts and tax returns are prepared at the end of your Company’s financial year.

Dividend Tax

The amount of tax you pay on dividends depends on your total income, and how much of that income is specifically from dividend payments.

The good news is that you don’t pay NI on dividends!

You can use allowances to reduce the amount of tax paid on your dividends.  The first is any unused personal allowance (in 2023/24 this is £12,570) and then there is the dividend allowance.  Up until recently this was £2,000, however in 2023/24 this drops to £1,000 (and then in 2024/25 it drops again to an allowance of just £500!)

The table below shows the tax rates for dividends for each tax bracket:

Tax Band

Tax Rate

Total Income

Dividend Allowance0%£1,000
Basic Rate8.75%£12,571 – £50,270
Higher Rate33.75%£50,271-£125,140
Additional Rate39.35%£125,141 upwards

Remember that dividends can only be paid out to shareholders where there are company profits.

It’s important not to withdraw more money than is available as you could be hit with an additional Corporation Tax charge (S445 @ 33.75%).


To discuss the above, or any aspect of your accounting affairs, call us on 01737 652 852.

With only a few days left in the current tax year, as a company directors that’s enough time in which you can improve your income tax efficiency.

What steps should you be taking to achieve this?


Two-step plan

Because of tax and National Insurance increases, which happen in April there’s more talk than usual about setting a tax-efficient level of profit and income extraction for the new tax year.  However, that’s only half the story.

In practice it’s rare that the plans made at the start of a tax year will remain ideal by the time it ends. That means now is the time to consider if the planning you did a year ago needs tweaking, for example, by taking more income from your company or making tax-deductible payments.

1. Using your tax-free allowance

The first step is to check that you’ve drawn enough income from your company so that together with any other income you’ve received in this tax year, e.g. rental income, bank interest, etc., it at least equals your personal tax-free allowance of £12,570.  If necessary, draw more income from your company.

2. Using your rate bands

Next, aim to use all of your basic rate band; in England and Wales that’s £37,700.  Taking dividends is the most tax efficient way to achieve this. The tax rate is 8.75% until your total income exceeds the basic rate band, compared to 20% for salary or other income.

Tip. Your tax-free allowances and basic rate band can be greater than the figures stated if you pay tax-deductible expenses, e.g. personal pension contributions and gift aid payments. These increase the amount of income you can receive tax free or how much of it is taxable at the basic rate of tax.

Tip. If you’re in the position that you want more cash now but taking more income from your company would be taxable at higher rates, consider borrowing the cash from your company as a director’s loan in this current tax year and then repaying it after 6th April, by declaring dividends then. This gives you another bite at the cherry to keep your income tax at the basic rate only.

Profits don’t have to be taken!

Don’t feel that you always have to remove available profits from your limited company.

If the money is not a necessity to fund your living requirements then you can leave the profits in the business and declare dividends in later months or years.  Alternativley you could qualify for Business Asset Disposal Relief and withdraw the retained profits in the future, when the business is closed, thus only paying tax at 10%  on the funds.

Remember if you work as a contractor then you may need to keep reserves in the business to support you in between contracts, known in the sector as a war chest!

Pump up your pension…

If your personal income is likely to push you into the higher tax band then pension contributions are a great way of reducing your liability, as well as saving for your future.  If paid from the limited company they also reduce it’s Corporation Tax bill so win : win!

If you don’t yet have a pension in place and need some advice then get in touch as we work with a number of Independent Financial Advisers who would be happy to help.

Give to charity

If you make a charitable donation under the Gift Aid scheme, the charity can claim back 20% basic rate tax on any donations.

Using Gift Aid can also generate a refund for higher rate and additional rate taxpayers. Higher rate taxpayers can claim back the tax difference between the higher rate and basic rate on the donation.

A cash gift of £80, made under the Gift Aid scheme, will generate a refund of £20 for the charity, which receives £100. The donor claims back tax of £20, making the net cost of the gift only £60.


For more tips and advice speak to a member of the a4c team today by calling on 01737 652 852.

The Chancellor, Jeremy Hunt, delivered the UK Spring Statement on 15th March 2023. What do you need to know about the announcements?


In short, this year’s budget means that not a lot will change for you, unless you’re a relatively well-off near-pensioner or a family with young children!  Here is a summary of the key points announced:

BUSINESS TAX

Corporation Tax

We already knew that the main rate for Corporation Tax will increase to 25% from 1st April 2023 (first announced in 2021) but what does this mean in practice?  Essentially the Corporation Tax rate will return to a two-tier system from April 2023 when:

  • the rate of corporation tax will rise to 25% for companies with profits exceeding £250,000
  • companies with profits up to £50,000 will continue to pay 19%
  • companies with profits between £50,001 and £250,000 will pay tax at 25% reduced by marginal rate relief rate so that the main rate won’t apply until their profits excess the higher amount

Capital Allowances

The super-deduction regime will end 31st March 2023, and will be replaced from 1st April 2023 with 100% capital allowances for qualifying plant and machinery.  This will last for three years, to 31st March 2026, although the Government indicated that it is their ambition to make this permanent.

It applies to spending on main rate equipment, which includes but is not limited to, warehousing equipment such as forklift trucks, tools such as ladders and drills, construction equipment such as bulldozers and excavators, machines such as computers and printers, vehicles such as tractors, lorries and vans, office equipment such as chairs and desks, and some fixtures such as kitchen and bathroom fittings and fire alarm systems in business premises.


PERSONAL TAX

Income tax rates and thresholds 

There were no changes to previously announced personal income tax and National Insurance Contribution thresholds or rates.

Pension tax relief

As part of a range of measures aimed at reducing economic inactivity, significant reforms to pension taxation were announced:

  • The amount that an individual can contribute tax free to their pension fund is to be raised from £40,000 to £60,000 per annum from April 2023.
  • The Government will work to abolish the Lifetime Allowance in future Budgets.  It currently stands at £1,073,100.
  • For those who are already drawing down on their pension, the total amount they can save tax free under the Money Purchase Annual Allowance is to be increased from £4,000 to £10,000 from April 2023.

INDIRECT TAXES & DUTIES

Fuel duty 

The government has announced that fuel duty will be frozen and a 5p reduction will be maintained for another year.

Alcohol duty

Tax on draught products in pubs will be up to 11p lower than in supermarkets.


OTHER MEASURES

Energy price support

The Energy Price Guarantee (EPG) will be maintained by the government until the end of June 2023 at the current level of £2,500.  They will also align charges so that rates paid are comparable whether the customer pays their electricity bill by direct debit or pre-payment meter.

Childcare

An expansion in state-funded childcare means that 30 hours of free childcare will be made available for all children under five from April 2024.

There is also a plan for schools to offer wrap-around care either side of the school day by September 2026, to help parents back to work.


Reference

For the full Budget Report 2023 visit https://www.gov.uk/government/publications/spring-budget-2023/spring-budget-2023-html

Or to discuss how the Budget Report 2023 will impact you and your business give us a call on 01737 652 852