Recent key announcements
Corporation Tax
The increase in the rate of corporation tax will go ahead as provided for in the legislation resulting in an increase to 25% from the current rate of 19% affecting companies with profits of £250,000 and over. Marginal rates will apply to companies returning profits between £50,000 and £250,000 with the 19% rate continuing to apply small companies with profits up to £50,000. The Annual Investment Allowance (AIA) limit of £1million has been retained indefinitely.
Income Tax
The 45% rate of tax was cancelled then reinstated so continues to apply. The basic rate of income tax will remain at 20% indefinitely.
National Insurance Contributions
The Health and Social Care levy has been repealed meaning that national insurance rates will return to last year’s rates from 6 November 2022. There are some annualised rates published in the bill (eg, for directors and self-employed individuals). Important to note that when a person becomes a director during the tax year they are put on a ‘pro rata earnings period’ (ie, the number of weeks they are a director multiplied by the weekly limits). Watch out for whether payroll software and HMRC PAYE tools have been updated or not to accommodate the repeal. Dividend rates of tax will not be reduced from 6 April 2023.
Stamp Duty Land Tax
The nil rate band has been increased to £250,000, and to £425,000 for first time buyers with effect from 23 September 2022.
Investment Zones
Proposed investment zones (locations tbc) have been announced promising very favourable tax treatment in addition to the existing freeports; mayoral and unitary authorities have been invited to apply for investment zone status.
These will potentially be similar to the Enterprise Zones seen in the 1990s that saw investment vehicles created to capitalise on available tax treatments.
Investment zones will benefit from:
- 100% Business Rates Relief
- Planning Relaxations
- 100% FYA on plant and machinery without limit
- SBA 20% per annum (5-year window instead of the usual 30-year window)
- No employer’s NIC on salaries of new qualifying employees to £50,270
- Zero SDLT
Other investment measures
SEIS has been enhanced via increases to the limits on amounts that can be raised/asset values and time periods; the investor limit is being doubled to £200,000.
Company Share Option Plan limits are also increasing.
Finance Bill 2022-23
Research & Development Tax Relief
Major reforms are coming into force to combat widespread abuse of the system including a requirement to pre-notify HMRC of research & development activities. There will also be more categories of expenditure that qualify for R&D tax relief.
From April 2023, additional information must be submitted with R&D claims including a description of the R&D undertaken, a breakdown of qualifying costs, and details of any agent who has advised on the R&D claim. This must be signed off by a senior officer of the company.
Care needs to be taken when advising clients on claiming R&D tax relief by asking the question “What is the uncertainty you set out to resolve?”. If you an uncertainty that needs to be addressed does not exist, then there is unlikely to be a valid R&D claim. This is one of the questions asked in HMRC’s guide to R&D tax relief for small businesses.
CGT on Divorce
During marriage and in the tax year of separation it is nil gain nil loss on transfer of assets. At the end of the tax year of separation you become a connected person meaning any transfers are deemed to be made at market value presenting challenges in claiming any loss relief that is then restricted for offset against gains made on transfer to that same connected person.
At the point of decree absolute, you cease to be connected persons (ie, become arm’s length parties).
Joint business interests are also challenging as parties are unable to avail the purchase of own shares option as the soon to be ex-spouse is not actually an ex-spouse so when you buy your spouse out you are still classed as a connected person.
Following on from recommendations made by the Office of Tax Simplification, Finance Bill 2022-23 includes new rules to allow for a longer period in which separating couples can make transfers to each other on a no gain/no loss basis, meaning that disposals are covered until the earlier of:
- the end of the third tax year following the year in which the couple ceased to live together; or
- the grant or an order or decree for divorce, the annulment of the marriage, the dissolution or annulment of the civil partnership, or the date of a separation under a separation order.
This time period is indefinite where the transfer is made in accordance with an agreement or court order.
This will apply to disposals on or after 6 April 2023 which may alter the advice you are currently giving to divorcing clients.
Current practical tax issues
Capital allowances
- Annual Investment Allowance staying at £1million has caused delay in the filing of corporation tax returns if claims were more than £200,000 as a result of limits changing then reverting again.
- Super-deduction allowance ends on 31 March 2023.
- Structures and buildings allowance - additional allowances for extensions and subsequent expenditure when the buildings are brought into use.
Residential Property CGT
The new process for dealing with ‘digitally excluded’ taxpayers is being rolled out.
The window for filing CGT returns has been increased from 30 to 60 days; this applies to property disposals that take place on or after 27 October 2021.
VAT Penalty Regime
New penalty regime for VAT accounting periods starting 1 January 2023 - clients who are currently on default surcharge notices are reset from this point:
- Points for late submission of VAT returns
- Maximum points result in a penalty
- Points expire after 24 months
- Separate penalties for late payments
- New interest provisions
Publicity for tax avoidance schemes
Clients operating in a sector who are at risk of tax avoidance schemes should be referred to this HMRC guidance.
- HMRC will be allowed to publicise tax avoidance schemes and advise against their use
- Promoters and those facilitating the provision or marketing of schemes can be named
- Those to be named must be notified at least 30 days in advance
Discovery Assessments
Appeal case under s29, Taxes Management Act on the high income benefit charge. A discovery assessment was raised – the taxpayer went in front of the tribunal and argued that child benefit was not income therefore a discovery assessment was not possible.
This section of the taxes management act was updated by Finance Act 2022. Rather than the previous wording “any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed”, the wording has been amended to “an amount of income tax or capital gains tax ought to have been assessed but has not been assessed”. This applies retrospectively to certain uncollected taxes.
This would also apply to gift aid donors who are no longer taxpayers (eg, retired individuals or loss-making businesses).
Basis period reform – To change or not?
If you have any clients whose accounting year end is not 31 March or 5 April you should consider the forthcoming implications of basis period reform.
Basis period reform coming into force in the 2024/25 tax year will affect the period of account that is considered for purposes of calculating income tax.
Changing the accounting dates for clients will not alter the final tax liability but may affect the estimated tax values and interest charged on any late payments.
You are able to prepare a long set of accounts to cover the transitional period.
Digital records
Use this time now to think critically about costs and effort and whether full software or spreadsheets are appropriate for clients in order to comply with digital record keeping requirements.
