Welcome to our latest tax update. We hope you find it useful. Feel free to contact us if you wish to discuss anything further accounts@cubeaccounting.co.uk 01788 815017
RECAP ON CHANGES FOR THIS TAX YEAR
We highlight some of the key tax changes that take effect from the start of the new tax year. Unfortunately, most of the income tax and national insurance thresholds continue to be frozen, resulting in an increasing number of higher rate taxpayers. The major exception is the welcome increase in the threshold for the High Income Child Benefit Charge (HICBC). The further reduction in the rates of national insurance contributions for employees and the self employed will take effect from 6 April and is a move towards a possible future abolition.
The self-employed will see important changes to how they compute their profits from 2024/25 with “cash accounting” being the default method unless they opt for the accruals basis. The mechanism for assessing those profits also changes from 6 April 2024 when the business results arising between 6 April and the following 5 April will be taxed, which will mean apportioning results where the business year end does not correspond with the tax year.
As far as limited companies are concerned, there is no change in the rates of corporation tax from April 2024.
Remember also that the capital gains tax annual exemption reduces to just £3,000 for each taxpayer for gains made in 2024/25, but the higher rate on residential property gains reduces from 28% to 24% as announced in the Spring Budget.
MANY COUPLES MAY NEED TO RESTART CHILD BENEFIT CLAIMS
The changes to the High Income Child Benefit Charge (HICBC) announced in the Spring Budget have now been incorporated into the latest Finance Bill and came into effect from 6 April 2024. The increase in the threshold for the tax charge was good news, although many were lobbying for the charge to be removed completely. HICBC is intended to claw back child benefit where the higher earner in a relationship has adjusted income in excess of £60,000 (£50,000 up to 2023/24). The claw back rate will then be 1% for every £200 of net income in excess of £60,000 with full recovery of child benefit where net income is £80,000 or more.
Rather than pay the tax charge, many couples have chosen not to claim child benefit in recent years. It is estimated that some 180,000 couples eligible for child benefit will no longer be caught by the HICBC and should restart their claims from 6 April 2024. This can be done by using an online claim form.
Example
Fred and Wilma have 2 children for whom they are eligible for child benefit. Fred is the higher earner and his income was £68,000 in 2023/24, which is scheduled to increase to £70,000 in 2024/25. In 2023/24 the HICBC would have been 100% of the child benefit received. Their child benefit for 2024/25 is £25.60 for the first child, then £16.95 for each additional child = £42.55 x 52 = £2,212.60 p.a.
Based on Fred’s £70,000 net income there would be a 50% HICBC for 2024/25 of £1,106.30.
Planning
An individual’s pension contributions and payments to charity under Gift Aid have the effect of reducing net income for the purposes of HICBC. Salary sacrifice arrangements agreed with the employer can also be effective in reducing net income for HICBC purposes.
SHOULD YOU USE CASH ACCOUNTING?
Cash accounting was introduced as a measure to make it simpler for small businesses to prepare their accounts for tax purposes. It previously only applied to businesses with turnover up to £300,000 but, from 2024, will be the default method for sole traders and partnerships. It will not apply to partnerships with corporate members or limited liability partnerships.
Businesses affected will be able to opt out of cash accounting and prepare their accounts in accordance with Generally Accepted Accounting Practice (GAAP), which means making adjustments for accruals, prepayments and other differences. It will also be possible to subsequently opt back into cash accounting. There are transitional rules to ensure that income and expenses are not included twice or omitted.
Please contact us to discuss the impact that this change may have on your taxable profits.
CHANGES TO THE BASIS OF ASSESSMENT
The method of taxing the profits of unincorporated businesses changed significantly in 2023/24. This was originally intended to align with the introduction of Making Tax Digital for Income Tax Self-Assessment (MTDITSA), which will now start to be phased in from 2026/27.
Under the old basis of taxing profits, a sole trader or member of a partnership was taxed on their share of profits of the business’s accounting period ending in the tax year. For 2022/23, the last tax year when that basis applied, profits of year ended 31 December 2022 would have been taxed that tax year. Unless that business changes its accounting date, the profits assessed in 2024/25 would be the profits arising between 6 April 2024 and 5 April 2025 i.e. 9 months of the profits from year ended 31 December 2024 plus 3 months of the profits for year ended 31 December 2025. As the 2024/25 self-assessment tax return needs to be filed by 31 January 2026, it is highly likely that the profits for the later period would need to be estimated and subsequently revised. As a result of this complication, many businesses decided to change their accounting year end to 31 March or 5 April so that it corresponds with the tax year.
The Transitional Year 2023/24
A further complication with the change in the basis of assessment is the calculation of profits in 2023/24, the “transitional year”, which seeks to transition from the old ‘current year’ basis to the new tax year basis. The rules in 2023/24, where the business has a year end that doesn’t correspond with the tax year, seek to tax the profits from the day after the end of the period taxed in 2022/23 until 5 April 2024. A business preparing accounts to 31 December each year would have a 15 month period from 1 January 2023 to 5 April 2024 potentially taxable in 2023/24. However, the 3 months’ profits in the period 1 January 2024 to 5 April 2024, less any overlap relief, is not all taxed in 2023/24 but spread over 5 years, unless the taxpayer elects to be taxed on a higher amount.
If, in the above example, the sole trader makes profits of £120,000 in year ended 31 December 2024 then £30,000 less any overlap relief (typically from the early years when some profits were taxed twice) would be spread over 5 years. Assuming no overlap relief, an extra £6,000 profits would be added to the profits assessable from 2023/24 to 2027/28 unless the individual elects to be assessed on a higher amount, in which case the balance of the £30,000 would then be spread over the remaining years to 2027/28. This is not at all straightforward and we can work with you to calculate the transitional profits and advise you of your tax liabilities going forward.
CHANGES TO FURNISHED HOLIDAY LETTINGS FROM 6 APRIL 2025
As announced in the Spring Budget, the beneficial tax treatment of furnished holiday lettings (FHLs) will be abolished from 6 April 2025, when the business will start being taxed in the same way as other residential property businesses.
Owners of properties that currently qualify as FHL might wish to consider increasing their expenditure on equipment such as furniture and televisions whilst the 100% annual investment allowance (AIA) continues to be available. The current capital gains tax reliefs, particularly business asset disposal relief (BADR) will also cease from 6 April 2025, so owners might consider selling their holiday letting property whilst the 10% CGT rate continues to apply to the disposal.
Note that where several FHL properties are owned they would all need to be disposed of before 6 April 2025 for BADR to apply. BADR would generally not apply where a single asset is disposed of out of a larger business.
LATEST MAY UPDATE
HMRC PUBLISH UPDATED GUIDANCE ON WORK TRAVEL
Travelling from home to an employee’s normal workplace does not qualify for tax relief. This is referred to as “ordinary commuting and, furthermore, if the costs of the journey are reimbursed by the employer, those costs are taxable. There are exceptions to this rule, in particular where the employer pays for the employee to travel home in a taxi safely late at night.
Travelling to a “temporary workplace” is a qualifying business journey and, where the costs are reimbursed by the employer, there is no taxable benefit. Note also that any associated subsistence costs such as overnight hotel accommodation costs are also a tax-free benefit. HMRC Booklet 490 provides detailed guidance on employee travel, together with comprehensive examples (this is an online document these days).
With more and more employees working from home these days, for at least one day a week, attention should be paid to the latest HMRC guidance on such arrangements.
WORKING FROM HOME
Whether or not an employee’s home is a workplace does not affect the availability of tax relief for travel expenses. Travel expenses from home to a permanent workplace will only qualify for tax relief if the journey qualifies as travel in the performance of the duties of the employment.
Even though it may have been accepted that the employee’s home is a workplace, it does not necessarily follow that they’ll be entitled to tax relief for the cost of travel between their home and a permanent workplace.
This is because the place where an employee lives will ordinarily be down to their personal choice. The expense of travelling from their home to any other place is a consequence of that personal choice; not an objective requirement of the job.
HMRC guidance states that where an employee performs substantive duties of their employment at home as an objective requirement of the job, they may accept their home as a workplace for the purposes of the ‘travelling in the performance of the duties’ rule. Where this is the case, the employee will be entitled to tax relief for the expenses of travelling from home to other workplaces, as their travel is in the performance of their duties.
HMRC will usually only accept that working at home is an objective requirement of the job if the employee needs certain facilities to perform those duties, and those facilities are only practically available to the employee at their home.
HMRC state that they will not accept that working at home is an objective requirement of the job if the employer provides appropriate facilities in another location that could be practically used by the employee, or the employee works from home as a matter of choice.
Even where the employee works at home as an objective requirement of the employment, tax relief for the cost of travel between their home and their permanent workplace will only be due for travel made on days where the employee’s home is a workplace.
Only on those days is the employee travelling between 2 workplaces. On other days the employee is travelling between their home and a permanent workplace, which is ordinary commuting.
LATE NIGHT TAXIS PAID BY EMPLOYERS
Payments by the employer for taxis to take employees home late or at night are exempt from tax if:
the failure of car sharing arrangements conditions are satisfied (see below); or
all 4 late night working conditions are satisfied; and
the number of such journeys for which a taxi has been provided for that employee in the tax year is no more than 60.
There are 4 late working conditions, all of which must be satisfied.
The employee is required to work later than usual and until at least 9pm.
This occurs irregularly.
By the time the employee ceases work, either:
public transport has ceased, or
it would not be reasonable to expect the employee to use public transport.
The transport is by taxi or similar road transport - this condition is not contentious and is not referred to again in this guidance.
The 60 journeys is a single limit that applies to late night journeys and failure of car sharing arrangements together. This means that journeys under both headings must be added together when working out whether or not the 60 journeys limit has been reached.
OFFICIAL RATE OF INTEREST FOR 2024/25 REMAINS AT 2.25%
HMRC have confirmed that the official rate of interest for employee and directors’ beneficial loans remains at 2.25% for 2024/25, despite a Bank of England base interest rate of 5.25%.
This means that where the employer lends an employee more than £10,000, the taxable benefit would be the difference between 2.25% and the amount paid on the outstanding loan.
DIARY OF MAIN TAX EVENTS
MAY / JUNE 2024
Date | What’s Due |
1/05 | Corporation tax payment for year to 31/7/23 (unless quarterly instalments apply) |
19/05 | PAYE & NIC deductions, and CIS return and tax, for month to 5/05/24 (due 22/05 if you pay electronically) |
01/06 | Corporation tax payment for year to 31/8/23 (unless quarterly instalments apply) |
19/06 | PAYE & NIC deductions, and CIS return and tax, for month to 5/06/24 (due 22/06 if you pay electronically) |
If you have any question or queries about how any of the above will effect your business, get in touch. accounts@cubeaccounting.co.uk 01788 815017.
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