We’re often asked for advice on whether or not to buy an investment property via a limited company.

The answer, as always, is that it depends on the circumstances. There are pros and cons to either approach, as we explain in this month’s blog.

The options

You can either buy property personally or through a limited company, also called a property investment company or Special Purpose Vehicle (SPV).

If you buy personally, the deeds and mortgage are in your name, and you pay income tax on your rental profits.

Or, you can set up a limited company, owned by you. The company buys the properties, the mortgages are in the company name and the company pays corporation tax on the rental profits.

Benefits of Buy to Let through a limited company

There are a few good reasons why people set up a limited company to buy property…

1. Better taxation of mortgage interest. A limited company can offset 100% of the mortgage interest, reducing the profit and therefore the tax due.
   
2. Lower taxation for higher rate taxpayers. If you’re a higher rate taxpayer or plan on owning multiple properties, there can be a tax saving.  Rental profits are taxed at the current rate of corporation tax, which tends to be around 50% of higher rate income tax.
   
3. Flexibility. You have flexibility around what you do with the profits. You can invest in further properties, save into a tax-efficient pension or take dividends. That flexibility can help with tax planning.
   
4. Good for growing portfolios. If youplan to expand your property portfolio, there are usually tax savings via a limited company. You can retain your profits in the company for future purchases and protect them from tax.

5. Inheritance tax and legacy planning.  If you plan to pass your properties onto your family in future, it’s simpler to transfer a limited company than a property. Because the company owns the property, that can protect against stamp duty, inheritance tax and capital gains tax liabilities.

Disadvantages of limited companies for Buy to Let

There are a few things to be aware of before you decide to set up a limited company for investment properties.

1. More expensive for basic rate taxpayers. If you’re a basic rate taxpayer and you plan to own one to two properties, it may not benefit you to set up a limited company. If your salary is likely to remain under the higher rate tax threshold and you have no plans to buy more property, it makes sense to buy in your personal name.
   
   
2. Additional legal responsibilities and costs. As a company director, you need to keep accurate financial records and submit accounts and returns to Companies House and HMRC. Most people appoint an accountant to deal with this, which is an added cost.
   
3. Double taxation. In a limited company, you pay corporation tax on your profits. If you want to take money as a salary or dividends, you’ll also pay income tax. There are strategies to mitigate double taxation, so seek advice before setting up your company.
   
4. Capital gains tax considerations. If you sell a rental property personally, you’ll need to pay capital gains tax – but you do get a tax-free allowance. A limited company doesn’t get the tax-free allowance, but the rate of tax is lower. If selling property is a key part of your strategy, get some tax advice.
   
5. Mortgage costs. Buy to Let mortgages are more expensive for a company. Lenders charge higher interest rates and fees to limited companies compared to individuals. But stress testing is often more favourable for limited companies. A mortgage broker can advise on the best deals for you.

I already own Buy to Let property – should I transfer it into a limited company?

Moving your property into a limited company is not cheap or straightforward. You will sell each property to your company, which can generate numerous costs:
Stamp duty: Your company will have to pay stamp duty when buying the property. Check the stamp duty thresholds and bands on the government website. You usually pay 3% on top of these rates if you own another residential property.

Capital gains tax: If the market price is higher than your original purchase price, you are personally liable to capital gains tax at 18% or 24%, depending on whether you are a basic or higher rate taxpayer.

Early repayment fee: A penaltymay apply if you end your mortgage early to switch to a company Buy to Let mortgage.

Mortgage costs: There will be costs to secure a company Buy to Let mortgage for the property. Limited companies have fewer mortgage options, which could mean higher interest rates.

Legal fees: These will also come into play for transferring properties and updating the Land Registry.

Everyone’s situation is different. Whether you’re starting out as a landlord or you already own Buy to Let property, it’s important to seek tax and mortgage advice so you can make an informed decision.

Need some tax advice on Buy to Let? We can help. As Lune Valley accountants we provide personalised support to many landlords in the city. Contact us today.

Not all tax-free allowances disappear at the end of the tax year, which can help save you money. We explore those that do, and those that don’t.

Tax allowances that you can carry forward

1. Your pension allowance

You can pay 100% of your annual income into your pension up to a maximum of £60,000 a year. Those contributions are also boosted by tax relief at the same rate as your income tax.

And in fact, with carry-forward rules, you could pay in even more and still get a top-up, because you can also use any pension allowance left over from the last three tax years.

This year, then, you could pay into your pension and get tax relief on as much as £200,000. That’s based on two years with a £40,000 allowance, plus two years at the higher rate of £60,000 (this changed in 2023).

There are more rules and criteria involved, but this can be a helpful approach for higher earners who have a variable income, or people with a lump sum to pay into a pension.

2. Your inheritance tax gifting allowance

Cash gifts are considered ‘potentially exempt transfers’ from inheritance tax if your estate were to qualify. They become totally tax free if you live for seven years.

You can also give away up to £3,000 a year free of inheritance tax and, if you didn’t use last year’s allowance, you can carry that forward too. That means a couple that hasn’t gifted before could give away as much as £12,000 in one go.

Also, if your child is getting married, you can give them up to £5,000 tax free to mark the occasion. You can give £2,500 to grandchildren too, which could contribute towards a deposit for their first marital home.

3. Capital losses

Losing money on an investment is painful, but if you keep a record of losses and report them to HMRC, they could be helpful in the future.

While the capital gains tax allowance can’t be carried forward, investment losses can be – and you can offset use against capital gains to potentially reduce your bill.

Don’t worry if you haven’t reported losses from previous years, because HMRC gives you four years to report a loss.

Allowances that disappear if you don’t use them

1. Capital gains tax allowance

Under your capital gains allowance, you can keep some investment profits each year tax-free, although the allowance has shrunk a lot – in just two years it has dropped from £12,300 to £3,000.

Because the allowance is now small, it pays to be strategic in how you benefit from your investments. It’s now less appealing to let your gains pile up.

Imagine you make around £500 a year on an investment. If you let this accrue and sell the investment after 10 years, your gain could be £5,000. You would have to pay tax on £2,000 of that gain.

Instead, you could take advantage of the annual allowance, selling a portion of the shareholding annually. If each sale was under the annual exempt amount, you wouldn’t lose out to capital gains tax.

2. The dividend allowance

Dividends are taxable too and, like capital gains, this allowance has also been cut in recent years. It currently stands at £500 a year.

The tax is 8.75% for basic-rate taxpayers, 33.75% for higher-rate and 39.35% for additional rate.

Married couples could transfer assets between each other and use both sets of allowances to reduce their exposure to the dividend tax.

Another helpful option is to make the most of both your ISA and pension allowances to grow your money tax free.

3. ISA allowance

Money kept in individual savings accounts (ISA) is fully protected from tax. There’s no tax on interest or dividends, or when you take money out.

So, it really does make sense to use your £20,000 ISA allowance each year. You can’t carry this forward.

Married couples can effectively amass £40,000 a year tax free between them. If you still have spare cash beyond that, you could pay into a Junior ISA for a child or grandchild too. This has a £9,000 allowance.

Want to explore how to minimise the tax you pay? Get in touch – as Lune Valley tax specialists and accountants we can help you assess the most tax-efficient way to manage your money.

For businesses with profits over £50,000, corporation tax rose on 1 April 2023. If you’re looking to find ways to reduce your tax liabilities this year, here are some helpful options to consider.

How much corporation tax do you have to pay?

If you own a limited company, you’ll need to pay corporation tax on the profits your company makes.

As of 1 April 2023, a higher rate came into effect for companies with profits over £50,000. The corporation tax rate rose from 19% up to 25%. Meanwhile companies with profits below £50,000 continue to pay the 19% rate.

As a result, many companies are seeking ways to reduce their profits below the £50,000 threshold.  Some of the following options may help you achieve this.

1. Employer pension contributions

If you have your own limited company, paying into a pension via your business could help you save on tax. You can make employer contributions to your pension from your company account.

Employer contributions are normally treated as a business expense, so you won’t pay corporation tax on these.

If the pension contribution is made in place of a certain amount of salary, you and your company will also save on National Insurance.  Plus, you personally wouldn’t pay any UK income tax on this amount until you access your pension.

Most people have an annual pension contribution allowance of £60,000. But you might be able to ‘carry forward’ unused allowances from the three previous tax years.

2. Claim for all business expenses

Claim for everything you spend through your business – no matter how big or small it might be. Each claim will reduce your profits, and therefore how much corporation tax you pay.

You can claim for office equipment, advertising costs, travel expenses and training courses – anything you spend purely for business purposes.

Do keep a record of your expenses. Without a record, HMRC could refuse to accept your claim.

3. Make a charity donation

Limited companies can pay less corporation tax if they gift money to a charity or community group. The value of any charity donations is deducted from total business profits, before tax is paid.

4. Use Capital Allowances

Capital Allowances allow businesses to gain tax relief on the depreciation of assets and equipment. It can be helpful to time future expenditure carefully to maximise tax savings. 

The Annual Investment Allowance gives full tax relief when spending up to £1m on assets and equipment. A good accountant will help you make the most of this.

5. Additional relief for capital expenditure

Limited companies can also benefit from full tax relief for capital expenditure.  For most qualifying plant and machinery, companies can claim a deduction of 100% of the cost of the assets, effectively giving a tax saving of up to 25%.

This relief is particularly useful for companies that fully utilise their £1m Annual Investment Allowance.

The eligible assets must be new and unused, and there are exclusions for items like cars – although, under current rules, 100% relief can still be claimed for zero-emission cars. 

6. Claim R&D Tax Relief

Research & Development tax relief allows companies to claim tax savings for innovation.

You could qualify for R&D tax relief with any project that drives measurable improvements in science or technology – so if your company is paying people to solve technical problems, there may be scope to claim. Examples include:

• Creating a new product – or improving an existing one
• Adjusting a manufacturing process
• Developing bespoke software

The relief available is generous. A small business with £100k of qualifying costs, for example, could save an extra £21k in tax. Claims can also go back two financial years.

Larger companies can claim under the RDEC scheme.

 7. Optimise company structure

As businesses expand, they can end up with many different activities within a single company – or different companies established for each activity. Both can create tax inefficiencies.

It can be helpful to have an accountant review your structure. Options might be to create a group structure, with a holding company owning the subsidiaries. This way the various activities are legally separate, but gain tax benefits by operating within a group.

Alternatively, shareholders could hold individual companies directly, which can be more tax efficient if an individual company is likely to be sold.

8. Tax relief for losses

There are lots of ways to claim back tax on losses, which can vary depending upon details. Sometimes losses from particular activities can be surrendered for a cash payment rather than waiting to offset them against future profits.

The timing of relief is particularly important, now that different rates of tax can apply to specific tax years or different companies within a group.

 9. Reinvest after selling business assets

If your business sells a business asset and reinvests in replacement assets, the gain you make can sometimes be deferred until you then sell that replacement asset is sold.  This will reduce the amount of corporation tax owed.

10. Receive rent from the business

You can charge your business rent for using a property. For example, if you work from home, you can set up a formal arrangement to charge rent on the part of your property used by the business. Seek advice on this, as there are some consequences to be aware of.

Need more help with reducing corporation tax? As accountants for small businesses in the Lune Valley we’re here to help with tax advice, accounting services and much more. Get in touch today.

If you run a business that pays tax via self-assessment, a new HMRC reform will probably affect you. Called the Basis Period Reform, it could impact how you report your profits to HMRC for the 2023/24 tax year onwards.  You might even end up paying more tax than you need to.

Why is the basis period reform being introduced?

HMRC says the basis period reform will “create a simpler, fairer and more transparent set of rules for allocating trading income to tax years”.

The issue is that under the previous system, two identical businesses with different accounting dates could have very different annual taxable profits.

The reform is designed to remove this difference and make things fairer.

What’s changing and when?

As of 6 April 2024, a new ‘tax year basis’ now applies to sole traders and partners who are subject to income tax. 

Under the tax year basis, these businesses will be taxed on the profits from a tax year (6 April to the following 5 April), no matter when their accounting period ends.

It will replace the ‘current year’ basis, where tax is calculated on the profits of the accounting period ending in that year. 

Who does this impact?

The reform applies to ‘trading businesses subject to income tax’ – which means sole traders and individual partners in a partnership. Companies are not affected and corporation tax rules are not changing.

Also, if you happen to do your accounts between 31 March and 5 April, you are also unaffected. Your accounting period is already the same as the tax year.

Property income is already reported on a tax year basis so should not be affected by the change.

What do sole traders and partners need to do?

If your business has a year-end other than 31 March to 5 April, you will need to apportion amounts from two sets of accounts to calculate your profits for every tax year from 2024/25 onwards. The current tax year is a ‘transitional’ phase in which we switch over from the current year basis of assessment to this new tax year basis.

How do I calculate profits for the new system?

You will need to look at two sets of accounts to calculate your taxable profits each year. The advice is to do this based on days. 

Here’s an example. A business whose year-end date is 31 December would need to apportion 270 days from the year ended 31 December 2024 (covering 5 April 2024 to 31 December 2024) and 95 days from the year ended 31 December 2025 (1 January 2025 to 5 April 2025).

The figures are used after adjusting for non-deductible expenses and capital allowances.

What if my accounts aren’t ready in time?

If your latest year’s accounts aren’t ready by the time you need to complete a self-assessment, you need to estimate the figure from the second set of accounts and file a provisional figure. That provisional figure will need to be corrected later.

HMRC doesn’t explain how to calculate that provisional figure – it will depend on your business, its size and complexity. You just need to ensure the estimate is reasonable and can be justified. Keep a record of how you came to the figure used.

Provisional figures are corrected by amending the original return as soon as the actual number is known. HMRC has said provisional figures can be corrected at any time up to the normal amendment deadline. For tax year 2024/25, this deadline is 31 January 2027.

How will it work in 2023/24?

The current tax year is a transitional year, where we swap over to the new tax year basis.

In 2023/24 businesses will be taxed on the profits of:

• The 12 months starting with the end of the basis period for 2022/23 (the ‘standard’ part)
• The period from the end of the standard part to 5 April 2024 (‘transition’ part)
• For most businesses, the standard part will effectively be the profits under the current year basis. The transition part then takes you from the end of that period up to 5 April 2024.

What is Overlap Relief and can it help?

Overlap relief can reduce your taxable business profits. Overlap relief is based on ‘overlap profits’, which can arise if your business has not always had an accounting-period ending between 31 March and 5 April.

Overlap profits can arise in the first two or three years of a business or in any year where you change accounting date.

What’s spreading and could it be helpful?

Spreading is a way to reduce the tax impact of additional profits being brought into account due to these changes.

As above, overlap relief should be deducted from any transition part profits in 2023/24.  Additional profits after this are called ‘transition profits’, and can be spread over up to five tax years.

But in some instances spreading is not available, including:

• If deducting overlap relief from the transition part profits results in a loss
• Where there is an overall loss for 2023/24 (looking at the standard part, transition part plus overlap relief).

How does spreading work?

The general approach is for 20% of transition profits to be brought into account in 2023/24, and a further 20% in each of the following four tax years.

It’s also possible to bring in more transition profit in any one tax year. The business can choose any additional amount to bring into account. Any remaining transition profits are then spread equally over the remaining period.

This ability could be useful you are paying less tax than usual in any tax year. You might have had a large expense or lower income that year, for example.

Spreading must be noted on the self-assessment return, and the deadline is one year after the filing date for that return.

Where can I get help with all of this?

The new basis reform period can seem a bit daunting and it’s important to get it right so that you pay the correct amount of tax. We’re here to help. For specific advice for your business just get in touch.

Worried about basis period reforms and what it means for you? We’re here to help. As small business accountants in the Lune Valley, we can advise you on tax returns, accounting, payroll services and much more. Get in touch

On Wednesday 6 March 2024 Jeremy Hunt presented the Spring budget. He explained that while interest rates remain high to bring down inflation, his budget would help families manage the higher cost of living with permanent cuts in taxation. He described it as a ‘budget for long term growth.’

Mr Hunt announced that inflation is expected to fall below the government’s target of 2% in ‘just a few months’ time. Inflation in January 2024 was 4%.

Below, we explore the Budget developments that will affect small businesses.

Cuts to National Insurance

The main rate for employee national insurance will be cut from 10% to 8%. People earning £50,000 per year or more stand to save £754 annually as a result. For those earning £35K to £50K the saving is £449, and with incomes of £25k to £35K, people will save £249 per year.

Self-employed national insurance contributions will reduce from 8% to 6%, thought to mean an annual saving of £650 for 2 million people. 

VAT threshold increase

The VAT registration threshold will increase from £85,000 to £90,000 from April 1 2024 – the first increase in seven years. Hunt said: ‘This will bring tens of thousands of businesses out of paying VAT altogether and encourage many more to invest and grow.’

Full expensing for leased assets

Hunt announced his intention to publish draft legislation for full expensing to apply to leased assets. This is an extension of the full expensing tax scheme for investing in new plants and equipment, announced in the Autumn 2023 budget.

This is likely to be a welcome development, as leasing is often a more viable strategy than purchasing for small businesses.

Freeze on fuel duty

Fuel duty will remain its current level for another year. The levy should rise in line with inflation – but this has not happened since 2011. A 5p cut to fuel duty, introduced in 2022, was due to end this month but has been extended.

Recovery Loan Scheme extension

Hunt vowed to provide £200 million of funding to extend the Recovery Loan Scheme as it transitions to the Growth Guarantee Scheme. This is expected to help 11,000 SMEs access much-needed finance.

Capital Gains Tax change

The government plans to raise more money by reducing the higher rate of property Capital Gains Tax from 28% to 24%. Hunt is also abolishing multiple dwellings tax relief, which previously reduced stamp duty liability when buying more than one home in a single transaction.

Holiday lettings tax relief to end

In response to lobbying from MPs representing coastal towns, the tax benefits of running a furnished holiday let business will be abolished.

Increased maximum income for Child Benefit

Hunt says 500,00 families will gain almost £1,300 from an increase to the high income threshold for Child Benefit. The threshold will go up from £50,000 to £60,000.

The tapering limit will increase to £80,000 from the current £60,000.

There are also plans to change how child benefit is paid, by applying the threshold to households rather than individuals.

Childcare

Free childcare hours for parents of children aged over nine months will continue for the next two years. Hunt says this will allow an extra 60,000 parents enter the workforce in the next four years.

Want to explore in more detail what the latest rules will mean for you or your business? As leading small business accountants in the Lune Valley we’re happy to advise. Get in touch with us today.

HMRC uses some clever tactics to keep an eye on UK taxpayers and their activities, by making the most of the data available.

Here we look at some of the ways HMRC gathers information – and why it’s so important to make sure you keep your tax affairs in order.  

General information powers

HMRC can legally request any information ‘reasonably required to check a taxpayer’s tax position’. It’s mainly used in an enquiry, but it is not limited to those – it can be applied to potential tax fraud situations too. 

HMRC can also ask third parties for information about taxpayers, such as banks or letting agents. Since 2021, HMRC can approach financial institutions without having first to seek your consent. 

Looking for unregistered businesses

HMRC actively searches for non-registered businesses and income that hasn’t been declared. It uses online search tools, reports from members of the public and information from other government departments to watch for potential tax evasion.

It also has Connect, a sophisticated software application which explores large volumes of information to detect patterns and inconsistencies. It’s thought to look at information including bank interest, credit card data and information from the Land Registry.

Other key sources of information include:

• customer lists from websites selling luxury items or services
• policyholder lists from insurance companies
• letting agents’ books
• mortgage providers
• property websites
• socia media

HMRC is said to use social media sites to identify people who appear to be living beyond their means – taking lots of luxury holidays and buying high end cars, or offering properties to let on a short or long term basis.

Targeting landlords and certain professions

HMRC has targeted commonly ‘non-compliant’ pockets of the economy for years, including tradespeople and – interestingly – solicitors and doctors. In more recent times, it has focused on Buy to Let income and money earned from second jobs.

Local authorities that require landlord licences have become a big asset to HMRC in identifying people who often own a portfolio of properties in a single town or city.

Small businesses are also under the microscope – especially where cash-in-hand could be involved. Around half the UK ‘tax gap’ originates from small and medium sized businesses.

Offering rewards

HMRC has a public hotline where people can report tax fraud of all kinds, which receives more than 100,000 tip-offs per year.  The informants are encouraged by the offer of financial rewards for a successful conviction.

Publicised wins

An example of HMRC’s successful detective work is the discovery of an escort agency operating from a multi-million pound property in London, after credit transactions were linked to the property. The owner admitted making more than £100,000 per year, tax free, for more than five years.

What to do if you’re worried

You will generally benefit from disclosing any wrongdoing to HMRC as soon as possible, rather than waiting for them to come to you. That way, you’re less likely to be prosecuted. Cooperating fully could also reduce any penalties you might face.

If you have received a letter saying that HMRC suspects you have been involved in tax fraud, there is some guidance here: https://www.gov.uk/guidance/admitting-tax-fraud-the-contractual-disclosure-facility-cdf. It’s a good idea to seek professional advice in this situation.

Get tax advice and support

The safest way to make sure you’re not scrutinised by HMRC is to check that you are paying the correct tax. By working with a reputable accountant you can make sure that all your records are correct and you’re paying the right amount of tax when it’s due.

As Lune Valley tax specialists and accountants, we’re here to help you manage your tax, whether you’re a landlord, a small business owner or you have more than one source of income. For more information, contact us today.

Many of our SME clients want to take some or all of the profits from their business and use them personally. There are ways to reduce the amount of tax you pay on those profits, so that your business is operating as efficiently as possible.

Here are five options to consider in how to take the profit from your company.

1: Taking a small salary

Paying a small salary can be tax-efficient if the recipient is not using their personal allowance elsewhere. Paying a salary at least equal to the Lower Earnings Limit for National Insurance purposes (£533 per month for 2023/24) will make sure the year counts towards state pension qualification.

The ideal salary will depend on whether your company is eligible for the National Insurance Employment Allowance, which shelters you from National Insurance costs on salary.

In a case where the personal allowance is available in full, and Employment Allowance is not available – which is common where a sole employee is also the director – it makes sense to pay a salary equal to the Primary Threshold.  In 2023/24 this is £11,908.

If the Employment Allowance is available, an optimal salary equals the personal allowance, set at £12,570 for 2023/24.

2: Using dividends

Dividends are paid out of post-tax profits, which have already been subject to corporation tax.

All taxpayers benefit from a dividend allowance, set at £1,000 for 2023/24, so paying a dividend up to this amount is free from further tax.

Once you’ve taken an optimal salary and used your dividend allowance, if you want to take further profits it’s usually best to take dividends rather than additional salary. Dividend tax rates are lower and there is no National Insurance to pay on these.

Remember, dividends must be paid in proportion to shareholdings, and they can only be paid if you have sufficient profit to pay them. If you take dividends over the level of your profit, the difference is seen as a Directors Loan.

3: Making pension contributions

Your company can also make pension contributions on behalf of the director. The pension contributions can usually be deducted in full from pre-tax profits. As long as the contributions are within the available annual allowance and below the level of the lifetime allowance, there will be no tax charges on the recipient.

4. Paying rent

Many small businesses are based at home, and your company can pay rent for a room from the director. This is tax efficient, as the company benefits from deducting the rent from profits for corporation tax purposes.

Although the rental income to the director is taxable, they may be able to benefit from the property income allowance to receive £1,000 of rent tax-free. Another advantage of paying rent is that there is no National Insurance to pay.

5: Applying benefits-in-kind

Giving directors and family employees benefits-in-kind can be very tax efficient. A mobile phone, workplace parking or health insurance are tax-free to the employee and the company can deduct the cost from its taxable profit. Most benefits in kind are free of National Insurance.

Some benefits-in-kind can still be tax efficient even if a tax charge applies. It may be beneficial for the employee to have an electric company car, for example, rather than be given more salary to pay for the car.

The most beneficial approach in reducing your tax will depend on your specific circumstances. It’s a good idea to talk to an accountant for advice on how to manage your company’s finances in the most efficient way.

As Lune Valley accountants we help limited companies and sole traders with tax advice, company accounting and payroll services. Get in touch

January is never the most enjoyable month, as we recover from festive overindulgence and aim to turn over a new leaf. For many people it’s also Self Assessment time, as the tax deadline looms on 31 January.

It can be bad timing for some people, following Christmas so closely and putting additional pressure on their finances. But if you’re going to find it a struggle to pay your income tax by the 2024 deadline, don’t panic – there are options available.

What the 2024 Self Assessment deadline means

Taxpayers on self-assessment must pay any remaining tax due for 2022/2023 by midnight on 31 January 2024. As well as any outstanding tax for 2022/23, you may also need to pay your first ‘payment on account’ for the current tax year. This applies if your ‘balancing payment’ for 2022/23 is more than £1,000.

You will also need to pay any Class 4 and Class 2 National Insurance due for the same tax year.  As of 2022/23, you pay Class 2 NIC if your profits are above the Lower Profits Limit (£11,908 for the 2022/23 year).

If your profits are below the Small Profits Threshold (£6,725 in 2022/23) you can choose to pay voluntary Class 2 NIC. If your profits from self-employment are between the Small Profits Threshold and the Lower Profits Limit then there is no Class 2 NIC to pay. You will still be entitled to benefits.

What are the options if you can’t pay your Self Assessment tax?

When you complete your self-assessment, you will get a bill from HMRC. You can view this when you finish filing your return under ‘View your calculation.’

If you are finding it a challenge to raise the money due, don’t ignore the problem. It will be worse in the long run, and it’s possible to set up a payment plan with HMRC.   

Generally you can pay in instalments as long as you have filed your tax return, owe £30,000 or less and are within 60 days of the payment deadline. If you meet these conditions, you can set up the payment plan online.

What if I can’t set up a payment plan with HMRC?

If you’re unable to set up a plan online and need help to manage your bill, contact HMRC direct. Often they will agree a bespoke payment solution that works for both parties. These are called Time to Pay arrangements. Interest is applied to these plans, but they are fairly flexible and can be repaid early if it’s affordable.

To set up a plan, call the Self-Assessment Payment Helpline on 0300 200 3822. If you cannot pay another type of tax, such as corporation tax, call HMRC’s Payment Support Service on 0300 200 3835.

You will need your unique taxpayer reference and National Insurance number; your VAT registration number if applicable; your bank account details, and details of any missed payments.

HMRC will assess your monthly income and outgoings and any savings and investments you have to decide what you can afford to repay each month. Usually if you have savings or investments, you’ll be expected to use these to settle your tax bill.

How to avoid Self Assessment stress in the future

January isn’t great timing for a tax bill, but you don’t have to leave it until then to settle your tax. You can file your self-assessment from 6 April – as soon as the tax year ends.  You don’t have to pay the bill at that point, but you will at least know how much it will be.

Early filing also gives you time to do the return accurately and correct any errors if needed. Or, you could employ a friendly accountant to manage the whole process for you and avoid any unwanted surprises.

Worried about Self Assessment Tax Returns? Let us help. As small business accountants in the Lune Valley, we’re here to support you with tax returns, accounting, payroll services and much more. Call us today.

On Wednesday November 22 Jeremy Hunt presented the Autumn budget. He set out his priorities as to avoid major spending, but to cut taxes and ‘reward hard work’ with numerous changes to business tax and allowances.

Mr Hunt announced that the UK economy is set to grow by 0.6% in the current year, according to forecasts from the Office for Budget Responsibility. It then expects the economy to grow by 0.7% next year. GDP is forecast to rise by 1.4% in 2025, 1.9% in 2026 and 2.0% in 2027.

Below, we explore the announcements from the Budget that will affect small businesses.

Inflation expected to fall

Inflation is expected to fall to 2.8% by the end of 2024 according to the spending watchdog, down from 11.1% last year when Hunt and Rishi Sunak took office.

National living wage up by more than £1 an hour

The national living wage will increase from April to £11.44, and will be extended to 21-year-olds.

Benefits will be increased by 6.7%, although there will be tougher requirements for unemployed people to look for work. The state pension will be increased by 8.5%.

Cuts to National Insurance

“High taxes discourage work”, said Mr Hunt, and that the combination of national insurance plus income tax means people pay a 32% marginal tax rate.

The main rate for employee national insurance will be cut from 12% to 10%, potentially benefiting 27 million people to the tune of c.£450 a year on average earnings.

This change will be brought in from 6 January 2024.

Class 2 National Insurance abolished

Class 2 national insurance, which is paid by the self-employed, will be stopped. This will save almost two million individuals £192 per year.

The self-employed also pay class 4 national insurance at 9%, which will reduce to 8%. Taken together, these measures will save self-employed workers £350.

Small business support

Mr Hunt said that as a one-time small business owner, he wants to support this sector.

Recognising that SMEs want bills paid on time, he said that firms bidding for government contracts can expect bills to be paid within 55 days at first, and then within 30 days.

The 75% business rates discount for hospitality, retail and leisure is being extended for another year, at a cost of £4.3bn.

Investment in strategic manufacturing

Hunt also announced plans to make available £4.5bn over five years to attract investment into certain manufacturing sectors. This will include money for electric cars and life sciences.

The investments are aimed at keeping the UK competitive in sectors where it leads, and drive innovation in others.

Full expensing made permanent

Hailing full expensing a success, Mr Hunt announced that it would be made permanent. Companies that invest in the UK will reduce their tax by up to 25p for every £1 spent on plants and machinery.

12 investment zones for the UK

Tax reliefs for freeports and investment zones are being extended from five years to 10 years. New investment zones will be created in the West Midlands, East Midlands and Greater Manchester. These could bring in private investment of £3bn and 65,000 jobs.

Want to explore in more detail what the latest rules will mean for you or your business? As leading small business accountants in the Lune Valley we’re happy to advise. Get in touch with us today.

There are some helpful tax breaks for couples – both those who are married and those in a civil partnership. An important one can be the ability to transfer assets between them without any impact to capital gains tax. Sometimes this can be useful for tax planning.

Capital gains – no gain, no loss

Married couples and civil partners can transfers assets from one to the other during the course of the marriage without having to pay Capital Gains Tax (CGT). This applies to all assets including second homes, business interests, shares and capital. It’s known as the ‘no gain, no loss’ relief.

The effect of this rule is that any gain that has accrued while the transferor has owned the asset is passed to the receiver, and there’s no charge at the point of transfer.

Gains do not crystallise until the asset is disposed of outside the marriage or civil partnership.

An example of how this works

Mark purchases a piece of art for £2,000. Five years later he transfers it to his wife Amy. By then, the art is worth £4,000. Amy sells the piece a decade later for £7,000.

When Mark passes the art to Amy, it is transferred at a value of £2,000 – which is Mark’s base cost with neither a gain nor a loss. There is no capital gains tax to pay on the increase in value from £2,000 to £4,000 while Mark owned the art.

When Amy sells the art, the full gain of £5,000 – from £2,000 to £7,000 – becomes chargeable. Amy is liable for the full gain – not just the increase in value since she acquired the art.

There are no other gains in Amy’s tax year, so the gain sits within her annual exempt amount of £6,000. If the painting had fallen in value, Amy owns the overall loss in a similar way.

How the spouse tax break this helps with tax planning

This ‘no gain, no loss’ rule opens up a number of tax planning opportunities:

1. Make use of annual exempt amounts

Transferring an asset – or a share in one – can make best use of unused annual exempt amounts.

The annual exempt amount for 2023/24 is £6,000. Using this strategy can save the couple up to £1,200 in tax. Note that the annual exempt amount falls to £3,000 from April 2024.

• Make use of a lower tax band

If a gain can’t be fully sheltered by the annual exempt amount, but the spouses/civil partners have different rates of tax, the taxable gain can be shared and taxed at the lowest rate of tax.

• Change income allocation

Income from an asset owned jointly by spouses and civil partners is taxed 50:50, irrespective of who specifically owns what share.

But to make sure income is taxed at the lowest possible marginal rates, you can transfer a set share of the ownership under the CGT rules.

For example, asset shares could be transferred to be 80:20 in favour of the lower-earning partner. A Form 17 needs to be completed to confirm this transfer.

• Business asset disposal relief

You may be able to qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) if you are a sole trader or business partner, and you’ve owned the business for at least two years.

The relief reduces the rate of CGT on selling certain business assets from 20% to 10%. Each spouse or civil partner has their own limit. Assets or shares can be transferred from one spouse to the other, before selling.

However, the business needs to be in that ownership structure for two years before disposal for this relief to apply. It’s important to plan ahead if you want to take advantage of this option.

Make sure you and your partner don’t pay more tax than you need to. As Lune Valley tax specialists and accountants we can help you assess the most tax-efficient way to manage your affairs. For more information, contact us today.