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When you sell an asset, such as property, stocks or valuable possessions and you make a profit, Capital Gains Tax (CGT) may apply.   In this blog, we look at what Capital Gains Tax is, who needs to pay it and how you can navigate your tax obligations.

What is Capital Gains Tax?

Capital Gains Tax is a tax on the money you make when selling certain assets. These include:

1. Property: Selling your main residence is usually exempt from Capital Gains Tax, but a second home or a buy-to-let property will tend to qualify for the tax.
   
   
2. Shares: You might pay CGT when selling shares in a company – both those listed on the stock exchange and unlisted shares. But this does not apply if the shares are part of an Individual Savings Account (ISA) or Personal Equity Plan (PEPs).
   
   
3. Personal Possessions: Valuable items like art, antiques and jewelry that have a value exceeding £6,000 may be eligible for CGT. Eligible items must have a long lifespan of more than 50 years – so selling cars or watches won’t expose you to tax.
   
   
4. Business Assets: If you’re a business owner, Capital Gains Tax may apply when you sell or dispose of business assets. Typical assets are property, land, machinery and registered trade marks.

The tax is calculated based on the difference between the asset’s selling price or market value and its original purchase price. This is known as the ‘capital gain.’

Importantly, Capital Gains Tax is only payable on the gain, not the entire sale proceeds.

Who needs to pay Capital Gains Tax?

UK residents each have an annual tax-free allowance. You only need to pay CGT on total gains above this amount. In the 2023/2024 tax year, the Capital Gains Tax allowance is £6,000.

If you are married or in a civil partnership or own assets with another person, you can combine your exemptions to potentially double the tax-free gains.

Note that CGT allowances have decreased from £12,300 in 2022/23 to £6,000 this year, and are due to halve again next year (April 2024) to £3,000.

When is Capital Gains Tax not applicable?

You don’t need to pay CGT in certain situations, such as:

• Making a gift of an asset to your spouse or civil partner
• Giving an asset to charity
• If you win a sum of money in a lottery or competition
• If you make gains from ISAs or PEPs, UK government gilts or Premium Bonds.

What is Capital Gains Tax charged at?

The rate of tax you pay depends on your total taxable income for the tax year, as it is linked to your tax band.

As of 2023/2024, the CGT rate for higher or additional rate taxpayers is 28% for gains from residential property and 20% on other assets.

For a basic rate taxpayer, CGT on any gains within your basic rate Income Tax band is 18% for residential property and 10% on other assets.

How can I reduce my Capital Gains Tax?

There are a few options that may reduce the tax due on gains from disposing of your assets:

1. Careful timing. Deciding when to sell or give away assets may be important, especially with the allowance set to reduce further next year.
   
   
2. Using schemes and wrappers. Investment schemesand tax relief routes may help – seek advice on which might apply to you.
   
   
3. Make use of any losses. If you make a loss on any investment, you may be able to offset this against your gains. You can also carry forward capital losses to future tax years.
   
   
4. Tax free transfers. You can transfer assets to a spouse or civil partner, which can be helpful in sharing the gain, especially if your partner sits within a lower tax bracket.
   
   
5. Manage your taxable income. Because the rate of CGT you pay links to your income tax band,it can help to reduce your income. Common ways to do this are to increase pension contributions or make charitable donations. 

Advice on managing Capital Gains Tax

If you need to pay CGT, make sure you maintain accurate records of all transactions, including original purchase costs, expenses and the selling price. Good records will help you calculate the correct tax liability.

Capital Gains Tax can be complicated, especially if you’re dealing with multiple assets. We’ll be pleased to advise you and help you keep CGT to a minimum. Get in touch to find out more.

Inheritance Tax is increasingly important to our clients, led by the rapid rise in property prices over recent decades and the fact that the inheritance tax threshold has remained static since 2009.

How much is inheritance tax and will it apply to my estate?

Each individual in the UK qualifies for a Nil Rate Band of £325,000, which means that there’s no tax to pay on the first £325K within your estate. That threshold will remain the same until at least 2028, which means that every year more people will be exposed to inheritance tax at 40% on the wealth they leave behind.

But that doesn’t mean your estate will be liable. There are a number of allowances, reliefs and strategies to help you avoid or minimise that tax bill, so that more of your hard-earned assets stay in the family. Here are 8 ways to reduce your exposure…

1. Understand the allowances:

In addition to the £325,000 Nil Rate Band, there’s a further allowance for those who own their own home of up to £175,000.

To qualify, the person who died must have left their home, or a share of it, to their direct descendants – their children, stepchildren, adopted children or grandchildren.

This way, a homeowner’s estate could total up to £500,000 before inheritance tax applies.

2. Benefits for couples

For married couples and civil partners, there’s a useful tax perk. Spouses can inherit each other’s estate without incurring inheritance tax.

Furthermore, any unused tax-free allowance from the first partner’s estate can be transferred to the surviving partner, potentially doubling the tax-free threshold up to as much as £1 million.

3. Strategic gifting:

Why wait for the future to start distributing your wealth, when you can start making strategic gifts now?  Small gifts made during your lifetime are often exempt from inheritance tax. Use the annual gift exemption limit to gradually transfer assets to your beneficiaries while minimising your potential tax liabilities.

4. Explore trust options:

Trusts can be powerful tools for managing inheritance tax. By placing assets into irrevocable trusts, you can potentially remove them from your estate, thus reducing the taxable amount. Trusts require careful consideration and planning, so seek financial and tax advice before making any decisions.

5. Embrace business relief:

If you own a family business, business relief can be a crucial tool in tax planning. This relief can provide up to 100% exemption from inheritance tax on qualifying business assets. By keeping the business operational, you can not only protect your legacy but also benefit from significant tax savings.

6. Make charitable contributions:

If you have charitable inclinations, consider incorporating them into your estate plan. Leaving a portion of your assets to registered UK charities in your will can lead to a reduced inheritance tax rate – from 40% to 36%. This way, you can support causes you care about while potentially benefiting your loved ones financially.

7. Downsize thoughtfully:

If your current property is larger than your needs, downsizing could help. Selling a larger property and moving into a more suitable one could qualify you for downsizing relief, lowering your inheritance tax liability based on the property’s value.

8. Consider life insurance:

Placing life insurance policies in trust can ensure that the payout is excluded from your estate for tax purposes. A whole of life policy will pay out on your death at any age, passing money on to your loved ones. This way, the insurance proceeds can directly benefit your beneficiaries without being subject to inheritance tax.

While inheritance tax might seem daunting, employing these strategies can help you navigate it effectively. Every financial situation is unique, so always consult a knowledgeable financial or tax advisor before implementing any of these approaches.

But proactive planning, exploring your options and making informed decisions could safeguard your family’s financial future and pass on your legacy intact.

To discuss your own inheritance tax liability and how to mitigate it, get in touch with us today. As local tax specialists we can give you advice and support to protect your family’s future.

Have you ever had a suspicious phone call or email claiming to be from HMRC?

Unfortunately, the number of fraudsters targeting small business owners, the self-employed and other individuals is rising all the time. According to the National Cyber Security Centre, HMRC was the third most spoofed government body in 2022, behind the NHS and TV Licensing.

In this month’s blog, we share tips and advice to protect you from being caught out.

1.     Avoid tax phishing scams

Always be sceptical of any contact from HMRC that asks you to share personal or financial details or requests you to immediately transfer money. HMRC will generally give you time to settle any funds owed.

If in doubt, contact HMRC directly, using a phone number listed on the government website.

2.     Check on the latest scams

There are many different types of scam in operation, from suggested rebates to requests to update you tax account details. Other threaten legal action for tax avoidance. Don’t act on anything until you have checked the details.

The HMRC website even lists the most common scams and requests that you report suspicious activity.  You can forward suspicious emails to phishing@hmrc.gov.uk and texts to 60599.

3.     Never share your login details

Never share your HMRC login details with anyone. These give access to your personal information and increasingly, fraudsters use people’s details to request tax claims paid to their own bank. This leads to innocent people having to pay back false claims made on their behalf.

Note that your accountant or tax agent do not need your HMRC login details and will never ask you to share them.

4.     Choose your tax agent or accountant carefully.

If you choose to appoint an agent for support, take time to check their credentials. Sometimes criminals pose as accountants and offer their services to make tax claims for you.

Check that they are qualified and accredited – this is usually stated on the company website. There is advice on choosing an agent on the HMRC website. Read customer reviews about the agent to ensure they are trustworthy and provide a good service.

5.     Watch out for pension scams

One of the most shocking types of fraud is where criminals cheat victims out of their pensions, leaving them without the funds they need for retirement.

Pension scammers try to persuade you to transfer your pension pot to them or to withdraw funds from it. Some might seem trustworthy, but it’s never worth the risk. Always get professional financial advice before accessing your pension fund or transferring it.

The Financial Conduct Authority (FCA) website highlights some scams to beware of.

Note that people aged between 44 and 66 are most at risk of falling victim to pension scams. Beware any contact out of the blue offering a free pension review, or help to access your pension before the normal minimum age. This is currently age 55.

6.     Beware of Tax avoidance schemes

Tax avoidance is bending the rules to reduce the amount of tax that someone pays. It deprives public services of the vital funding they need. If you are found to be using a tax avoidance scheme, you’ll have to pay the tax that is legally due, plus interest, plus you may have to pay a penalty.

There are many tax avoidance companies, and HMRC publishes details of schemes it believes are being used to avoid paying tax due.

If you’re using any of the schemes shown on the list, it’s best to withdraw from them and settle your tax affairs to prevent building up a large tax bill. HMRC offers advice and support for anyone in this situation, so don’t be afraid to contact them.

7.     Don’t pay to contact HMRC

You may come across ‘HMRC call connection’ services, advertised online. There’s no need to ever use these services – they are unnecessary and costly. Contact HMRC directly on its 0300 helpline numbers as listed on GOV.UK.

If you’re unsure about something and would like to discuss it, we’re happy to help. We support individuals and small businesses with tax management and all accounting services in the Lune Valley. Contact us today.

To help address the rising cost of living, many people are finding ways to increase their income with what’s known as a ‘side hustle.’ It can be a good money booster, but what are the tax rules?

Perhaps you’re taking in ironing for your neighbours, or delivering food for a local takeaway. You might be employed by a business already and are doing this additional work on the side. Or perhaps you’re self-employed and taking on new jobs to boost your bank balance.

But when you’re earning additional money, you might need to pay tax on it – and none of us want to be caught out by the taxman. In this quick guide, we’ll make sure you understand what your responsibilities are.

Business registration – yes or no?

You only need to register your side hustle if it generates an income of more than £1,000 per year. Below that, you can take advantage of the ‘trading income allowance’. Note that the £1,000 refers to income, not profit. But using this allowance may not always be the most tax-efficient choice.

How do I register a business?

Essentially, you will need to register as self-employed. It’s an easy process online, just go to the Government website.

Once you’re registered as self-employed, you will need to inform HMRC about the income and expenses for your side hustle. You do this annually by filling out a self-assessment tax return. The deadline for submitting tax returns is January 31 each year.

How much tax will I pay?

Once you’ve registered your additional business with HMRC, you’ll be responsible for paying tax on your business profits. You’ll pay income tax and Class 2 and Class 4 national insurance.

How much you pay depends on your business profit and the income tax allowances you’re entitled to. Remember that the income tax you pay will be based on the combined income from your side hustle plus your main job.

What are the tax thresholds?

If your side hustle income takes you over the income tax threshold, you may end up paying a higher rate of tax.

Current tax thresholds are as follows:

Band	Taxable income	Tax rate
Personal Allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £125,140	40%
Additional rate	over £125,140	45%

Are there other things I should consider when registering my side hustle?

If you’re concerned about the level of tax you will pay once you have registered your side hustle, get some advice from an accountant.

There are other business structures you could consider, such as a Limited Company. That could be a good option if you plan to expand your side hustle in future, or if you have business partners.

It’s much better and simpler to start out with the right structure than to try and change it later.

What happens if I don’t register?

If HMRC finds out you have not declared a source of taxable income, you may face interest and penalties on top of the tax owed. If it’s a serious case, you could end up in court.

If you’ve made a genuine mistake, the earlier you contact HMRC to tell them about the income, the more lenient they’re likely to be.

How can I get more information?

We’re here to help – if you’re not sure whether you need to register the business or not, or whether you should set it up as a limited company, just give us a call. We’ll help you decide on the right approach to match your situation and future goals.

As accountants we’re here for individuals and small businesses to help with tax management in the Lune Valley area. Contact us today.

As you may know, everyone must make approximately 35 years of National Insurance contributions to get a full state pension. If your NI record commenced before 6 April 2016, you might need to top up your record.

Address National Insurance gaps from the last 17 years

Normally you can only top up your NI contributions for the past six years. But right now there is an opportunity for UK residents to top up their contributions all the way back to 6 April 2006.

This opportunity is only open until 31 July 2023 – so now is the time to check your details.

You can view your National Insurance record on the government website. You will need your Government Gateway login details.

Aged 45 to 70? This applies to you

If you are aged between 45 and 70 it is important to check that you have, or expect to have, made sufficient National Insurance contributions to qualify for the full State Pension. If you’re under 45, you can still check, but it may not make financial sense to pay for any full years that are missing.

First, check whether you currently qualify for the full State Pension on the government website. The page will tell you whether you can improve your maximum pension or whether you’re already at the full entitlement of £203.85 per week. If so, you don’t need to do anything further.

If you aren’t at the maximum level and you have gaps in your National Insurance record, making voluntary contributions now could significantly boost the State Pension you receive in future. A full year’s NI payment is currently £824. It costs less to top up a partial year.

If you do have insufficient years, making that payment of £824 could benefit your State Pension by up to £5,500.

Check if you can claim credits

Before making any payments, check whether you are entitled to any free National Insurance credits. These may be available if any of the following apply to the missing/partial years on your NI record:

• You were on maternity allowance, carers allowance or jobseeker’s allowance
• You were receiving child benefit for a child under 12
• You were claiming Universal Credit
• You were employed and earning at least £6.396 a year
• You were self employed with profits of at least £6,725 a year
• You received working tax credits.

Check the full list of eligibility criteria.

How to make additional contributions

Contact the Future Pension Centre on 0800 731 0175 for specific details about your options and the cost of topping up.

If you decide you do want to make voluntary contributions, there’s information on how to pay on the GOV.UK website.

If you are already at state pension age, call the Pension Service on 0800 731 0469 before making any decisions. They will look at your records and confirm whether making voluntary contributions is recommended based on your personal circumstances.

Both phone lines are free and open between 8am and 6pm on Monday to Friday.

Need advice on managing tax and National Insurance? Let us help. As Lune Valley accountants we help with individual and small business tax management. Contact us today.

New HMRC rules mean that you’ll get penalty points if you submit a VAT Return late. We explain how the new system works and how you can avoid a £200 penalty.

HMRC has introduced a new penalty system for VAT return periods. The new approach started on 1 January 2023 and applies to payments due as of 7 March 2023. It replaces the existing VAT default surcharge.

How does the new VAT penalty system work?

Each VAT accounting period has a deadline by which you need submit your VAT return. For many businesses the VAT accounting period is quarterly, with the deadline set at a month after the end of the quarter.

The late submission penalty works on a points system. For each VAT return submitted late, businesses will receive a penalty point. Once they reach their penalty point threshold they will receive a £200 penalty.

Further £200 penalties also apply for each subsequent late submission while at the threshold.

HMRC has also introduced both late payment and repayment interest, replacing previous VAT interest rules.

What are the penalty point thresholds?

The threshold is set by your accounting period, as follows:

VAT Accounting period	Penalty Points threshold
Annual	2
Quarter	4
Month	5

Businesses with an agreement with HMRC to use non-standard accounting periods will be subject to different thresholds. These are detailed on the government website.

When do penalty points expire?

If you don’t reach your threshold, penalty points expire automatically. Each point will expire 24 or 25 months after the missed deadline.

Your penalty points will be removed if you can achieve both of the following…

A: complete a ‘period of compliance’ where all your VAT returns are submitted by the deadline. If you pay VAT quarterly, this period is 12 months.

B: Submit all outstanding returns for the previous 24 months.

See the government website for more detail on how this works.

What if I can’t afford to pay my VAT bill?

HMRC will help businesses that cannot pay their VAT bill in full. Customers may be able to set up a payment plan to pay their bill in instalments. If you propose a payment plan within 15 days of payment being due, that’s accepted by HMRC it, you would not be charged a late payment penalty.

How can I avoid getting VAT penalty points and fines?

As part of Making Tax Digital you should already be signed up to a digital accounting system, which makes VAT submissions simpler. Usually it just involves a few clicks.

Your system may remind you when your VAT return is due – and if not, you could set up manual reminders in your calendar.

The main thing to remember is not just to submit the VAT return, but also to make the required payment within 15 days of the submission deadline.

You could also appoint an accountant or bookkeeper to manage this process for you.

Why has HMRC brought in this new regime?

When HMRC announced this new system, it justified it as penalising ‘only the small minority who persistently miss their submission obligations rather than those who make occasional mistakes’.

The idea is that this approach is fairer. The challenge with the previous system was that a business would get the same penalty whether they were one day late with a VAT payment as if they were one year late.

For most businesses, it is straightforward to submit returns and make payments on time. If that applies to your organisation, this system change should not cause any problems.

Need advice on how best to navigate your VAT responsibilities? We’d love to help. As Lune Valley accountants we help with small business tax management and bookkeeping. Contact us today.

On Wednesday March 15 Jeremy Hunt presented the Spring budget 2023.

He took a positive tone, leading with the news that the UK will not enter recession this year.

Mr Hunt said: “Today the Office for Budget Responsibility forecast that because of changing international factors and the measures I am taking, the UK will not now enter a technical recession this year.”

Alongside the Budget Mr Hunt announced big childcare reforms, aimed at making it easier and more affordable for parents to return to work after parental leave ends.  This move was highlighted as a way to help UK businesses recruit skilled employees.

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

Corporation tax increase confirmed

Hunt confirmed that corporation tax will rise from 19% to 25% in April. This has been a controversial area, although the government continues to assure that the UK is still a good place to start and grow businesses.

There will be a 19% ‘small profits’ rate for businesses that make less than £50,000 in annual profits, and marginal relief for companies that sit between the lower and upper rate for profits (£250,000).

Hunt re-confirmed that the UK will still have the lowest headline rate in the G7 and added that a 19% rate “did not incentivise investment” – which leads on to the next point.

Annual investment allowance for firms raised to £1m

The annual investment allowance has increased to £1m for small businesses. 99% of all businesses will now be able to deduct the full value of their investment from each year’s taxable profits.

‘Full expensing’ has also been introduced for the next three years, which means that all money invested in IT equipment and machinery can be deducted in full from taxable profits.

This will become permanent once the government is able to afford it. Mr Hunt claimed that the move will make the UK the only country in Europe with full expensing, and that ‘the impact on the economy will be huge.’  He billed it as a ‘corporation tax cut worth an average of £9 billion a year for every year it is in place.”

Abolishing the pensions Lifetime Allowance and increasing annual allowance to £60,000

As part of his plans to get older people back into work, the chancellor announced that the annual pension tax rate will increase. He highlighted that this is a key concern among senior NHS professionals who are leaving the health service because of unpredictable tax charges.

To prevent people being pushed out of the workforce for tax reasons, the pensions annual tax-free allowance is being increased by 50% from £40,000 to £60,000.

The Lifetime Allowance, currently limited to £1 million, is to be abolished entirely.

Fuel duty not increasing with inflation

On fuel duty, Mr Hunt said: ‘Because inflation remains high, I have decided now is not the right time to uprate fuel duty with inflation or increase the duty.’

He committed to maintain the 5p cut for a further 12 months and freeze fuel duty for the same time period.

Boosts for recruitment

Various measures aim to increase the size of the UK workforce. Funding is being made available to create up to 50,000 places on new voluntary employment scheme for disabled people, called Universal Support.

There will also be more places on ‘skills boot camps’ to encourage over-50s to return to the workplace. Immigration rules are to be relaxed for five roles in the construction sector to ease labour shortages.

New ‘AI sandbox’ to boost artificial intelligence businesses

The government is to launch an ‘AI sandbox’ to trial new, faster approaches to help innovators get cutting edge products to market and gain clarity on Intellectual Property rules.

The Chancellor is committing £900m of funding to implement recommendations for a supercomputer to create the power needed for AI’s complex algorithms.

He set a vision to be a ‘world leading quantum enabled economy by 2033.’

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’ll be pleased to advise. Get in touch with us today.

Government U-turns and delays have made it harder than ever to keep up with the changes in tax due this year. Here’s a quick round up to help you make sure there are no unwelcome surprises.

Extended freeze on income tax thresholds

The freeze on income tax thresholds was originally set to end in 2025-26, but will now continue until April 2028.

As salaries increase, the freeze on tax thresholds could tip you over into the next tax bracket in the coming years, meaning you will potentially pay more.

On top of that, the Additional Rate tax threshold fell in the Autumn budget. From April this year, it drops from £150,000 to £125,140. Because of that, around 25,000 more people will have to pay income tax at 45%, costing them on average £1,200 more.

This table sums up the new thresholds and tax rates, as of April 2023:

Tax band	Income Threshold	Rate of tax
Personal Allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £125,140	40%
Additional rate	Over £125,140	45%

National Insurance latest

In April last year National Insurance increased by 1.25% with the ‘Health & Social Care Levy’. Then the contribution threshold was raised in July to £12,570.

But in September’s Mini Budget, the levy was abolished and National Insurance dropped back to 12% for those earning £12,570 to £50,270. For people earning more than £50,270 it fell from 3.25% back to 2%. These rates are expected to stay the same for at least the next 12 months.

Allowance on Capital Gains and Dividend tax reduces

There is a big change coming this year on Capital Gains Tax. From April, the tax free allowance will drop from £12,300 to just £6,000. It will fall again in April 2024 to £3,000.

If you sell a second property, the basic rate for Capital Gains Tax over that threshold is 18%, and 28% for a higher rate taxpayer. For other assets, you will pay 10% at basic rate and 20% at higher rate.

From April the dividend allowance will reduce from £2,000 to £1,000, and to just £500 in April 2024. Dividend tax rates for 2023/24 are:

Basic rate – 8.75%

Higher rate – 33.75%

Additional rate – 39.35%

Corporation Tax increases

From April 2023 onwards, the main rate of Corporation Tax will rise from 19% to 25%, unless your business profits are £50,000 or less, in which case you will still pay 19%.

This change was first announced by Rishi Sunak in March 2021, was then scrapped in the Mini Budget, and reinstated in October 2022.

There is ‘marginal relief’ on the new tax rate, which means that your business will pay a rate between 19% and 25% depending on your annual profit. For an idea of what you’ll pay, there’s a useful corporation tax calculator here.

Inheritance Tax threshold freeze

The Inheritance Tax threshold has also been subject to a freeze. The ‘nil rate band’ will stay at £325,000 until April 2028. This threshold has not changed since 2010.

Inheritance tax is charged at 40% on any assets or cash over this threshold.

Stamp Duty help

Stamp Duty rates changed in the Mini Budget, and this is one area where we haven’t seen a U-turn. The new thresholds are set to remain the same until April 2025.

Now, first time buyers have no stamp duty to pay on any property up to the value of £425,000, an increase from £300,000. Existing homeowners won’t pay duty on the first £250,000 of the property. This limit was previously £125,000.

Need some help understanding what this means for you? We’re here to help with any tax matters for individuals, sole traders and limited companies in the Lune Valley and the surrounding areas. Contact us today .

Here’s what it means for you…

From April 2026, sole traders earning over £50,000 will say goodbye to self-assessment. People in this bracket will have to then use Making Tax Digital (MTD) for their income tax. The following year, in April 2027, this will apply to any sole trader earning over £30,000.

This timetable has changed – the initial deadline was originally April 2024. HMRC announced the delay in December 2022.

How it works now

At the moment, sole traders use the Self Assessment system and complete a yearly tax return. This is how you tell HMRC what your income has been, minus any business-related allowable expenses.

Some people fill in their own Self Assessment form, whiles other appoint an accountant to do it for them.

What will change in 2026

If you earn over £50,000 as a sole trader – or as a landlord from rental income – you’ll need to adopt Making Tax Digital (MTD) for Income Tax from April 2026.

Essentially, that means you’ll need to use accounting software to digitally manage your records relating to income tax.

As part of MTD you will need to:

• Send an update to HMRC at least every three months via your software, for each business you run, as below:

	Period covered	Filing deadline
Quarterly update 1	6 April to 5 July	5 August
Quarterly update 2	6 July to 5 October	5 November
Quarterly update 3	6 October to 5 January	5 February
Quarterly update 4	6 January to 5 April	5 May

• Provide an End of Period Statement (EOPS) for each business by 31 January, covering the previous tax year. The EOPS summarises income, allowances and adjustments for the business.
• Provide a final declaration by 31 January after the end of the tax year. This states your total income from self-employment across all your businesses. The final declaration is how you calculate income tax and National Insurance contributions for the year.

Are income tax rules changing too?

No – there are no changes to the rules with MTD. Allowable expenses, personal tax allowances and National Insurance contributions all stay the same.

You’ll continue to pay your tax and National Insurance in the same way.

Why is the government bringing in Making Tax Digital?

Generally the aim is to get better visibility – both for HMRC and for you as a business owner. You will have a more regular look at your income tax and the cash flow in your business.

It’s not complicated – and in fact many people will find it easier once they’ve switched to digital. A lot of the process is automated, depending on the software you choose.

Are there benefits for me and my business?

Generally, the financial insight you gain could make it easier to plan for growth. You will have a better understanding of the money coming into and going out of your business, and how you could save for future investments.

It’s also easier to spot trends and understand the seasonal performance of your business.

Very importantly, you’ll also get a much better idea of what your income tax bill will be. A lot of people set aside around a quarter of their income to cover their income tax – but with the quarterly updates you’ll have a clearer figure in mind.

Will it take a lot of time?

Your new system might take a bit of getting used to, but the reporting itself is straightforward. Software companies are making it as easy as possible to create the quarterly update you will send to HMRC, for example. You will just need to select an option and the report will be compiled for you to check. It is a similar process for the EOPS and final declaration.

How do I find accounting software?

HMRC has shared a list of recognised MTD software suppliers. The best known of these are Sage, QuickBooks and Xero. If you’re unsure about your options, contact us for advice.

Can an accountant do it all for me?

Yes – we can do the periodic updates, EOPS and final declaration on your behalf.

Do I need to do anything now?

The MTD deadline is a few years away, but there are a few things you could do to get ready:

1. Explore accounting software if you’re not already using it.
   
   
2. Align your ‘financial year’ with the tax year (6 April to 5 April) if it’s different. This will make things simpler in future and is in fact a legal requirement for MTD. If you need to make that change, it needs to happen in 2023/2024. 
   
   
3. Start using digital apps to record your expenses. Many let you take a photo on your smartphone and upload them directly to your accounting software.

We’re here to help on all of this – whether you just need some advice or you’d like us to take responsibility for your accounting. Just get in touch for a chat.

As Lune Valley accountants we work with many sole traders and landlords locally. We also manage payroll services and corporate accounts. Get in touch

If you’re starting to think about your next self-assessment and tax bill, you may be able to reduce the amount you owe by claiming for business expenses.

What are allowable expenses?

Allowable expenses are essentially the costs of running your business, as defined by HMRC. You can deduct these costs from your business accounts before you start paying tax on the profits you make.

Expenses can significantly reduce most sole traders’ tax bills. If your turnover is £60,000, for example, and you claim £15,000 in allowable expenses, you only pay tax on the remaining £45,000.

What can I include?

Examples of allowable expenses, as listed on the government website, include:

• office costs such as stationery or phone bills
• travel costs, e.g. fuel, parking, train or bus fares
• clothing expenses such as uniforms or protective clothing – but not businesswear.
• staff costs: salaries or subcontractor costs
• stock or raw materials
• insurance and bank charges
• costs of your business premises: heating, lighting, business rates
• advertising, marketing and website costs
• professional services – e.g. an accountant or lawyer
• training costs

Is there an easy way?

It can be complicated to work out the specific cost of running your company, especially if you work from home. You can use simplified expenses, which set flat rates for tax relief on vehicles, working from home and living on your business premises.

If you work from home, you can claim a proportion of your costs for heating, electricity, council tax, mortgage interest or rent and your internet/telephone use. You will need to keep records of your business miles, hours you work at home and how many people live at your business premisses over the course of the tax year.

You can find flat rates for vehicle milage, working at home and living in your business premises on the government website.

Can I claim for pension contributions?

Your pension payments are not seen as a business expense, so you can’t claim for these. However, you automatically gain tax relief on your contributions, which is claimed for you by your pension provider.

Is business entertaining an allowable expense?

Client entertaining – such as taking a business contact out for lunch – is not an allowable tax deduction. You can claim the cost back from your business, but it cannot be deducted from your profit to reduce tax.

How do I claim my business expenses?

The simplest way is to track your expenses using your accounting software, or by keeping detailed records for your accountant. Generally, it’s a good idea to keep clear records, and hang onto them for five years in case HMRC have any queries.

If you have any queries about what you can or can’t include, or how to use the flat rates, contact a good accountant or tax advisor for support.

Need more clarity about allowable expenses for your company? As accountants for small businesses in the Lune Valley we’re here to help with tax advice, payroll services and much more. Get in touch today.