How do CGT Transfers between separating spouses work?
The government recently announced plans to give separating couples a longer period in which to consider and transfer their assets and avoid Capital Gains Tax, as currently, depending when the planned separation takes place, time may be very limited and impractical. This is known as ‘no gain or no loss’ transfers.
From April 6th 2023, separating spouses or civil partners, will be allowed up to three years to make any agreed split in assets transferred between each other, after they have split up.
NOTE: These plans are currently only draft legislation, so given how fluid government seems these days, this may or may not happen.
Separating from a spouse or civil partner is one of those events where those involved often fail to consider the immediate tax implications of the event. The overarching financial implication for those involved, i.e. who gets what and in what proportions, can be all consuming. If they are fortunate, their lawyers may suggest that they obtain independent financial advice and tax guidance, which may help them realise that simply dividing assets may not be that simple.
The current CGT position for separating couples
A normal part of being married or in a civil partnership is that you are allowed to transfer assets to one another without consequences and without incurring Capital Gains Tax. This can be cash, investments or any other asset, such as the family home or even rental property. The main consequence is that the transferee becomes responsible for any tax liabilities upon disposal of the asset. For example, if a rental property owned by one partner is transferred legally to the other and they decide to sell at some point in the future, the receiving partner will be required to make the declaration to HMRC.
The cost basis for the transfer while married or in a civil partnership is that of the original purchase, including fees. So if a home was purchased for £200,000 20 years ago and is now worth £500,000, it makes no difference, the transfer is based on the original £200,000. However, if the recipient of the transfer then decides to sell at some point in the future, the actual capital gain is realised (£300,000) and CGT becomes due.
How does the sale of the matrimonial home impacted by CGT?
Sometimes in divorce or separation cases, the family home may remain jointly owned, while the other partner moves out. This might be the case where children are involved and rather than upset their lives further, one parent stays in the family home.
If the family home is sold at a later date, the partner who remained in the home and treated it as their main residence will not be liable for CGT. However, if the sale was made more than nine months after they moved out, the partner who did leave will likely face a CGT bill for the proceeds of the sale of their portion of the home. If it was before the nine months, they will be exempt.
There is still relief available to the leaving spouse after nine months though. This is when the spouse transfers their share of the jointly owned property to the other, prior to the property being sold. However, there are conditions, these are:
The property continues to be the other spouse's main residence.
A Consent Order governs the transfer and a claim is made within two years to HMRC.
The spouse who left does not yet have a new principle residence.
Meeting these conditions will allow the leaving spouse to enjoy relief from CGT for the period of moving out to the point of the asset transfer.
Be mindful of the tax year end date - April 5th
Under current legislation, it’s very important to keep in mind the end of the tax year, i.e. April 5th. Separating couples can continue to transfer assets under a ‘no gain no loss’ basis up to the end of the tax year of separation. After that, the transfer is considered in the same way as if it were a straight property sale and capital gains tax is payable if it is applicable.
Not all separations are straight forward. It may take many months to negotiate and finalise details of an assets new ownership, and for the transfers to actually take place. As April 5th approaches, an unreasonable level of pressure may come to bear on the parties to resolve the issue quickly, possibly in a manner detrimental to one or both parties.
It is for this reason and others that the government has proposed the introduction of the new scheme; essentially to allow a reasonable period of time in which to settle the affairs for the separation and reduce the stress involved.
What are the new rules being proposed for April 6th 2023?
This is what the government have said:
- Separating spouses or civil partners be given up to three years after the year they cease to live together in which to make no gain or no loss transfers
- No gain or no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement
- A spouse or civil partner who retains an interest in the former matrimonial home be given an option to claim Private Residence Relief (PRR) when it is sold
- Individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner
What does this mean in practice?
Year end deadline is no longer a problem. There’s no pressure to complete transfers for separations in a tax year by the end of that tax year.
This applies equally to separating or divorcing for earlier years, so in this case 2019/20 and 202/21. Furthermore, if asset transfers are part of a formal divorce or court separation agreement, it may be possible for the ‘no gain no loss’ treatment to be applied for even earlier years.
Tax implications can be quite complex and require expert guidance
Many divorces or separations are relatively simple because not many assets are involved and may have a simple remedy and tax treatment. However, some divorcing or separating couples have quite complex assets involving not just a family home, but often rental properties, company ownership, income from stocks and shares, pensions, to name a few. In these circumstances, you’re best to proceed under the guidance of a professional tax advisor familiar with such circumstances.
At TaxAgility, we’ve assisted numerous individuals navigate the potential mine field divorce, separation and tax represents. Why not give us a call on 020 8108 0090 and find out how we can assist you.
Planning for a challenging 2023 and beyond
As we reach the end of another year, business owners turn their attention to their goals and objectives for the following year. In this article we will review the challenges ahead and some of the issues businesses will face and need to fully consider in their business planning for 2023 (and beyond).
Next year, businesses continue to face an unprecedented set of challenges. Globally, economies are highly unsettled, at home we face the significant challenges presented by high inflation rates and a looming economic recession. So how should business owners approach business planning in 2023?
The purpose of this post isn’t to teach you how to write a business plan. Its intention is to help you look at the implications of what has happened over the past few years and some issues you might need to consider in more detail as you set out your plan for 2023.
With that in mind, let’s recap the events of the past year or two, as this has a fundamental impact on the scope of planning and the considerations that need to be made.
What are the principal events that have occurred recently that will likely shape your business in 2023?
Over past year we have and continue to experience the impact of five major events:
Covid 19
Covid has had and continues to have an impact on not just business but also on the attitudes of employees and consumer trends. Whether you run a business or not, you were affected in some way, and for many, this changed their outlook on life. This can’t be underestimated when considering how your business may have to change in the next year.
Covid also shut down or severely impacted many global supply chains, especially with those in the east.
Russia’s invasion of Ukraine
Just like Covid, this was somewhat of a surprise event. Its main impact has been on energy markets. As energy underpins just about everything we do in life, it has affected everyone, from everyday fuel costs, home heating bills, office energy bills, manufacturing, transportation, the list goes on. As for many businesses, energy is a basic cost, it impacts the bottom line. In a bid to maintain profit margins, suppliers and manufacturers have had to increase prices. Along with this and the rise in energy prices, we have seen inflation rise to near historic levels, leaving many homes and businesses alike wondering how they can simply stay afloat.
So, simply put, the impact of Russia’s invasion of Ukraine has been on inflation.
Liz Trust’s disastrous budget
In an attempt to win the hearts and minds of her party and the people, her actions which included tax cuts and new spending had the opposite effect. A crisis in bond markets and lack of global confidence sent the pound falling against the Dollar and Euro, pushing the UK towards a recession.
This has made importing raw materials more expensive, adding to the cost pressures businesses face.
Inflation & industrial action
Although we have already mentioned inflation as an outcome of Russia’s actions, it stands as an event on its own. Inflation hits everyone's pockets. This has led to a wave of industrial action in recent months, particularly transportation, as workers seek to balance income and costs.
We all need to get around to either go to work or do business, and so transport strikes hit the hardest. Covid, has in many respects, toughened our ability to cope with this issue, largely because businesses had to adapt to new working practices through the lockdowns. Working from home is now widely practiced and so many companies have just learned to adjust to this.
However, many businesses rely on foot traffic. Retail, hospitality, travel and many service industries rely on people being able to get to them. So while it’s easy to say “we’ll just work from home”, the pubs, bars, cafes, restaurants, hotels, and shops in the major cities that benefit from the large influx of office workers, will suffer. And, given the pressures they are already under, many may still fail.
Brexit
We’ll not say much on this much maligned subject, but needless to say, while some insist ‘Brexit is done’, it really isn’t. Many businesses that regularly trade with the EU are still suffering from the impact of legal changes and the heaps of new administration (or lack of) required to continue as ‘normal’.
Furthermore, for some businesses, it has caused a crisis in staffing, because of a heavy reliance on foreign workers.
What is the economic outlook for 2023
Faced with the challenges above, we need to consider the economic environment our businesses will have to cope with in 2023. Several government and government aligned organisations and independent think tanks have commented on the outlook for 2023, here are some of the soundbites coming out of the Government, the Office for Budget Responsibility (OBR), the CBI and the Bank of England.
- With the OBR forecasting a contraction of 1.4% over 2023, the UK is expected to be the first major economy to enter recession.
- Recently The Bank of England warned that the U.K. is now headed for its longest recession since records began a century ago.
- It’s expected that Britain's economy will shrink 0.4% next year as inflation remains high and companies put investment on hold.
- Unemployment is projected to peak at 5.0% in late 2023 and early 2024, up from 3.6% currently.
- In October, British inflation hit a 41-year high of 11.1%, sharply squeezing consumer demand. The CBI predicts it will be slow to fall, averaging 6.7% next year and 2.9% in 2024.
- The U.K.’s hospitality sector is in trouble, again. More than a third (35%) of members say they are at risk of closure early next year due to higher costs, soaring energy bills and weakened consumer spending.
Again, it’s not a pretty picture and so any company reviewing their business plan has a lot to take into account, especially the cost of borrowing and a general increase in costs across the board.
Review your business performance for 2022
Before you can make any planning considerations for 2023, you must review your business’s performance for 2022. There are a number of fundamental aspects of business planning that need to be covered whatever the challenges faced. These include:
- Performance of the company to the current plan.
- Internal challenges that affected your ability to meet the plan.
- External challenges that affect your ability to meet the plan.
Performance
- How did the business perform in relation to the plan for 2022?
- Did you make a profit?
- Did you find you had adequate cash to fund day to day operations?
- Did any operational issues arise that were not planned for and how might these be considered in the future?
- Regardless of whether you made a profit or not, did your sales receipts perform according to plan? If they didn't, what exceptions contributed to this?
- If you made a loss, why? Did competitive price pressures result in price reductions? Was the cost of sales higher than expected, and if so, is this a trend that’s set to continue?
- If sales didn’t perform as expected, what reasons do you attribute to this, such as ‘lack of demand, competitive alternatives, failing brand awareness or poor perceptions, or perhaps a market contraction?
- Have your accounts receivables increased excessively and did this adversely affect your cash flow?
- Did you take advantage of any tax advantages your business may have been entitled to?
Internal Factors
- How did your workforce perform?
- Were there any increases in sick leave, pay demands, etc., that increased your overall costs?
- Are you aware of ongoing inefficiencies that contribute to fluctuations in operations costs, such as legacy systems, poor communication or lack of digital enablement?
- How did your marketing and PR campaigns perform? How might they be improved in the future?
- Did you have to make use of any government or other loans and are the repayments being met?
External Factors
- Did your supply chain perform as expected? I.e. costs held, no disruptions in raw materials or supplies that may have affected product deliveries and sales income.
- Has your market audience’s expectations changed significantly in terms of the products they expect or the messages that support them.
- Have your competitors adjusted their positioning recently in a way that may warrant a response?
- How is your firm responding to the growing expectations from consumers for sustainably produced products and an environmentally friendly organisation?
Every business is different, so one must pick and choose the factors that apply to your business, but for the most part the points above are a checklist most businesses can follow.
It’s a good idea to actually sit and write out answers to these, rather than make a mental check of each, as the answers to these questions are fundamental to modifying or even creating a new plan for 2023.
Setting out the plan for 2023
In this part of the article, we’ll look at some of the key areas of your plan and how the above issues may have an impact.
Scope - take nothing for granted and make no assumptions - the world has changed
While doom and gloom has run riot in the news recently, such downturns may yield opportunities for some. Companies that have acted prudently over the past few years and weathered the storm, may be able to take advantage of those that didn’t.
Competitors, for instance, may have gone out of business. Some however, may be ripe for acquisition, as owners may have decided they have had enough. We mentioned earlier that Covid made people reflect quite harshly on their own individual realities and quality of life. This has led to more than a few walking away from their businesses and looking for a complete change. These businesses are still out there and owners are going through similar thoughts in the face of inflationary issues and significantly higher costs.
One of the first tasks to perform, which may be out of the ordinary for the usual year end planning, is to conduct a new audit of your business. For instance:
- How have the events of the past year or so affected your target market?
- Are your target customers still looking for the same products and services or have their attitudes and expectations changed in some way that may mean your products and services are not as enticing as they were, or simply don’t hit the mark any more?
- Have price points changed?
- Which of your main competitors are still there? How have they been affected? Have their recent actions exposed any changes in their strategy you should take note of?
- Have any new competitors arrived on the scene? Often, dramatic changes in markets see new competitors entering the fray, taking advantage of more mature companies' inability to change quickly enough. Sometimes, these competitors introduce disruptive technologies, products or services, sensing that consumer attitudes and needs have shifted.
- Attention to customer care has featured highly since Covid and it’s a key area for businesses to differentiate. How does your customer care and support services stand up to more critical reviews by your intended customer base?
- How are your systems and processes holding up? Are you burdened by legacy systems that lack integration with other, newer, company systems? How could digitally transforming your company help improve efficiency and ultimately increase profits, or, in the face of higher cost pressures, maintain your profit margins?
Overall goals and objectives for 2023
In light of the changes we have highlighted and those that you may have experienced, think about the goals you set in the next year and how you may logically expand upon them with the knowledge and experience you have now.
You may have an opportunity to expand far beyond your original plan’s expectations, simply because the business landscape you are in may have changed significantly too. It’s rather like looking back at stock market drops; one often laments upon not buying certain stocks when they were at historic lows. Hindsight is a wonderful thing, but today, you really might have an opportunity to grow in ways you didn’t expect. Make sure you seriously consider these as they may not present themselves again.
Conversely, you may realise that the time now is for consolidation and improving the operation you have, rather than any dramatic growth. You may want to consider your business’s progress towards digital transformation and the significant improvements in productivity, performance and security it can offer.
In short, ‘don’t be normal’, because there is no normal, at least for the foreseeable future.
Creating the business plan
Your business plan will comprise several sections, including the financial plan, operational plan, and the sales and marketing plan. Each of these will be unique to your business, shaped by the industry you operate within, the types of products and services you offer, and your approach to competition and pricing, etc. Our concern here relates again to the larger picture, the factors that help you shape your plan. We believe there are some key areas you should consider when drawing up the new plan for 2023. These relate to:
- The economic environment
- Rapidly accelerating business technologies
- Competition for resources
- Customer expectations
- Sustainability
The economic environment
Answering the question outlined earlier in this article will help you gauge your operational capabilities in the face of the challenges we believe you will face. The critical point here is to ensure you fully appreciate how your business has been affected by events to date and its ability to perform in the face of what economic experts believe will occur during 2023.
For many businesses the chief concerns in times of economic turmoil lie with costs, availability and cash flow:
- The costs associated with borrowing money and finance availability
- Costs and availability of supplies
- Cost and availability of labour
- The ability for your client base to pay on time to fund cash flow
Ultimately, you’ll come to a determination that will lead you to either grow aggressively, because:
- You’ve maintained your financial strength and are able to exploit gaps left by competitors who may have suffered.
- Found new niches that have opened because your customer base has evolved over the past few years as they have had to adapt.
Or, you may decide to manage growth more conservatively, by:
- Consolidating your market position.
- Refining and improving your systems and processes to help improve margins and operational effectiveness.
- Focusing on core product and service areas to increase your competitive strength.
- Improving your customer service performance to retain existing and attract more clients.
Of course, for some, a third option is that you may decide that enough is enough and look to exit from the business, which is beyond the scope of this article.
Rapidly accelerating business technologies
The pace of change in the world of technology has been breathtaking in recent years. Many business owners are still struggling to get their heads around the implications of new payment technologies such as blockchain (eCurrencies such as BitCoin) and how artificial intelligence could apply to their systems and processes.
Digital transformation has been a key buzz word for business for quite a few years now, but has accelerated in the past two years, to some extent because of the changes brought about by Covid and the need for remote working, but also because of the surge in online fraud and general criminality associated with business. A business that has successfully integrated its core systems and processes with the remote endpoints of its work forces, and supply chain, is far more resilient to these external forces.
All businesses, big or small, need to embrace digital transformation, have a core digital strategy, and the ensuing digital enablement of key services and processes. The impact of doing this cannot be overstated as it will likely provide the basis for a more competitive business in the coming years.
Competition for resources
Employee attitudes have changed over the past few years. Again, much can be attributed to the trials and tribulations we have all experienced over the Covid years. people’s attitude to the work / life balance has hardened too. It’s made people think about how they want to work and who they want to work for.
It is becoming much harder to attract and retain good talent. Brexit has added its own set of complications where foreign talent is concerned, but needless to say, the process of hiring the right people for the right job is not as it was. You’ll likely find your business competing for talent in areas other than how much you pay, for instance, how much flexibility you’ll allow employees to manage their work/life balance, the facilities you offer them and any benefits associated with the job package.
Customer expectations
In a digital world, instant gratification becomes a de-facto standard. Consumers are now very used to ordering and receiving goods quickly, sometimes even on the same day. Within this world, customer service is not a by-word, it’s a way of life. Many businesses caught out by Covid survived because they reacted quickly to the changes and quickly evolving needs of their clients. Part of this was in having a customer relationship led strategy.
Another rapidly evolving trend is the need to offer immersive and experiential buying processes. The digital world has evolved into a world of augmented reality and virtual reality, that enables customers to experience your brand and products virtually.
Even walk-in stores are not immune to this. Customers want to have memorable and immersive in-store experiences. Here too, augmented or ‘extended’ reality experiences can be incorporated into the in-store experience.
Sustainability
No matter what your buying experience is, whether it’s a basic consumable or booking a holiday, the issue of sustainability and eco-friendly businesses is ever present.
Your business plan absolutely must have a section that outlines your approach to operating a sustainable business; from how you buy your energy, your purchasing processes, the attitude in your business and the expectation on your supply chain.
It’s no good ‘greenwashing’ - the act of talking the talk, but not walking the walk. You must show your customers that you are sincere in your approach and that sustainability is a core tenet of your business plan and corporate philosophy.
Conclusions
It is without doubt that 2023 and probably a few years more will present considerable challenges to business, especially small to medium sized businesses(SMEs). However, by making wise planning decisions based on a sound understanding of the specific issues your business will face, you may find that a surprising number of opportunities reveal themselves.
The main point of this article was to help SME business owners to think in broader terms, specifically because the range of issues facing the world’s economies is so broad.
Years ago, there was a phrase used to captivate thinking around global businesses: “Think global, act local”. This can be applied within the context of issues faced today. Think about the factors affecting your business globally - but not global in a world context, think about the ‘macro’ issues that affect your business - such as customer attitudes, evolving technologies, changing employee behaviour, higher costs affecting supply and demand and sustainability, rather than just the day-to-day uses of running your business. Then consider how these can be adopted at a local level, i.e. within your business and its day-to-day operations.
Those businesses that are creative and flexible enough, typically in thinking and will power, will likely be those that build a successful, competitive and sustainable business long after 2023.
TaxAgility growth advisors
While TaxAgility is a well known and recognised firm of chartered accountants operating in the South London (Putney, Richmond, Wimbledon, Fulham) and Surrey areas, we are intimately involved in the running of client’s businesses. As such we are uniquely positioned to assist businesses like yours meet the growth challenges faced over the coming years.
For TaxAgility, it’s not enough to simply assist clients with their day-to-day accounting requirement, we want to help our client’s businesses grow and succeed.
If you feel your business needs assistance in coping with the challenges outlined in this article, do not hesitate to call and talk to one of our advisors. Call 020 8108 0090 today and find out how we can help.
DIY Self Assessment Tax Return - a good idea?
As we approach the end of the year there’s the inevitable scramble, for those that have to complete an SA100 Self Assessment Tax Return, to either beat the October 31st deadline for paper SA100 returns or the January 31st deadline for electronically submitted returns. The question we ask is: “Should you let an accountant complete the self assessment tax return for you?”. We’ll explore that question in this article.
Completing a tax return is something that can be planned for, especially if you are required to do so, such as those with supplementary income, sole traders, directors, etc. However, as an accounting firm, our busiest time always seems to be in the last few weeks before the January 31st deadline.
For some, completing an SA100 is a new experience, and often over trivialised, as reporting additional income from a second job or interest from investments appears straightforward. However, one quickly realises that SA100 actually comprises 18 supplementary pages, around 10 of which may apply to many people.
Tempus fugit - time flies, especially when tax deadlines are concerned
Faced with filling out a supplementary page and pressed for time due to the looming deadline, a degree of panic often sets in. The one thing many of these supplementary pages have in common is lots of boxes to tick, amounts to fill out and somewhat confusing descriptions, although HMRC does provide guidance notes as to how to fill this in. Still, it’s a lot to take on board.
The outcome is fairly typical in these circumstances; mistakes are made, sometimes costly ones.
What are the common SA100 supplementary pages you are likely to encounter?
Here, we will quickly list some of the typical supplementary pages you may come across given your personal circumstances.
SA101 Supplementary Income.
This is used to report less common sources of income, although these days they appear more often than in the past. Examples include:
- Interest from different types of securities
- Gains from life insurance policies, annuity contracts, etc
- Stock dividends, securities issued as bonuses and redeemable shares.
- Business receipts as income from previous years
- A range of other tax reliefs, such as venture Capital Trusts shares, EIS share subscriptions, maintenance payments and many others.
- Married couple’s allowance
- Income tax losses
- Pension savings tax charges
SA102 Employment
You’ll want to complete this form to list each of your jobs, including your main job. You'll also report what benefits you have received and the expenses you have incurred as part of the job.
SA103 Self Employment
There are two forms here, ‘short’ and ‘full’, and you’ll need to decide which one applies to you. Essentially, it depends on whether you received £85, 000 or more in income.
The short form asks for basic details as to your income source, the business details, expenses, profits etc. It helps you calculate your profits and tax payable.
The long form version is similar in many ways to that experienced if you ran a private limited company and had an accountant prepare your full company accounts. It’s a complex form.
SA104 Business Partnerships
Again, there are short and long form versions of this. Which one you use will depend upon the Partnership Statement your tax advisor gave you.
SA105 UK Property Income.
In recent years, with the popularity of buy-to-let ownership and more people becoming landlords, this form has become more prevalent.
You’ll need to provide full details about the property, whether it’s furnished or not, the types of income - i.e. income from services provided vs actual rental income. Your expenses and you’ll calculate your taxable profit or loss.
SA106 Foreign income or gains
With an increasingly globally mobile population and more foreign or naturalised residents required to complete a self assessment, many people have investments and income bearing assets overseas that must be reported as part of their ‘world-wide income’.
Use SA106 to report income from:
- Interest from overseas saving
- Dividends from foreign companieS
- Remitted foreign savings income
- Remitted foreign dividend income
- Income from overseas pensions
- Income from land and property abroad
- Foreign tax paid on employment, self-employment and other income
SA108 Capital gains summary
If you own a second home, whether in the UK or overseas, and decide to sell, you’ll incur capital gains on the profits of the sale. If the property is overseas, then you may have to declare the sale in that country too. SA108 is used to report capital gains on property. Also, if you’ve made gains or losses on shares and securities (listed or unlisted), report them here.
There’s a section for ‘non-residents’ to report capital gains on UK property too.
SA108 Residence, remittance basis etc
Residence and domicile are two fairly complex subjects and you should fully understand your obligations to HMRC in this regard. Your UK tax liability depends on where you’re ‘resident’ and ‘domiciled’ in a tax year. The notes to SA108 help you understand your requirements here.
It applies to UK nationals too, particularly if they are working overseas for extended periods.
Should you complete your own self assessment tax return or let an accountant do it for you?
As we have seen, completing an SA100 is not necessarily a walk in the park. It’s definitely not a task to leave to the last minute, especially if you may have more complex income sources.
More often or not, when clients come to TaxAgility seeking us to complete their returns for them, we hear the words “I wish I hadn’t left this so late”, and “I didn’t realise it was that complicated” or “I underestimated the effort involved”.
From our perspective, having seen and assisted countless clients with last minute returns, the cost of having a professional assess and complete your SA100 Self Assessment Tax Return, is by far outweighed by the potential to make mistakes and be penalised by HMRC for under reporting or miss out on things you could have claimed for. Then of course, there’s the reduction in stress knowing it is being handled by a professional.
What happens if I do make a mistake?
Here’s a list of the most common mistakes we see clients that eventually come to us make.
- Reporting the wrong NI or UTI number
- Failing to report all your income
- Not claiming all your expenses
- Claiming the wrong expenses
- Over-claiming expenses
- Failing to use the appropriate supplementary pages
- Poorly understanding their tax status and liabilities
- Not fully grasping the implications of residency and domicile
- Ticking the wrong boxes
- Missing the deadlines
- Poor record keeping
- Miscalculated or incomplete information
If you’ve made simple honest mistakes, HMRC may just correct them for you and update your return accordingly, and not penalise you.
However, if the mistakes are not so simple and those which may lead HMRC to suspect some form of avoidance or deliberate under reporting, you could find yourself the subject of a tax investigation and stiff penalties.
You can make corrections if you discover honest mistakes after you have filed your return. There is a three days window after the deadline in which to do this. The process to do this depends on how your SA100 was submitted. If you submitted online, you can sign in to your government Gateway and correct it through your online account. If it was a paper return, send the corrected pages to HMRC, but make sure you clearly note on each page that this is an ‘amended page’.
In summary, we do believe it is worth the extra cost to have a professional quickly review your personal tax circumstances and prepare your SA100 Self Assessment Tax Return (and supplementary pages) for you. While you might expect us to say that, we just know from the experience of others how beneficial this is, as you may have underestimated your tax liability or worse still, missed out on an opportunity.
Call TaxAgility today on 020 8108 0090 and tell us about your circumstances and we’ll see how we can assist. The earlier you do this, the less stress there will be for you.
The 2022 Autumn statement impact on small businesses
For many, the contents of the Chancellor’s Autumn statement cum budget, came as no surprise. The country has suffered many significant setbacks over the past 2 years, as indeed have most countries. However, at some point, all the assistance and support that has been handed out over these years needs to be paid for. As small to mid sized business accountants, here’s how we see this budget impacting your business.
Before we look at the impact on small businesses, let’s remember that small businesses represent 95% of all businesses in this country. Most are run by ordinary hard-working people. Home-owning, family centric people.
A quick review of the events of 2020 to 2022 that have ultimately led to the contents of this budget
Covid had a major impact on all of us. That is probably an understatement, but to put it into perspective along with this budget, consider the following.
The Covid-19 pandemic resulted in exceedingly high levels of public spending. This included the furlough scheme and assistance packages to businesses and healthcare. In all, it is estimated that between £310 and £410 billion was spent. That needs to be paid for and equates to around £4,600 to £6,100 per person (Commons Library).
Covid related issues saw global trade significantly impacted which resulted in supply shortages across many industries. This began to have an inflationary impact as the costs of numerous imported items started to rise affecting retail prices in the UK.
If that wasn’t enough, 2022 though saw another unexpected development; Russia’s invasion of Ukraine. The impact on European energy supplies and to a degree global food prices, has been unprecedented, both practically and politically. Prices at the pumps for regular unleaded petrol rose around 66% from Early 2020 to September 2022. Meanwhile 2022 has seen wholesale energy prices heading for an increase of over 80%, with many homes experiencing energy bills that will more than triple.
Such economic pressures have resulted in an inflation rate that is now at over 11%. To control inflation, governments increase interest rates. Ordinarily, higher interest rates are good for savers. However, few home owners will have cash to save because of the economic pressures they are now facing. Many homeowners are now feeling considerable financial pressure, with mortgage payments and interest rates rising considerably above the historic lows we’ve seen in recent years. The relatively short space of time over which rates have risen has caught many off-guard, with few having the financial reserve to cope with such trends. In short, many ordinary people are now facing a severe cash flow shortage. Having enjoyed mortgage interest rates as low as one or two percent, some home owners are facing rates of over 5%. For many, this is unsustainable.
What can business expect over the next year?
In many respects small businesses are unique in how they are affected by such conditions and the measures imposed by the budget, even though they constitute 95% of all UK businesses. This is because small businesses are run by people directly connected to the business. This opposed to regular employees or directors of larger firms often with the resources to weather such storms out. Small changes to smaller businesses can have a significant impact. Large changes, such as we are seeing, can have a traumatic impact.
Here’s why.
Measures that impact the tax paid by a small business and its owner
Corporation tax. This was already set to rise from 19% to 25% in April 2023. However, businesses with profits below £50,000 will continue to pay the current 19% rate. Those between £50,000 and £250,000 will pay 25% but with a rate relief deduction. As dividends are taken net of tax paid, increased corporation tax will lessen dividends payable.
Dividend tax relief. Currently £2000, this will reduce to £1000 in 2023 and then further to £500 in 2024. When added to current personal allowances, a director could expect their tax payment threshold (20%) to start at £14,570, this will now be £13,570 from April 2023. Given the current inflation rate and the freeze on personal allowances, this constitutes an overall reduction in income in real terms.
Capital gains tax exemption is currently at 18% for residential property gains and 10% for all other gains, such as investments, for basic rate payers, and 28% and 20% respectively for higher rate payers. The threshold for this in 2021 to 2022 is £12,300. However, from April 2023 this will drop to £6000 and to £3000 from April 2024.
Other measures that directly affect tax payments and operational costs, include:
The national minimum wage will increase by 9.7% for employees aged 23 or older. As many smaller businesses with employees paid at this level may struggle to increase their revenues by 10% this coming year, and hampered by a raft of other costs spiralling upwards, this will further pressure small business’s finances.
Class 2 National Insurance for self-employed to increase to £3.45 per week from April 2023.
Income and National Insurance thresholds for both employers and employees will be frozen until 2028. In a similar way to personal allowances, if these don’t rise in-line with inflation and other costs, they have a negative impact in real terms.
The VAT registration threshold has been frozen at £85,000 until 2026. This means that many more small businesses may have to register for VAT in the next few years if their profits increase.
Businesses are major energy users too. So while the Chancellor announced that the Energy Price Guarantee will stay in place for households until April 2024 at a higher rate, he didn’t mention support with energy bills for businesses after April 2023.
Since October this year, non-domestic energy users can get a discount to bring the price of gas and electricity in line with the government supported price. So if a business had to pay more than this, they could claim a discount for the difference from the energy provider. No information has been given to say what happens after April 2023, leaving small businesses concerned about this.
Was there any good news for smaller businesses?
In short, not much. The Chancellor did announce the following measures:
The Employment Allowance, which reduces the amount of National Insurance Contributions an employer has to pay, will remain at £5,000.
The smallest businesses impacted by measures that change their eligibility for small business rate relief or rural rate relief, will see their increase in bills capped at £600 per year from April 2023.
A plan to increase business rates by 10.1% will not go ahead in 2023, instead this has been frozen. If it had gone ahead, it would have represented the biggest hike in business rates in 32 years.
The hospitality, retail and leisure sectors will see their business rates discount go up to 75%, which will also be extended for another year.
Final thoughts
Many small businesses who successfully weathered the Covid storm, were looking forward to calmer seas ahead during 2022 and beyond. However a catalogue on global issues have resulted in increased pressures at home. For the next few years, as Brexit continues to play out, combined with the ongoing energy crisis, high inflation and interest rates, businesses need to run a tight ship.
Maintaining a healthy cash flow and building a small reserve to help weather the uncertainty ahead is going to be very important. A firm grip on costs through a plan that makes allowances for much wider variability in base assumptions, such as the cost of borrowing, fluctuations in the costs of raw materials and pressures on employee’s own financial circumstances is a key part of this.
Let’s not forget the struggling company owner who, years ago, decided that it would be a great idea to take the risk and run their own business, given what at the time were some reasonable incentives to do so. TaxAgility can help them through this tough time, navigating a path through the tax changes and streamlining the financial aspects of their business efficiently and hopefully, surviving the worst that is thrown at them over the next couple of years.
Call us today on 020 8108 0090 and find out how.