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HC Quarterly News Bulletin: February 2024 | HaesCooper – Chartered Accountants & Chartered Taxation Advisers

13/02/2024

In this HC Bulletin – we report on news items relating to UK tax and business matters primarily of interest to UK Small and Medium-Sized Enterprises (SMEs)

Some recent newsworthy items from HMRC

Tax Repayments

If you are owed a tax repayment do not expect HMRC to let you know that you have been paid the money as HMRC have recently announced that for ‘cost cutting’ reasons they have ended their practice of issuing notifications to taxpayers that their tax rebate has been paid to the taxpayer’s designated bank account.

The good news is that there is no change to how HMRC process tax repayments and the amount of the tax repayment will still be paid direct to the bank account nominated by the taxpayer. So if you have claimed a tax repayment keep checking your bank account.

Self Assessment taxpayers can opt via their online HMRC account to have HMRC communicate with them via email which will include notification of when a tax repayment has been paid by HMRC.

Employee taxable benefits

Annually for each employee there is a statutory requirement for employers to return to HMRC details of that employee’s taxable benefits on a form P11D. This annual P11D compliance process can be avoided if the employer registers with HMRC to tax the employee’s taxable benefits through the employer’s payroll.

There are two types of taxable benefit that cannot be payrolled namely an employer provided accommodation and beneficial loans i.e. loans provided to the employee by the employer interest free or at a low interest rate. These two benefits must still be returned to HMRC on the annual forms P11D.

The employer must register online with HMRC for payrolling employee benefits. HMRC has started the payrolling employee benefits online registration process for the tax year 2024/2025. Please see below for the link to the HMRC website for further details.

Those employers that have already registered with HMRC for payrolling employee benefits for the current 2023/2024 tax year or an earlier tax year do not have to reregister with HMRC for 2024/25 as the registration stays in place until the employer cancels it.

An employer that has registered for payrolling their employee taxable benefits should make sure that they advise the relevant employees as those employees will see a change to their 2024/25 PAYE code number.

https://www.gov.uk/guidance/paying-your-employees-expenses-and-benefits-through-your-payroll

Cash Accounting for sole traders and partnerships

As announced in the Chancellor’s 2023 Autumn Statement and included within the Finance Bill 2024 – soon to be the Finance Act 2024 – the changes to the current cash accounting rules for unincorporated businesses are to be brought into law as from 6 April 2024.

Under the current cash accounting rules for unincorporated businesses there a number of limitations the main one being an annual turnover limit of £150,000. As from and including the tax year 2024/2025 all of the limitations have been dropped apart from those listed below: –

Limitations to remain in place include excluding companies and unincorporated businesses that have claimed research and development allowances and limited liability partnerships (LLPs). Certain businesses will-as they are under the current cash accounting scheme-remain unable to use the cash accounting basis this includes waste disposal traders and managed service businesses. The full list of excluded businesses can be found at:

https://www.gov.uk/simpler-income-tax-cash-basis/who-can-use-cash-basis

The other major change from the previous cash accounting basis is that as from 6 April 2024 the cash accounting basis to establish taxable profits/losses is mandatory for non-excluded unincorporated business unless they notify HMRC that they wish to opt out of the cash accounting basis (the current cash accounting basis is the other way around as it is necessary to opt in).

HMRC perceive that there will be admin cost saving benefits to unincorporated business in declaring their taxable profits under the cash accounting basis plus simplification for financial records with the proposed implementation of Making Tax Digital in mind. However, certain problems will remain such as; the cash accounting basis does not give an accurate view of the unincorporated business financial trading position. Also, it does not show debtors and creditors (important to know who owes the unincorporated business money and what the liabilities are) and so it is likely that the unincorporated business owner along with interested third parties, such as, banks and lenders will want to retain the accruals basis for the unincorporated business’s accounting records. This being the case the accrual basis financial records will then have to be adjusted annually to the cash accounting basis in order to establish the unincorporated business’s taxable profit/loss position to be filed to HMRC.

Trading on online marketplaces such as E-Bay new tax rules?

You may have recently read in the media the references to a new, so called, ‘side hustler tax’ brought in from 1 January 2024 to catch those persons who trade on the digital platforms but have not declared their taxable profits to HMRC.

The good news is that there is no such thing as a ’side hustler tax’. What was brought in from 1 January 2024 was a change to the requirements for reporting online trading activities to HMRC. The change being that the operators of the digital platforms-such as E-Bay are now required to report to HMRC details of their users trading income information.

The bad news is that the online traders are already-long before 1 January 2024 required under UK tax statues to declare to HMRC their online trading financials if the gross income was not less than the annual trading allowance of £1,000.

The annual trading allowance of less than £1,000 is useful for those online traders who operate a small ‘on the side line’ trading operation so as to avoid the hassle of registering with HMRC for Self Assessment and then having to file annual Tax Returns for insignificant amounts.

As from 1 January 2024 there has been no change to the annual trade allowance, so if your ‘gross’ income from ‘trading’ is ‘less’ than £1,000 in a tax year then no registration is required with HMRC for the Self Assessment Income Tax rules to be applied. Note that is the income from trading which does not include income from selling your personal possessions but it is the ‘gross’ trading income which means income before the deduction for any selling agent commission/costs.

Beware though some types of trading income will disqualify a claim for the annual less than £1,000 Trading Income Allowance. If any of the annual trading income is from the sources listed below it will mean that the Trading Income Allowance cannot be claimed.

Disqualifying trading income is income from: –

So in short despite the recent noises in the media there is no new ‘side hustler tax ‘ as from 1 January 2024 but if you are trading on the online digital platforms be warned that your trading income reports will be filed direct to HMRC by the digital platforms and that HMRC, aka ‘Big Brother’, will be watching you!

We are here to help you if you are unsure if you need to register with HMRC for Self-Assessment or not – please contact us for advice.

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