HC Tax News Bulletin: March 2022 | HaesCooper – Chartered Accountants & Chartered Tax Advisers
In this blog post we report on recent announcements from HMRC as the start of a new tax year looms, plus some Inheritance Tax and Capital Gains planning tips. We also have news on a few non-tax business tips that owners of small to medium enterprises (SMEs) may find useful.
Announcements from HMRC:
HMRC’s investigations into the non-compliance to UK tax has provided additional revenue of £30.8bn in year to 31 March 2021. It has been reported, of this additional revenue, some £8.6bn was collected from the 2,000 largest businesses. This is great news and shows that HMRC can successfully raise unpaid tax from the largest corporates as well as the SMEs.
UK Payrolls – if you are the owner of a SME with a UK payroll then HMRC has shared that you can be held liable as an employer, for any ‘unpaid’ payroll tax that arises as a result of not using correct PAYE codes for any of your employees. The PAYE code numbers for your employees can be found on your PAYE Online Account. With the new tax year 2022/2023 starting this 6 April, it’s a good idea for all employers to check their PAYE Online Account for all employees to ensure they use the correct PAYE code numbers for their payroll. HMRC say that all 2022/2023 PAYE code numbers will be available for employers to view online by 23 March 2022. Why not contact us today if you need help managing your Payroll.
The latest HMRC advisory ‘tax free’ fuel rates (AFRs) for company cars can be used to calculate the reimbursement of the fuel cost to the employees for recorded business journeys in a company car. For the quarter starting 1 March 2022 through to 31 May 2022 the AFRs remain unchanged from the previous quarter, see HMRC for the latest AFRs. Unfortunately, this is despite the recent hike in fuel prices at the pumps.
AFRs are based on the average fuel cost throughout the UK. In view of the increase to the pump prices, SMEs may wish to consider taking the time to calculate their actual fuel costs and reimbursing those costs to their employees using company cars. HMRC will accept any reasonable calculation of your actual fuel costs but, of course, you will need to keep your records and calculations in case HMRC decide to complete an audit of your payroll records when they will need to see the supporting fuel rates records. Here is the HMRC link for further information on AFRs: https://www.gov.uk/guidance/advisory-fuel-rates
Some planning points to start the new UK tax year
A general point to make is that the Government’s freezing (rather than the usual increasing in line with inflation) of the annual personal allowances, the annual tax exemptions and also the annual pension allowances is beginning to have the desired effect of increasing the UK tax take. There is also the proposed 1.25% uplift to the dividend tax payable as from 6 April 2022 that will further increase the UK tax take.
Inheritance Tax (IHT) – given the freezing of the IHT annual exemptions limits, the IHT Nil rate band at £325,000 and residence nil rate band at £175,000, it makes sense for you to review the value of your estate with a view to obtaining professional IHT planning advice. See below for some IHT planning tips.
Dividend Tax – the proposed 1.25% being added to the dividend tax from 6 April, emphasises the need to make sure that you are using your ISA allowances to reduce the amount of dividend income arising outside of your ‘tax-free’ ISA (and the amount of the taxable dividend above the dividend allowance of £2,000).
Individual Savings Accounts (ISAs) – the annual investment limits have been frozen for 5 years (through to 5/4/2026) at £20,000 for an ISA and £9,000 for a Junior ISA. Where you can, make sure you use these annual ‘tax-free’ investment limits.
IHT planning tips – as previously mentioned, the freeze to IHT allowances means that your IHT position should be reviewed with professionals such as an Independent Financial Adviser (IFA) alongside your Tax Adviser. A review is particularly key if you are approaching retirement or are a ‘late financial bloomer’ i.e. your financial position has stabilised later in life – perhaps via marriage, home ownership or divorce. Or you have extended your family financial commitments through having children later in life (statistics show that more women over 40 are giving birth, compared to previous generations).
Estate / IHT planning issues to consider include: making your Will, gifts (see below), donations to your favourite charities (reduces your IHT rate to 36% from 40% provided you donate at least 10% of your estate to charities), or if you are a grandparent, using a trust to pay for your grandchildren’s education.
IHT and exempt gifts – you may be aware that you are able to make small gifts in each tax year which reduce your estate for IHT purposes, namely: the annual total gift allowance of £3,000, the total of £250 to any person and the wedding gifts (gift limits are: for parent £5,000, for a grandparent £2,500 for others £1,000). Also, any sized donations to political parties (must be a qualifying political party with at least 2 MPs in Parliament) and charities are exempt from IHT.
Other gifts are treated as ‘potentially exempt transfers’ (PETs) and provided the donor survives 7 years from the date of the gift then the gift becomes IHT exempt. There are tapering rules to provide some IHT relief if the donor survives from 4 years after the date of the gift.
Another IHT exempt gift that is sometimes overlooked is the so called ‘gift out of income’. To apply it must be shown that the donor’s annual income is sufficient to fund the gift without adverse impact of the donor’s lifestyle. The gift out of income must be shown to be regular i.e. it is part of the donor’s normal expenditure. HMRC would usually expect the regular gift to be in place over a 3-year period (not limited to tax years) for it to be classed as a gift out of income and so IHT exempt. It is a good idea for the donor to confirm in writing to the recipient(s) the planned pattern of the gifts as this will support the IHT exemption for the planned gifts from the outset and will be available as evidence that it is a ‘gift out of income’ if such evidenced is required by HMRC.
Some helpful non-tax tips for SMEs
Firstly, how should SMEs reward their staff? The short answer is in a way that is both sustainable for the business and incentivises the staff.
The traditional annual uplift in staff pay being based on the annual rate of inflation is being reviewed by some entrepreneurial SMEs and they are moving away from such annual incremental staff pay rewards in order to introduce a staff profit share arrangement-perhaps a quarterly profit share bonus payment.
Some SMEs still award an annual pay increase based on inflation but at a smaller percentage rise – say 50% of the inflation rate – leaving the further agreed pay increase to the full level of inflation to be geared to the staff member’s personal performance and the business’s increased profitability.
There isn’t one staff pay reward model that suits all SMEs, and employers must accept that their business’s financials and business plan will likely be required to be made available to those staff to be rewarded by a profit share bonus. Also, there should be other non-monetary ways to incentivise staff e.g. making them feel valued through training.
Given the current difficult and inflationary economy, SMEs should avoid being backed into the provision of annual inflation pay awards to their staff, without some added value being brought to the business by the staff.
Secondly, some tips on cyber resilience for SMEs. The Government’s 2021 Cyber Security Breaches Survey (CSBS) reported that almost 40% of businesses declared they have had cyber security breaches in the previous year.
The two most common cyber security breaches reported to CSBS by SMEs are business email compromise and ransomware attacks. Dealing with these cyber security breaches can be very costly to SMEs not only in monetary terms – needing to use outside cyber security specialist IT consultants – but also in the use of the SMEs owners and their inhouse IT staff time.
The other adverse impact on the SMEs business is more difficult to quantify in the short term – the impact on the business’s reputation in their marketplace.
Business email compromise happens when a third party has accessed your email system through compromised credentials. Whereas ransomware is malware tailored to prevent the owners’/staff of the SME from opening data or even accessing their hardware devices. The attackers (or pirates) then look to demand a ransom to free your data/devices from their control.
What can be done to make it that bit more difficult for the cyber criminals to rob you? As a start, ensure that you are aware of what business IT hardware and software you have and ensure that it’s the best for your business. Make sure the IT systems you have are always updated regularly and as often as is required by the system developer. Make sure the owners/staff of your business are continuously trained to spot the latest modus operandi of the cyber criminals.
Ensure that you have a strong end point security system and an equally strong patch management policy, like regularly using specialist software to identify vulnerabilities in your business IT systems so that they can be ‘patched’. If your business IT system is then targeted by the cyber criminals your investment in patching management will have helped thwart them entering into your business IT systems via vulnerable software.
We mention above the importance of the strength of your business’s end point security, but also investing in adding another layer of security – known as the 2-Step Verification – may prove the difference between suffering a costly ransomware attack or repelling cyber pirates!
As Chartered Accountants and Chartered Tax Advisers the team at HaesCooper are professionally qualified to support and advise businesses whether small, medium or large. We specialise in dealing with fiscal and financial business management requirements at competitive fee rates.
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