The Tax Round: Autumn edition 2023

Rayner Essex would like to welcome you to the Autumn edition of the Tax Round, where we have handpicked a selection of interesting tax news, insights and updates, that we hope you will enjoy reading, as well as some key diary dates to take note of.

In this Autumn edition:

Our tax articles include the following:

• Who needs to know about full expensing?
• Research & Development Tax Relief
• Trade and customs: latest news
• Cryptoassets get a mention on the tax return
• Why basis period reform actually does matter
• A common payroll problem: and how to avoid it
• One-bundle.-One-price.-Different-VAT-rates
• Alcohol Duty Reform: new rules as of 01 August 2023
• When VAT records are lost: beware of personal liability notices

If you need any further guidance or information on any of the topics covered in this newsletter, or have any other questions relating to tax and accounting matters, do get in touch Mark Moore or Marina Trinchese who will be happy to assist you. 

We’re also looking forward to updating you on other news including the Autumn budget, so stay tuned!

Happy reading!

Who needs to know about full expensing?

Unveiled in the Spring Budget, it’s the highlight of what the government calls its new ‘capital allowances offer’. But what is full expensing? And will it benefit your business?

Full expensing can be used for expenditure incurred by companies on or after 1 April 2023 and before 1 April 2026. At present, it’s temporary though the government aims to make it permanent as soon as it can. It permits a 100% claim for capital allowances on the purchase of qualifying plant and machinery, so that the cost of investment gets written off in one go, in the year of purchase. It applies to qualifying new main rate plant and machinery: in particular, plant and machinery must be new and unused; must not be a car; must not be given to the company as a gift, or bought to lease to someone else.

For certain other types of plant and machinery, long life assets, and integral features of buildings, which don’t qualify for full expensing, a 50% first-year allowance can be claimed. This allowance comes with the same conditions as full expensing. Relief on the balance of expenditure comes in subsequent accounting periods and is given at the 6% rate of writing down allowances for special rate expenditure.

In practice, full expensing will impact only a limited number of businesses. It’s a tax relief for companies, not unincorporated businesses or partnerships. And it’s a change that matters almost exclusively to companies planning capital expenditure over £1 million – the Annual Investment Allowance (AIA) limit.

It’s not just companies that have to get to grips with new rules on capital allowances. There’s change as well for unincorporated businesses and partnerships. For some years, the AIA limit has been set temporarily at £1 million. This has put pressure on businesses to get major capital expenditure into the window before the £1 million limit fell.

The good news is that the limit is now permanent. Most businesses should now be able to claim 100% first-year relief for expenditure on qualifying plant and machinery. It’s worth noting in passing that tax relief on the purchase of cars doesn’t come via the AIA. It’s given through writing down allowances, with rates determined by CO₂ emissions and date of purchase. Enhanced capital allowances are available for new and unused electric cars.

Your timing for capital sales and purchases can be critical, so for the optimal tax outcome, we always recommend advance preparation. Together, we can assist you with your business plan for the future. Do please get in touch.

Research & Development Tax Relief

The Research and Development (R&D) tax regime offers valuable incentives to companies that carry out innovative work in science and technology. Despite the common misconception, it is not just available to high-tech, pharmaceutical, or R&D-centric businesses.

The main aspects of the R&D regime in the UK, together with what expenditure is eligible and the tax reliefs that are available are set out below.

 Some of the key points to note are:

• the enhanced relief for revenue expenditure on R&D is only available to trading companies
• there are two R&D schemes, one for SMEs and one for large companies
• qualifying R&D is not just restricted to projects which result in new products or processes but can also include improvements, changes, or modifications to an existing one
• R&D projects which are ultimately unsuccessful can still qualify for relief provided the other conditions are met
• it is helpful when systems are in place to try and accurately capture R&D costs and maximise the company’s overall claim
• relief can typically be claimed for up to two years following the company’s accounting period, though there may be earlier notification requirements for accounting periods starting on or after 1 April 2023

Read more

Trade and customs: latest news

Brexit has meant constant change for customs rules. What else is round the corner?

New government plans

The recently published Border Target Operating Model sets out changes that impact not just trade with the EU, but the rest of the world as well. Though details are being finalised, key points include a new approach to security controls and biosecurity controls. There’s also greater digital emphasis, as declarations and processes come to be made via the UK Single Trade Window.

Change is phased in between 31 October 2023 and 31 October 2024, with three major milestones:

Special rules will govern Irish and Northern Irish goods. The Border Target Operating model does not apply to imports into Northern Ireland from the EU.

Read more

Cryptoassets get a mention on the tax return

HMRC wants to raise awareness of the fact that cryptoasset transactions can mean tax bills – and there’s clearly some way to go.

In a recent survey, 41% of those who replied said they had no information about tax and their cryptoassets. In the light of this, it’s perhaps no surprise that the Spring Budget saw an announcement that the design of the self assessment tax return is going to change. From 2024/25, the capital gains tax pages will specifically ask for information on income and gains from cryptoasset transactions. This is meant to serve as a reminder that crypto transactions are within scope of the tax rules and should form part of the yearly review of the tax position.

The buying and selling of cryptoassets is usually treated as a personal investment. This brings it within the capital gains tax regime. However, with the capital gains tax annual exemption currently falling, more people are likely to come within scope of the tax. The exemption is currently £6,000 and by April 2024 – when the new look tax returns are issued – will be £3,000. If these changes are relevant to you, do please get in touch for an in-depth discussion.

Why basis period reform actually does matter 

It sounds entirely shoulder-shruggable: but basis period reform is like the bits under the bonnet. It makes the car go. In this case, it helps determine the tax bill.

Your tax liability may be higher

Basis period reform is a change that affects unincorporated businesses only – not companies. Within that group, it only affects businesses that don’t use a 31 March or 5 April year end. You may have seen it called a change to the ‘tax year basis’ – because what it does is change the way that your trading income is allocated to tax years:

• until now, if you’re an ongoing trader, the rules have been based on the accounting date of your business
• from 6 April 2024, they are based on the tax year
• the change will impact you before 2024
• this is because the current tax year (2023/24) is a transition year, with its own rules about how profits are calculated
• this directly affects the amount of tax paid.

In short, if your business doesn’t have an accounting year ending on 31 March or 5 April, the tax calculation this year is based on a longer period than usual. It’s based not just on the profits to the end of your normal accounting period: but also on a proportion of the profits from the end of your accounting year up to 5 April 2024 – the date that the new tax year basis begins. Clearly this is likely to mean higher tax bills in 2023/24. It also affects the following four years. The impact of this on cash flow will need consideration. To find out more about basis period reform click on the link below.

Read more

A common payroll problem: and how to avoid it

Nearly 90% of businesses made payroll mistakes in the last year, research suggests. Errors can easily translate into overstretched payroll staff, who need to follow up what’s gone wrong, and employees who are left wondering what’s happened to their wages.

A common problem area highlighted by HMRC is the creation of duplicate employments for employees. Where an extra employment record gets set up that’s identical to an existing live (or ceased) employment, things can get messy. Quite apart from employee tax coding issues, there’s the potential for apparent understatement of employer PAYE liability, and the possibility that HMRC might start debt collection activity.

Duplicate employments can be triggered in a number of ways. Key areas to watch are:

• procedures when a new employee starts work
• payroll ID changes
• when (and after) an employee leaves
• occupational pension and irregular payment fields.

Getting the starter notification and first Full Payment Submission (FPS) right, with accurate personal details, will avoid the need to file updates to employee name, date of birth and gender. Making sure that information is consistent will also help. If the initial FPS gives the name Zachary O’Keefe, make sure that’s the name used in future, and that it doesn’t get abbreviated to Zak O’Keefe, or Z O’Keefe, for example. HMRC notes that different payroll solutions give different capability and levels of control. But it still expects employers to understand what’s going on. It’s the payroll software that usually generates employee payroll numbers (sometimes known as employee numbers or employee unique payroll ID), for instance: but HMRC expects employers to understand how they’re generated.

We are always on hand to help you steer clear of payroll problems. Whether advising on appropriate software, or carrying out payroll for you, we are here to help.

One bundle. One price. Different VAT rates

The classic example is the meal deal. The cold takeaway sandwich is zero-rated, the fizzy drink is standard-rated and the piece of confectionery is, too. Technically, it’s a mixed supply for VAT purposes. Practically, it’s a headache.

What’s the right way to sort out the VAT if you sell goods or services as a package or bundle? There’s a single price – but the different parts of the package have different VAT liabilities. It’s all about apportioning the amount the business receives – the ‘consideration’ – and the problem is that there’s more than one way to tackle the calculation. The most common methods are based on selling price or the costs incurred in making the supplies. However it’s done, the principle is that ‘a fair proportion’ of the total payment gets allocated to the different parts, and the business needs to be able to justify its calculations. 

It’s complex and HMRC knows businesses make mistakes. Concerned that not all methods of apportionment currently in use are ‘fair and reasonable’, it’s published updated guidance. The aim is to ‘encourage’ apportionment based on selling price – although it’s not mandatory.

We should be pleased to help you review and risk assess your policy on apportionment in the light of HMRC’s latest thinking.

Alcohol Duty Reform: new rules as of 01 August 2023

The Spring Budget 2023 confirmed amendments to the alcohol duty system which change the manner in which the duty is applied.  In addition, there will be changes to the duty rates, along with new reliefs and transitional arrangements.

Alcohol Duty (current system)

Beer and spirits are taxed (alcohol duty) based on alcoholic strength which is measured by alcohol by volume (ABV), while the other types of alcohol are taxed on a specific duty based on overall volume. In summary, wines are taxed on the total volume of the product rather than the total volume that is made up of pure alcohol.  For products taxed on ABV, there are separate bands that increase duty rates according to alcoholic strength. This creates a system whereby products at the same alcoholic strength may be taxed at significantly different rates.

Read more

When VAT records are lost: beware of personal liability notices

It’s a requirement of VAT registration to maintain appropriate VAT records for at least 6 years. As all VAT registered businesses are now also required to comply with Making Tax Digital requirements, all businesses should now be operating some sort of digital accounting/record keeping.

Background to recent tribunal case

The business, Aizio Associated Limited were assessed for £21,400 of VAT penalties which was reduced to £10,251 at the conclusion of this tribunal case.  However, these penalties were applied to the Directors personally, and not the business. HMRC has this power, to assess individual Directors for failing their fiduciary duty, the penalties are referred to as PLN’s (Personal Liability Notices) and are usually for 100% of the VAT in dispute.

HMRC are using PLN’s more often nowadays and it’s important to understand that VAT liabilities can be turned into personal liabilities.

Read more

Guest Authors for our Winter Tax Round

Should any of our associates be interested in writing content for our next Winter edition of the Tax Round, get in touch with Jenny Tryfonos and we would be happy to discuss your contribution as a guest author.