The Tax Round: Spring Edition 2024

Welcome to the Spring edition of the Tax Round which brings you a selection of interesting tax news, insights and updates, that we hope you will enjoy reading. In this edition we have included a summary of the Spring Budget, Year End Planning Guide, cash basis changes, and some other recent tax news.

The Spring edition includes:

• Employer advice ahead of major change for payroll
• Cash basis change means choice for unincorporated businesses
• Construction industry tax compliance
• Year End Planning Guide
• Spring Budget 2024
• Stamp Duty Land Tax and MDR
• VAT threshold increase to £90,000 from 01 2024

If you need any assistance or have any questions regarding any of the topics covered in this newsletter, or would like to discuss your personal tax and accounting matters and how recent budget changes may have impacted you or your business, please get in touch Mark Moore or Marina Trinchese who will be happy to assist you. 

Happy reading!

Employer advice ahead of major change for payroll

Minimum wage: know the rules, not just the rates.

Forthcoming changes highlight the need for employers to deal confidently with the underlying rules. Notably, from 1 April 2024:

• the National Living Wage (NLW) becomes £11.44 per hour
• those aged 21+ qualify for NLW rather than the lower, National Minimum Wage (NMW).

We use the term ‘minimum wage’ to refer to both the NLW up and NMW.

Minimum wage is complex, and a slip up in the underlying calculations can put employers at risk. The danger is not just confined to sectors like retail, hospitality, and cleaning and maintenance, where historically many workers have been paid at or below minimum wage. Because there is so little margin for error, employer risk also arises where payment to workers sits at, or just above, minimum wage. Something like payment into a salary sacrifice scheme can easily the tip the scales, creating an underpayment for a previously compliant employer.

To find out more about the steps required to compliance, click on the link below.

Cash basis change means choice for unincorporated businesses

Rules extending use of the cash basis to calculate trading profits need consideration now.

At present, accounts for the self-employed and partnerships are taxed on the accruals basis, unless the business elects to use the cash basis, instead. In a move aimed at simplification, Autumn Statement 2023 reverses this position. From 6 April 2024, the cash basis becomes the default, unless a business opts out. Businesses currently excluded from the cash basis, such as limited liability partnerships and those who have made a claim for farmers’ or artists’ averaging, however, continue outside the scope.

Cash basis rules are changed, so that:

• businesses of any size will be able to use cash basis: existing turnover restrictions will be dropped
• current restrictions on how much interest can be deducted from profits are removed (where such interest is incurred wholly and exclusively for the purposes of the trade)
• current loss relief restrictions are removed, so that cash basis losses can be used in the same way as accruals basis losses.

The change matters

It’s not just jargon: moving to the cash basis can make a significant difference to cash flow, and the timing of tax liabilities, especially initially. It won’t benefit every business. Opting out of cash basis and staying with the accruals basis may be more appropriate for you, so there is a choice to be made.

In outline, if your business operates with customers paying at point of sale, and you have trade credit on the amounts you owe, moving to the cash basis is likely to accelerate the timing of your income tax and National Insurance payments. This can be the case in the retail sector, for example. If on the other hand, you give significant credit to your customers, so that amounts owing to you are usually more than the amounts you owe, moving to the cash basis is likely to have a positive effect on your cash flow. Generally, the more complex the business, the more the accruals basis is important in providing financial information and control. We will be pleased to consider the position with you individually.

Note that there are separate rules around property income cash basis, and these are not impacted by the changes described here.

Construction industry tax compliance 

New change raises the bar for gross payment status (GPS).

GPS allows subcontractors to be paid gross under the construction industry scheme (CIS), without deduction of withholding tax. To gain GPS, there are currently three tests. A compliance test requires all CIS and direct tax affairs, and all returns and payments (excluding income tax self assessment and corporation tax self assessment payments) to be up to date. There is also a business test and a turnover test.

From 6 April 2024, VAT is added to the list of taxes in the compliance test, and subcontractors must show they have complied with VAT obligations to obtain and keep GPS. The first review of GPS compliance will take place earlier, at six months after application, rather than 12. The new rules also provide for HMRC to cancel GPS at once if it has reasonable grounds to suspect fraud involving VAT, corporation tax, income tax or PAYE. Please contact us for further information.

Year End Planning Guide

Rayner Essex’s year end planning guide will provide you with advice and strategies on how to prepare for financial year end and make the most of your tax allowances and reliefs, whilst they are still available. The following guide provides insights into quick wins and opportunities that will help you with tax strategies and business planning, as well as personal financial planning required to complete the tax year.

Click the link below to download the year end planning guide and review and plan ahead with confidence, maximising deductions and optimising investments.

Spring Budget 2024

On Wednesday 06 March, Chancellor Jeremy Hunt unveiled his Spring Budget, pledging “much needed help in challenging times” and announcing key measures with focus on lower taxes, more investment and better public services.

To find out the full budget highlights and download the Spring Budget Guide, click on the link below.

Stamp Duty Land Tax and MDR

Within the SLDT legislation there is a relief known as Multiple Dwelling relief.  When buying more than one dwelling at the same time (or under linked transaction rules) the use of MDR can make some significant savings for the buyer.

On 06 March 2024, in the Spring Budget, the Chancellor announced that MDR will be abolished from 01 June 2024. This decision may potentially lead to an increase in landlords buying up more than one property at a time. However, the broader impact on the overall housing market remains unknown.

To find out more about how MDR works and learn more about how the abolishing of MDR will impact your investments click on the link below.

VAT threshold increase to £90,000 from 01 2024

The VAT threshold will increase to £90,000 from 01^st April 2024.  In the last few years, the VAT threshold has not moved beyond the £85,000 threshold at each budget, and this has often meant fiscal drag bringing in more businesses into the VAT regime by virtue of increased inflation, cost of living and minimum wage rises.

To find out more and learn who might benefit from the increased threshold click on the link below.

Guest Authors for our upcoming Summer Tax Round

If any of our associates are interested in writing content for our next Summer edition of the Tax Round, please contact Jenny Tryfonos and we will be happy to discuss your contribution as a guest author.

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