Since 1996, the number of couples living together without getting married has increased by 144%
– with 3.6 million couples cohabiting by 2021. Despite living together for years and often acquiring property and having children, unmarried cohabitants don’t have the same legal protections as people who are married or in civil partnerships.

This led the Women and Equalities Committee to call for family law reforms, publishing a report in August 2022 that proposed changes to improve financial protections for cohabitants and their children if their relationship ends.

Despite agreeing that cohabitation laws are outdated, the UK government made the controversial move of rejecting the reform proposals, stating that they need to finish reforming marriage and divorce laws before they can consider cohabitation.

Which cohabitation law reforms were rejected?

The House of Commons Women and Equalities Committee made six recommendations for updating the legal rights of unmarried cohabiting couples, but the government has rejected most of them outright. The disregarded suggestions include:

The Law Commission already proposed a structure for an opt-out scheme in 2007, but this pre-dates the introduction of civil partnerships. As the government would need to base the legal rights of cohabitants on the rights of married couples or civil partners, the Ministry of Justice claims that this cannot be considered and adapted until wedding laws have been reformed.

Again, the Law Commission put forward the idea of intestacy reform in 2011, but the government continues to reject the suggestion. This is because it could promote the interests of the cohabiting partner over their legally recognised family, including their children.

The Ministry of Justice points out that individuals are free to write wills prioritising their cohabiting partner, and that cohabitants can still make a family provision claim if they were living in the same household as the deceased on the same basis as a spouse for 2 years prior to their death.

The Treasury, being the department responsible for taxation, rejected this proposal by stating that there are no plans to extend the longstanding Inheritance Tax rules for spouses and civil partners to cohabitants. However, the government does agree that there should be better guidelines for pension schemes on how surviving cohabiting partners should be treated.

Realistically, the only accepted recommendation was to improve guidance on and public awareness of the existing rights of cohabiting couples.

What does this mean for cohabiting couples?

The lack of media attention given to the report and the government’s response is a shame, as it’s crucial for cohabiting couples to be aware of their rights.

Unfortunately, there is a popular myth that partners living together are in a ‘common law marriage’ – but there’s no such thing. Cohabitants do not have the same entitlements as married couples or civil partners in England and Wales.

Millions of people, most likely women and vulnerable members of society, are therefore left at risk of financial hardship if they separate from their partner or their partner passes away.

This is why it’s so important to make arrangements yourself if you’re in a cohabiting relationship but don’t intend to enter a marriage or civil partnership. Things you can do include:

1) Making an official Cohabitation Agreement contract that sets out your mutual plans for what happens to your joint and individual assets in the event of separation or death (including provisions for any children resulting from the relationship).

2) Drawing up a Declaration of Trust for your property to confirm the proportions that each of you own and how the value would be split if you end up selling it in the future (a formal agreement can mitigate the risk of future disagreements).

3) Each writing your own Will to confirm which of your assets should go to which named persons in the event of your death (you may want to write a joint Will, as married couples often do, but cohabitants may have a higher risk of separation).

It may not be very romantic, but taking action to set out your wishes now will be beneficial in the future – whether that’s consulting a solicitor to create your own legally binding contract, or hiring accountants in Barnsley for estate administration and probate services.

Lower-paid workers will be welcoming the National Living Wage uplift coming later this year, but these increased costs could mean that employers can no longer afford to employ their workers.

Just as the cost of living crisis is severely impacting many households across the UK, it’s also hitting UK businesses. While some may reduce their employment costs by scaling down their number of staff, this isn’t always possible – meaning some businesses may end up shutting down completely.

Here’s a summary of recent changes affecting employment costs in 2023, and how these are likely to impact employers and their employees.

National Living Wage increase

While the National Minimum Wage applies to workers under 23 years old, the National Living Wage was introduced in 2016 to ensure that adult workers over 23 would be able to earn enough to cover the cost of living.

When the new tax year begins in April 2023, the government will be increasing the National Living Wage by 9.7%. This means that the statutory minimum wage for over-23s will be rising from £9.50
an hour to £10.42 an hour.

At the same time, the National Minimum Wage rates will also be going up by 9.7% for workers between 16 and 20 years old, while 21-22 year olds will see the biggest increase of 10.9% (from £9.18
an hour to £10.18 an hour).

Eligible workers will welcome the pay rise, of course, but it’s still not keeping up with inflation – which rose to a 40-year high of 11.1%
in October before dropping to 10.7%
in November.

While employees are likely to still struggle with the cost of living crisis despite the pay rise, employers are also likely to struggle with the increased costs of employment. It will be especially difficult for self-employed owners of small businesses.

This may lead to many employers having to make hard choices about cutting back their workforce, resulting in increased layoffs as they try to keep their businesses afloat.

National Insurance threshold freeze

On top of the incoming statutory wage increases, employees will also see another small pay rise indirectly via the scrapping of the 1.25% Health and Social Care Levy and frozen thresholds for National Insurance Contributions (NIC).

Several earnings thresholds for NIC rates were already frozen until 2026, but these freezes are now being extended to 2028. This includes the Secondary Threshold – the level that employers must begin to pay Class 1 Secondary NICs for employees – which is fixed at £9,100
a year (£175 per week or £758 per month) until April 2028.

As wages increase but NIC thresholds stay the same, larger employers will soon see their NIC costs stealthily increasing. This is one of many ways that businesses could be caught out by fiscal drag.

Smaller businesses with fewer employees could be somewhat shielded from this particular trap by the Employment Allowance, which can reduce an employer’s Class 1 NIC liability by £5,000.

Would your business benefit from payroll services?

There’s no doubt that 2023 will be another tough year financially across the UK, for workers and employers alike. It’s more important than ever to re-examine your financial operations and ensure that you’re working as efficiently as possible – which includes managing payments and tax liabilities on time, and making the most of any allowances you may be eligible for.

If you are a small business owner, you may benefit from the expertise of accountants in Barnsley and Leeds. Here at GBAC, we provide a range of financial services, from bookkeeping and VAT management to outsourced payroll administration. We may be able to assist you in streamlining your payroll and NIC management, so don’t hesitate to get in touch if you feel that your current system could be more efficient.

Local councils charge business rates on properties used for non-domestic purposes, from shops and restaurants to offices and factories. This tax is based on the ‘rateable values’ of the different property types, which were last valued in 2017.

The Valuation Office Agency (VOA) has therefore been revaluing business rates in England and Wales, with the updates coming into effect from 1st April 2023.

The new valuations will reflect the changes in the property market since the previous revaluation, meaning some businesses are likely to see their business rates increase – though others may see no change, or even a reduction.

Fortunately, to ease the burden of new business rates
in 2023, the government also announced a package of support measures in the Autumn Statement 2022.

Here’s what you need to know about business rates revaluation and relief.

Business rates revaluation

The previous revaluations that came into force in 2017 were based on rateable values from 2 years prior in 2015, and the new revaluations this year are based on rateable values from 1st April 2021.

This means the new rates will take the turbulent effect of the COVID-19 pandemic on the property market into account. There are likely to be significant fluctuations in rateable values between different areas, and between different types of businesses (e.g. online vs bricks and mortar).

Revaluing non-domestic property rates typically doesn’t generate more revenue than before, but helps to distribute the tax more fairly across the business rates system.

A property’s rateable value is based on its rental value, which the local authority then uses to calculate its business rates bill
using the government’s ‘standard’ or ‘small business’ multipliers.

These multipliers will be frozen at 49.9p and 51.2p
respectively, staying at the same rates since 2020 instead of increasing by 3p
each – so all payers should benefit from a 6% lower bill even before the application of any reliefs.

Business rates support package

In addition to the business rates multipliers freeze for 2023–2024, there are multiple relief reforms in the works that will deliver up to £13.6 billion in support over the coming 5 years.

The Transitional Relief Scheme will cap increases caused by the revaluation, at 5% for small businesses, 15% for medium businesses, and 30% for large businesses. Funded by the Exchequer, this scheme is expected to benefit 700,000 payers over the next 3 years.

Additionally, Retail, Hospitality, and Leisure Relief
is increasing from 50% – meaning that around 230,000 properties that don’t qualify for small business rates relief could now get 75%
off their bill (up to £110,000 per business).

The Supporting Small Business Scheme will cap increases at £600 for the year for businesses who lose their eligibility for either small business rate relief or rural rate relief due to the revaluations. This should help around 80,000 small businesses in the next 3 years.

A previously announced relief in 2021 is still due to go ahead, with Improvement Relief ensuring that payers don’t have to face increased business rates for 12 months after making accepted improvements to the property – which will be in force from April 2024–2028.

Downward caps will also be abolished, so businesses with lower rates after the revaluation can benefit from a reduced business rates bill right away.

Get help with business rates

You can now use the ‘Find a business rates valuation’ service to find the rateable value of your property from April 2023, and get an estimate of your new business rates bill.

If you believe there is an error with the information used to value your property, you should contact the VOA. You can also contact your local council to find out whether you are eligible for any type of business rates relief.

Alternatively, you could benefit from hiring a tax consultant to manage your business taxes on your behalf. To find out more about how our accountants in Barnsley and Leeds could assist you with business rates, please get in touch.

The delayed Autumn Statement 2022, which was announced on 17th November, has prompted accusations of the government imposing a ‘stealth tax’ by way of fiscal drag.

The changes to tax rules and continued threshold freezes that were revealed by Chancellor Jeremy Hunt are expected to affect millions of people over the next 5–6 years.

Here’s what you need to know about fiscal drag, the primary taxes affected by the one-two punch of inflation and allowance freezes, and what you can do to reduce the financial squeeze.

What is fiscal drag?

Fiscal drag happens when rising wages combined with frozen tax thresholds ‘drag’ taxpayers into a higher tax bracket. This is also known as bracket creep.

It’s generally referred to as a ‘stealth tax’ because it leads to more people paying more tax, without the backlash that would come with the government actively increasing taxes.

Tax allowances are typically increased to keep pace with the cost of living, but many have been frozen for several years and were set to remain frozen until 2025–2026.

With inflation hitting 11.1%
in October 2022 – the highest in 40 years – the need for wages to increase to keep up with consumer prices will undoubtedly push more people into paying basic rate tax who weren’t liable before, or push them from a lower rate to a higher tax rate.

Fiscal drag on Income Tax

The tax-free personal allowance of £12,570 and the basic rate upper threshold of £50,270 will now remain frozen until April 2028. Anyone whose earnings fall between these amounts will pay 20% in Income Tax, while anyone earning £50,271+ will be charged the higher rate of 40%.

With these thresholds frozen for the next 5 years, if wage growth manages not to trail too far behind inflation, we can expect hundreds of thousands of workers to be dragged into a different tax band.

From April 2023, the additional rate threshold will be lowered from £150,000 to £125,140, meaning anyone earning £125,141+ will have to pay increased Income Tax at 45%.

Other thresholds are also affected by fiscal drag simply because the government ignores them rather than adjusting them. For example, the income limit for withdrawing the personal allowance has remained at £100,000 since its introduction in 2010, which can lead to a 60% tax rate.

Similarly, the income limit for the High Income Child Benefit Charge has stayed at £50,000
since it was introduced in 2013 – now affecting 1 in 5 families, compared to the original 1 in 8.

As an example of how fiscal drag can increasingly affect tax liability, Interactive Investor reports that an average worker earning £30,000 a year could pay £1,919 extra tax between now and 2028–2029. Meanwhile, a worker with an annual salary of £50,000
would pay £4,280 more over this time.

For lower earners on £20,000 a year, their tax burden is likely to increase to 15%
of their take-home pay, costing them an extra £1,267 in Income Tax
if nothing changes in the next 5 years.

Fiscal drag on Inheritance Tax

The Inheritance Tax nil rate band has been stuck at £325,000 since April 2009
and was also set to remain there until 2026 – until the new Chancellor announced the IHT freeze would be extended until 2028 alongside the Income Tax personal allowance and basic rate thresholds.

Inheritance Tax (IHT) is charged at 40% on anything above the £325,000 threshold. So, when someone passes away, the inheritor of their estate could be faced with a large tax bill during an already difficult time.

With property values soaring and wages increasing over the last decade, while the tax-free allowance on inherited assets remained stubbornly the same, is it any wonder that Inheritance Tax receipts have doubled since 2012?

The amount that the government has clawed back in IHT
increased by 14%
between November 2021–November 2022 alone, with the freeze expected to double this to 28% by 2027–2028.

While IHT affects fewer people than Income Tax, the number of people becoming liable for IHT is also increasing, making lifetime wealth planning and tax planning more important than ever.

Why is the government freezing tax allowances?

With such a potentially grim outlook for many people, you might be wondering why the UK government is allowing fiscal drag to negatively impact average working people rather than implementing a wealth tax on the top 10%.

The aim is to raise as much tax revenue as possible from as many people as possible, with the further Income Tax freezes alone expected to raise £26 billion a year for public finances by 2027–2028
(as stated in the latest report from the Office for Budget Responsibility).

Tax planning to mitigate fiscal drag

As with any changes – or lack thereof – to tax allowances and rates, the best way to mitigate negative impacts on your finances is to plan ahead as much as possible.

Income Tax planning is particularly important for spouses, who may be able to share allowances to ease the burden of income limits, but anyone can benefit from measures such as adjusting pension contributions to moderate tax-eligible income.

From writing a will and cleverly managing gift allowances to making the most of residence nil rate band relief, there are several ways to mitigate Inheritance Tax, too.

Whatever your situation may be, gbac can help you to make the most of your annual tax allowances and plan effectively to improve your financial future. If you would like to benefit from our tax consultancy
or probate services, please contact our accountants in Barnsley today.

After September’s disastrous mini-budget, the UK had been waiting in apprehension for the Autumn Statement 2022, which was finally published on 17th November.

The Chancellor of the Exchequer, Jeremy Hunt, technically stuck to the government’s promise not to increase tax rates – but frozen tax band thresholds and reduced allowances still mean that more people will be paying more tax from April 2023.

Among some of the harsher measures announced in the Autumn Statement is the slashing of Capital Gains Tax exemptions over the next two years. Here’s what you need to know about how Capital Gains Tax is changing, who will be affected, and what you can do about it.

How is Capital Gains Tax changing?

The annual exempt amount (AEA) for Capital Gains Tax (CGT) is due to be halved in April 2023, then halved again in April 2024. Along with similar reductions to the Dividend Allowance, the government estimates that this could raise more than £1.2 billion a year from April 2025.

This action follows a 2020 review by the Office of Tax Simplification, which suggested that reducing the AEA to £6,000 would lead to 235,000 people needing to pay CGT who hadn’t before, which could raise £480 million in the first year.

The new allowances for the next two tax years will be as follows:

Tax Year

Individual CGT Allowance

2022 – 2023

£12,300

2023 – 2024

£6,000

2024 – 2025

£3,000

The annual allowance cannot be carried forward if you do not use it in a given year. While the tax-free amount will shrink year on year, the tax rates for CGT
will not be changing. They will remain at 10% for basic rate taxpayers and 20% for higher/additional rate taxpayers (or 18% and 28%
respectively for gains on residential property).

Who will be affected by the new CGT allowance?

Reducing the annual CGT allowance so drastically will mean that hundreds of thousands of people will be liable for this tax whose gains would previously have been too low to require reporting or payment. The much lower thresholds are likely to affect:

The government estimates that 500,000
individuals and trusts could be affected by the new CGT liabilities next year (April 2023–April 2024). Those on the lowest 10% rate can expect to pay an additional £930, while those on the highest 28% rate would pay a maximum of £2,604 extra.

Trustees will also be hit by CGT allowance reductions, as the AEA for trustees will drop from £6,150
to £3,000 in April 2023, then to £1,500 in April 2024.

CGT planning for 2023 and beyond

With more people becoming liable for Capital Gains Tax
from next spring, they will now also be obligated to report gains or losses to HMRC
so they can pay the applicable tax. Many of these people are likely to be unfamiliar with self-assessment tax returns, or the deadlines for reporting chargeable gains and penalties for failing to do so.

For more information on how the CGT system works, you can find the government’s guide to reporting and paying CGT online. Alternatively, if you would like professional tax advice on how to reduce CGT liability – such as using ISAs or transferring assets between spouses – you can get in touch with our accountants in Barnsley.

Our GBAC tax consultants can help you to utilise the tax reliefs that apply to your circumstances and assist with CGT planning for the future.

For all the talk of recessions and rising inflation and interest rates, employment levels seem to be higher than ever. As of this summer, the UK unemployment rate sits at an estimated 3.5%
– the lowest it’s been since 1974.

This may be partially due to the fact that more people in the UK over 65 years old are either remaining in work or going back to work even after reaching retirement age.

Figures from the Office for National Statistics reveal that in the second quarter of 2022, the number of people in employment aged 65 or above increased to a record 1.468 million. The increase of 173,000 from the previous quarter was also a new record.

You may be wondering what exactly this means. Is it good or bad news for our ageing population that older people are working for longer? Will it become necessary for people over 65 to continue working instead of retiring when they reach State Pension age?

Here’s what you need to know about these record-breaking statistics, and what you should do if you’re worried about planning for retirement or continuing to work as a pensioner.

ONS reveals surge in over-65s in employment

The latest data shows that in the last ten years, employment among people aged 65 and over is up by around half, compared to overall employment rising by about a tenth in the same time period.

However, this senior workforce is predominantly made up of part-time workers, putting in fewer hours a week on average. During the period of April–June 2022, part-time employees in the 65+ age bracket increased by 17.7% (85,000), and part-time self-employed workers increased by 28.7% (76,000). Over-65s worked an average of 21.7 hours a week during this period.

The sectors that saw the largest increase in workers over 65 years old included hospitality, arts, and entertainment, while the most common sectors for over-65s to work in were health and social care, retail, motor repairs, education, and scientific and technical activities.

Why are so many over-65s still working?

With life expectancy increasing and the State Pension age being pushed back accordingly, it may not be surprising that people are choosing to keep working for longer.

However, the increase in over-65s working specifically part-time could be a clue that this age range is feeling the pinch of the cost of living crisis.

As inflation pushes up the prices of everyday goods and stock market slumps erode savings, it’s likely that pensioners are having to return to part-time work to top up an income that no longer stretches far enough to make ends meet.

This may seem like the end of the popular dream for many of retiring early, but this effect may be temporary as people reevaluate their finances and what they want from life.

According to the ONS data, most over-65s are finding part-time jobs or becoming self-employed in areas that suit them, allowing them to work as and when is best for their part-retired lifestyle. Over the coming years, it may be more common for people to opt for a ‘flexible retirement’ that balances working less with partially retiring.

Plan for retirement to make the most of your pension

According to an Over 50s Lifestyle Study by ONS, participants aged 60-65 years old were more likely to be debt-free, and 55% were confident that their retirement funds would be sufficient. However, among 50-54 year olds, participants were more likely to have debt, and only 38% had confidence in their retirement provisions.

If you’re around the younger age bracket and the thought of still working past 65 years old isn’t appealing, then it’s essential to make sure your retirement planning will provide you with the income you’ll need as a retiree/pensioner.

To help you with this, you can find information on the State Pension
on the government website, and guidance on private pensions and saving for retirement from Citizens Advice.

If you’re already working while receiving your pension, or plan to do so, you should also take potential tax traps into consideration. Anyone over 55 years old who has drawn money from a flexible-access pension while continuing to pay pension contributions through working will have triggered the Money Purchase Annual Allowance (MPAA).

The MPAA reduces the annual pension contribution allowance (the maximum you can save in your pension in a year before it becomes taxable) from £40,000 down to £4,000. This makes it much more likely that you’ll have to pay tax on your pension contributions.

If you have concerns about tax and retirement savings, why not engage our tax consultancy services at GBAC? Contact our team of accountants in Barnsley by phone or email today.

Just over a month ago, then Chancellor Kwasi Kwarteng announced a series of proposals as part of the government’s Growth Plan. These included several upgrades to the Seed Enterprise Investment Scheme (SEIS), which helps companies to raise money.

However, after Kwarteng’s departure from the position a few weeks later, his replacement Chancellor Jeremy Hunt announced on 17th October that the government would actually be making a U-turn on the majority of the measures in Kwarteng’s plan.

There were few clear survivors from this mini-budget reversal, but the proposed SEIS changes seem to have made it through. Hunt’s speech stated that they will, “continue with […] the wider reforms to investment taxes”, which SEIS
adjustments would surely be a part of.

While nothing permanent has been announced or approved yet, full details of the government’s updated plans should be published soon – though the new tax and spending plan originally anticipated on Halloween has been pushed back to 17th November.

In the meantime, here’s what we know about the Seed Enterprise Investment Scheme updates, and how they could help if the government pushes them through.

What is the Seed Enterprise Investment Scheme?

First launched in 2012, the SEIS is a scheme that helps new companies to raise money so they can start to trade. Designed as a tax incentive to encourage early-stage investment in UK businesses, the SEIS offers a range of benefits for investors, such as:

There are a lot of SEIS rules to follow regarding qualifying trades, companies, and investments, as well as how the money raised should be spent, but the scheme is vital for UK start-ups.

Changing SEIS limits for investment and eligibility

The government proposed several changes to the SEIS to improve investment and fundraising opportunities. The world and many industries have undoubtedly changed a lot since the scheme first came into being ten years ago, so updates were overdue.

Currently, a company can receive a maximum of £150,000 through SEIS investments. Under the new proposals, the limit will be raised to £250,000 in April 2023 – an increase of two thirds.

Investors are also limited to investing a maximum of £100,000 a year through the SEIS, but the updates would double this amount to a personal investor limit of £200,000
a year.

To be able to qualify for the scheme, conditions for companies include applying within the first 2 years of trading and having assets of no more than £200,000. The suggested changes would allow companies to apply within their first 3 years of trading and have gross assets up to £350,000.

Other SEIS
conditions will remain unchanged, unless specified in further budget announcements.

Extending Enterprise Investment Scheme beyond 2025

The SEIS is one of four venture capital schemes currently offered by the UK government, which include the older Enterprise Investment Scheme (EIS). This particular scheme involves tax reliefs that were first introduced back in 1994 to encourage investment in small UK businesses.

However, due to a ‘sunset clause’ introduced by the EU, the EIS
was due to be withdrawn in April 2025 unless the government took action to continue it. Ex-Chancellor Kwarteng stated that the ‘sunset clause’ would be scrapped and the EIS would continue alongside the expanded SEIS.

What does this mean for start-ups and investors?

Though the changes mentioned above are all subject to change – as the past months have frequently proven – we can expect to learn more by mid-November. If the government moves forward with these SEIS updates, they could be implemented from April 2023.

It’s possible for companies to begin lining up investors now to obtain clearance from HMRC, and to accept money from investors through an advance subscription agreement.

Employees can’t invest in the company that employs them, but directors may be able to. However, directors can’t have a ‘substantial interest’ in their employer company (a shareholding above 30%). Depending on close relative shareholdings, it may be that a family-owned company will not qualify.

You can find out more about applying for the SEIS or other venture capital schemes on the government website. Should you need assistance with audits, business valuations, or raising corporate finance, please get in touch with GBAC, accountants in Barnsley, to find out how we can help.

The last few weeks have been chaotic for the UK government. Due to the ever-changing plans for taxation and investment procedures, business owners especially have been affected.

After then-Chancellor Kwasi Kwarteng’s mini-budget proposals caused government borrowing to rise and the value of the pound to drop at the end of September, his replacement Chancellor Jeremy Hunt stated on 17th October that most of the unvetted proposals would be cancelled.

If any owner-managed business had already begun making decisions for their future operations based on Kwarteng’s proposals, these reversals will have thrown a spanner in the works.

Here’s what you need to know about which tax changes have been axed and which ones owner-managers can still expect to benefit from in the next tax year.

Growth Plan proposals and impact

September’s ill-fated Growth Plan contained many tax cut proposals, but very few, if any, seem to have made it through the new Chancellor’s shredding of the mini-budget. If Kwarteng’s proposals had gone ahead, this is what would have happened from April 2023:

These changes would have made running an incorporated business much more attractive than remaining unincorporated. For example, a business earning profits of £100,000 would have saved £1,500 on their tax bill if unincorporated, compared to a tax saving of £2,700 if incorporated.

Corporation Tax rise cancellation reversed

Owners of limited companies must pay Corporation Tax
on profits, and register with HMRC within 3 months of starting their business. Sole traders and partners pay Income Tax on profits instead.

The single rate of Corporation Tax has been 19%
regardless of profit value since 2015, but there were different rates before this – a main rate and a lower rate for profits under £300,000.

Back in 2021, it was announced that the current single rate was going to rise to 25% on profits over £250,000 in April 2023, with a sliding scale for profits below this amount but above £50,000.

Then, in September 2022, the mini-budget featured a proposal to reverse this Corporation Tax increase and maintain the 19%
single rate – but within a few weeks, this reversal has also been reversed.

This means that the higher rate of Corporation Tax
will be coming into effect next April after all. If your profits are below £50,000, you’ll continue paying the 19% rate, but for profits above that, you could be paying anywhere from 19% up to the full 25%.

However, you may be able to reduce your Corporation Tax liability through R&D tax relief claims, which are also undergoing reform.

Dividend Tax reduction reversed

In April 2022, all dividend tax rates increased by 1.25% – with basic rate taxpayers charged 8.75%, higher rate taxpayers charged 33.75%, and top rate taxpayers charged 39.35%.

Under former Chancellor Kwarteng’s plans, this increase would be cancelled from April 2023, and the rates would return to 7.5%
for basic rate payers and 32.5% for higher rate payers, with the additional rate being scrapped completely.

The aim seemed to be to encourage owner-managers to maintain value in their businesses and invest further in future operations.

However, the increase reversal is what has been totally scrapped. This means that the dividend tax rates will remain as they are, with this year’s 1.25% increase intact, in 2023. Anyone earning over £2,000 a year in dividends will exceed the annual allowance and must pay these rates of tax.

This will be disappointing news for anyone who earns income through dividends, especially small company directors, DIY investors, and pensioners – especially since the accompanying 1.25% increase to National Insurance Contributions is being reversed.

National Insurance Contribution cut maintained

In April 2022, the National Insurance rate went up by 1.25%; this was done as a Health and Social Care Levy to help fund the NHS. For employers, National Insurance Contributions increased to 15.05%, while they increased to 13.25% for employees.

However, the government announced plans to reverse this change just before the mini-budget, taking effect from 6th November 2022. The Health and Social Care Levy was due to be introduced as a separate tax in 2023, but this will also be cancelled.

Since these measures have already begun progressing through Parliament, they will not be reversed like the majority of the mini-budget. Government borrowing is set to replace funding from the Levy, so National Insurance Contributions will return to 2021–2022 levels.

This means that from November, National Insurance rates will be back to 13.8% for employers and 12% for employees (including directors earning £12,570–£50,270, with a 2% rate above that).

There will be no changes to the National Insurance threshold, which was increased from 6th July 2022. The primary threshold for employees will remain at the current amount until at least 5th April 2023, while the secondary threshold for employers still has not been changed.

What is the government doing about tax cuts?

In addition to the Income Tax rates staying the same, these three are the main points that will affect owner-managers and their tax planning in 2023:

As none of the changes planned in the mini-budget were in force yet, the cancellations are unlikely to have an immediate impact on take-home pay or current financial plans in the next few months.

The government’s back-and-forth on tax policies isn’t making things easy for business owners and investors, but as with any changes to tax rules that could impact you, it’s still a good idea to review your financial plans for the next tax year ahead of time.

The new Chancellor was due to deliver the latest fiscal plan on Halloween (31st October), but this has since been pushed back. Hopefully, there will be no further drastic changes to be announced with the updated tax and spending plan on 17th November.

If you’ve set up a limited company and need professional advice on Corporation Tax, then you may benefit from our tax consultancy services at GBAC. Please contact us to speak with one of our accountants in Barnsley
today.

The government’s rules for working off-payroll, known as IR35, apply when workers or contractors provide services through their own company or an intermediary, ensuring that workers pay the same Income Tax and National Insurance Contributions (NIC) as direct employees.

The IR35 reforms introduced in 2017 and 2021 were poorly received across the public and private sectors. So, when previous Chancellor Kwasi Kwarteng announced in September that these reforms would be rolled back in the next tax year as part of the Growth Plan 2022, many contractors and businesses welcomed this reversal.

However, new Chancellor Jeremy Hunt revealed in his first statement to the House of Commons in October that many of the measures proposed by Kwarteng would no longer be going ahead. This includes the repeal of the IR35 reforms, leaving the current implementation the same.

With so much confusion over the government’s tax plans, where does this leave IR35 – and what should contractors and businesses do now?

IR35 reform rollback proposal

HMRC introduced the IR35 system back in 1999, with the aim of clamping down on tax avoidance by ‘disguised employees’ – workers operating in the same way as a fully taxed employee, but through a private company or intermediary.

If HMRC determines that the working relationship between the contractor and their client is employment and not consultancy, then IR35 rules will apply, so the contractor is taxed as if they were an employee of the end client.

Prior to the reforms, it was the individual contractor’s obligation to determine the nature of their working relationships for tax purposes – but HMRC found that it was too easy for contractors to claim non-employment relationships to avoid paying the correct tax.

In 2017, HMRC made public authorities the responsible party for determining whether IR35 rules applied when they hired contractors. Then, in 2021 (following a delay due to COVID-19), HMRC also moved the responsibility onto medium and large private businesses – the only exception being small private businesses, where responsibility remains with the contractor.

Under the reforms, IR35 tax liability is almost always the responsibility of the end client or hirer. If the IR35 rules apply, the public authority or private business must put the contractor on their payroll and apply employee taxes, including National Insurance deductions, before paying their fees.

The problem is that the reforms made clients less likely to hire contractors, as most businesses are averse to taking financial risks. Many people see the IR35 reforms as not just flawed, but having a negative impact on the UK economy, so the proposed rollback would have been welcome.

If the reversal had proceeded, contractors would once again be responsible for tax self-assessment – but this will not be happening in 2023 as many hoped.

U-turn on IR35 reform repeal

With the government in turmoil, Chancellor Hunt publicly announced his intention to scrap most of his predecessor’s proposed measures in the next fiscal statement. After Kwarteng’s mini-budget crashed the pound, the reversal aims to restore some market stability.

The IR35 reform repeal would have re-opened the door to higher levels of tax avoidance, so keeping the reforms should save money for the Treasury to better distribute to public finances. This should hopefully also restore some of the public’s confidence in the government.

There were no details about how the reform rollback would even be carried out, and no risk assessments on the impact of such measures, no public consultations or draft legislation – so completely repealing the IR35 reforms with no review of where they could be improved first was never going to work, in any case.

Though a fully detailed statement is unlikely to be shared until mid-November, the government confirmed in comments to Contractor UK that, “With or without the reforms, the underlying rules on off-payroll working are unchanged” – meaning anyone who works like an employee should still be paying similar tax to direct employees.

Will there be an IR35 review?

Completely repealing legislation with the magnitude of IR35 with no consultation at all would be unheard of, going against existing policy procedures and potentially establishing a dangerous precedent for other types of legislation.

The back-and-forth over IR35 rules could be an opportunity to carry out a thorough review instead, identifying the ongoing issues in order to address them with more effective reforms.

As per the Financial Times, multiple tax experts are urging Chancellor Hunt to review the off-payroll working rules properly and make classifying employment statuses more straightforward. If the IR35 rules stay as they are, there are fears that it could drive more self-employed workers to be taken advantage of by unregulated umbrella companies.

Previous Prime Minister Liz Truss had pledged during the leadership contest to review IR35, but has since been replaced with new Prime Minister Rishi Sunak. Unfortunately, the IR35 reform review now seems unlikely, as Sunak was the Chancellor who oversaw the reform’s introduction.

However, given enough pressure from those most affected by the IR35 rules and experts in their industries, the new Chancellor might yet take positive action towards reviewing IR35.

Do you need help with the IR35 off-payroll working rules?

Some contractors and businesses may have begun preparations for the reform rollback when it was slated to come into force next April, but as things currently stand, there are no changes to IR35.

The responsibility for determining the status of a working relationship with contractors still remains with public authorities and medium to large private businesses, as per the 2017 and 2021 reforms.

Guidance on the current and ongoing IR35 rules can be found on the government website. These rules may affect you if you are a worker providing services through an intermediary (e.g. your own private company), a client receiving services from a worker through an intermediary, or an agency that provides workers’ services through their own intermediary.

Should you need professional assistance with accounting or payroll, or you would benefit from tax consultancy services, please reach out to us at GBAC, accountants in Leeds, not just Barnsley. You can call our accountants in Barnsley or send an email, and we’ll gladly discuss our services with you.