There are two accounting methods used by small businesses – cash basis accounting and accrual basis accounting. Cash basis is often favoured by sole traders and partnerships, as it involves recording revenue and expenses when payments are received and made, while accrual basis requires recording transactions as they occur rather than when invoices are paid.

Small businesses using the cash basis method don’t have to wrangle with accruals or most capital allowances, but there is a turnover limit that forces businesses to switch from cash basis to accrual basis at a certain point. The government wants to make this simpler to help new businesses meet their tax obligations as they grow.

With HMRC looking into cash basis reform, here’s how the cash basis scheme could change, and how it could affect your small business.

What is the cash basis income threshold?

Currently, small self-employed businesses can only use the cash basis scheme if their turnover is below £150,000 a year (though they don’t need to leave the scheme until their annual turnover reaches £300,000). This threshold applies to all businesses owned – meaning if you have more than one, their combined turnover must not exceed the threshold.

As announced in the 2023 Spring Budget, the government will be consulting on ways to expand the cash basis scheme to expand eligibility and make the tax system easier to understand. Some of the ways that HMRC is considering increasing its availability include:

The first suggestion, if implemented, would set the same limits as the VAT cash accounting scheme.

While cash basis is currently an ‘opt in’ system, HMRC is also considering a change to an ‘opt out’ system, meaning it would become the default for eligible businesses.

Will loss relief rules change?

Some businesses may not want to opt in to using cash basis accounting due to restrictions on interest cost reliefs and losses. Currently, interest and bank charges have a maximum deduction of £500, and traders can only carry losses forward – they can’t be carried backward, or relieved against other income.

Though HMRC hasn’t announced anything definitively, the maximum interest and bank charges deduction could be increased up to £1,000
to accommodate higher interest rates. It’s also possible that the loss relief rules could be relaxed, but not to the same extent as accrual accounting rules.

Should your business use cash basis accounting?

Larger businesses that aren’t eligible for the cash basis scheme must use other traditional accounting methods, but if your small business fits the eligibility criteria, you could opt in.

With this method, you would have to record income as payments received and expenses as business costs paid during the tax year – not including payments still owed. Even VAT-registered businesses can use cash basis if their annual income (including VAT repayments from HMRC) is £150,000 or less.

However, cash basis may not be suitable if you have plans to grow your business quickly, apply for business financing, or have more complicated operations (e.g. keeping high levels of stock). When you have a higher turnover or more stakeholders get involved, you’ll have to switch to accrual basis for a more accurate analysis of income and expenses.

If you’re transitioning from one type of accounting to another and need professional guidance, or need help getting your financial records in order, why not enquire at GBAC? Our accountants in Barnsley offer a range of services that could help your business operate smoothly and grow at your desired pace, including bookkeeping and VAT and cloud accounting.

Eligible parents of children between 9 months old and school age will soon be able to get 15 or 30 hours a week of government-funded childcare during term-time.

Extending this childcare support to children 2 years old and under is one of the measures announced by the Chancellor in the 2023 Spring Budget to help parents with young children go back to work.

With childcare being one of the biggest costs for many households, this extension aims to reduce the financial barrier that prevents both parents from staying in work, while keeping the economy growing at the same time.

Here is a summary of what’s changing with childcare support, when these changes come into effect, and who will benefit from them.

When does this start and who is eligible?

At the moment, parents working over 16 hours a week
with an annual income below £100,000 are eligible for up to 30 hours a week of free childcare for children aged 3–4 years. This provision will be expanded to younger children aged 9 months–2 years over the next couple of years.

To be eligible, each parent must still work at least 16 hours per week earning the National Minimum Wage or National Living Wage, with a taxable income of less than £100,000. This means that parents who are trainees may not be eligible.

Those who are eligible can claim a childcare place for their child in the term that starts after they meet the minimum age requirement (after receiving a code for the childcare provider). Terms typically start from 1st January, 1st April, and 1st September.

Extended free childcare will not be available immediately, as some time is needed to prepare and implement the new measures. They will be phased in as follows:

This means that children who are currently 1–2 years old will not be eligible, but current newborns and babies born in the next few years onwards will benefit.

Though state-funded childcare will be available for younger children, it will still only be provided for up to 38 weeks a year. This also only applies in England, as different schemes are available in Scotland, Wales, and Northern Ireland.

Is there enough childcare support available?

While this is welcome news for those with newborns or in the family planning stage, there are concerns that there won’t be enough places available for parents to claim the extended free childcare when they need it. There is already a shortfall in places due to lack of resources, including staff, and the phased introduction only gives childcare providers a year to turn this around.

As per the Spring Budget, the government will increase funding for nurseries to £204m this year and to £288m next year, and increase the staff-to-child ratio from four children per staff member to five children. These measures are intended to help childcare providers to deliver the extended entitlement, but they may not be enough.

Additionally, the government currently only funds free childcare for up to 1,140 hours a year, which means the full 30 hours a week can only be claimed for 38 weeks. So, if parents want to receive the full amount of hours a week of childcare for the full year, they’ll have to fund the rest themselves.

It’s important to bear in mind that tax-free government childcare cannot be used at the same time as claiming tax credits – including Working Tax Credit or Child Credit – or receiving Universal Credit, a childcare grant or bursary, or childcare vouchers.

For more information on childcare support, government guidance on help paying for childcare can be found online. Or, for help with family financial planning, contact our accountants in Barnsley.

Out of over 12 million taxpayers who file self-assessment tax returns, under 3% do so via paper form submissions. Low demand meant HMRC already stopped sending paper tax return forms in the mail a few years ago, but the tax agency is now removing the option of downloading and printing off a blank version of the form from the government website.

This means that from 6th April 2023, taxpayers will no longer be able to download the form and complete a paper tax return that way, either. This is part of HMRC’s push towards digital submissions, reducing the use of paper and speeding up the filing process.

There are still around 135,000 taxpayers under 70 years old using downloaded forms, but as this will no longer be possible for the 2022–2023 tax year onwards, the tax agency will write to them to provide guidance on how they can file their returns from now on.

That’s not to say it’s no longer possible to file a paper tax return at all, but it will be a much more limited service that may not be worth the difficulty for those who are able to file digital returns.

How to file tax returns online

Completing tax returns online via the Making Tax Digital
platform is now the most sensible and convenient option for most taxpayers, with a range of commercial software available as alternatives.

If you’re switching from paper forms to online tax returns for the first time, you’ll need to:

You can then use your active account to file your tax returns digitally, as almost 97% of taxpayers already are. You’ll no longer have to worry about your paper tax form getting lost in the mail, and you’ll have more time to submit your return.

The deadline for paper tax returns is 31st October of the following tax year, while the deadline for online tax returns is 31st January of the next tax year, giving you an extra 3 months to complete them. Other benefits of filing online include:

This means that not only is filing tax returns online simpler and faster, but it can also help you to budget properly for the tax you’ll need to pay if you file in advance of the deadline.

What if you can’t submit an online tax return?

There are limited exceptions for accessing paper tax returns after 6th April 2023. Visually impaired people and those over 70 who have never filed online will still receive paper forms in the post from HMRC
automatically, and shouldn’t have to do anything differently.

However, anyone else who still wants to file a paper return will have to call HMRC to request the form. The agency may ask about your circumstances to find out why you cannot file online, such as lack of internet access or a disability, and offer support for submitting digitally in the future.

Those who have the appropriate commercial software may be able to print out a blank tax return to send in the post without having to call HMRC. However, this may only be accepted if your tax calculations are too complex for the online system.

Need help filing tax returns?

While capital gains tax (CGT) is going in the other direction, with a downloadable version of the UK property return form available as a trial for those who can’t report capital gains through the online service, the self-assessment tax return forms are no longer available.

Unless you have unchangeable circumstances that prevent you from filing online, it’s best to make the switch sooner rather than later. Once everything is set up, using the online system should make things run much more smoothly – and if you use your own accounting software, like Xero, you can connect them securely to transfer information directly.

Cloud accounting software also makes analysing financial information easier, providing opportunities to spot potential savings and manage taxes more efficiently. Of course, if you don’t have such software, but don’t want to use HMRC’s platform either, you can always outsource your accounting records and tax management to an agency like GBAC.

Here at GBAC, we have a team of accountants in Barnsley who can provide professional financial services and advice. Call us on 01226 298 298 today to learn more about how we can assist you with digital self-assessment tax returns.

Households across Britain have been dealing with ever-increasing energy bills for over a year, thanks to supply problems that were exacerbated by Russia invading Ukraine. While wholesale energy prices have fallen from their peak last summer, this hasn’t translated to lower energy bills yet.

Meanwhile, the UK government is continuing to subsidise household energy bills via the energy price guarantee (EPG). The current EPG of £2,500
was due to end in March, but the Spring Budget included an extension to maintain this level of support for another 3 months (1st April–30th June).

This is good news for employees who work from home, or home-based small business owners, who will have higher energy bills from spending more time in their residence. However, the support is still minimal – read on to find out what’s changing and how it could affect your energy costs.

How is the energy price guarantee changing?

The energy price guarantee (EPG) is a temporary subsidy offered by the UK government to limit the amount that energy suppliers can charge customers per unit. The government reimburses the suppliers for the difference between their capped price and the market price of wholesale energy.

The EPG set the annual energy price cap at £2,500
until 31st March, which was then due to increase to £3,000 from 1st April. However, campaigners warned that a £500 increase on top of winter discounts ending would double the amount of people in fuel poverty from 10%
to 20%.

To try and prevent this, the government is postponing the increase until 1st July 2023, effectively freezing the EPG at its current rate for 3 more months. Therefore, the average annual energy bill for a typical dual-fuel household shouldn’t be more than £2,500 a year while this applies.

While the current EPG remains, customers will not have to pay up to Ofgem’s energy price cap, which is currently £3,280 for this period. However, the EPG only applies when it is lower than the energy industry regulator’s cap, and this is predicted to fall closer to £2,000 in the second half of the year.

Will energy bills go up again?

Unfortunately, despite the price guarantee keeping the current cap on energy prices, many people will still see their energy bills increase from 1st April. This is largely because previous government support schemes have now ended, including the £400 Energy Bill Support Scheme, so those who had been paying a discounted price over the past few months will no longer have this support.

The second factor is that the EPG only caps the price of energy per unit, not energy bills in general – the government’s calculations apply for average energy usage. Your bills could therefore be higher or lower, depending on how much energy your household uses. A well-insulated home that uses less energy will continue to have lower costs than a poorly insulated home with high energy usage.

The government is optimistic that consumers won’t need the EPG as a crutch later in the year, reporting that the Office for Budget Responsibility (OBR)
predicts the UK will not fall into a recession this year as inflation is anticipated to drop to 2.9% by the end of 2023. This forecast should offer some consolation to small business owners who have struggled with rising costs recently.

While the EPG is a temporary measure that will end, Ofgem’s price cap isn’t – it will continue to be updated every 3 months, with the next one due to be announced at the end of May for commencement in July. When the EPG ends on 30th June, consumers will therefore be at the mercy of the Ofgem cap instead – but this is predicted to fall to around £2,100.

What does this mean for you and your business?

The 3 months of extended support for domestic consumers is far less generous than that for non-domestic business customers, who will continue to benefit from the EPG until 31st March 2024. However, saving up to £500 on energy costs is undoubtedly better than nothing.

Energy suppliers should have already notified customers of their new rates as soon as possible, and should correct any inaccuracies after 1st April if they didn’t update your tariff in time. Check your supplier’s website for the latest information, or consult the EPG regional rates for April to June 2023 to help you estimate your energy expenses for this period.

If you’re on a fixed tariff, it’s worth keeping an eye on prices, as a fixed deal could end up being higher than the price cap from July 2023 – making it beneficial to move to a standard tariff if you aren’t locked in to your current deal.

More information on the Energy Price Guarantee (EPG) is provided on the government website.

Every individual and business owner should be aiming to make savings wherever possible, especially if you are a self-employed small business owner who works from their home. Part of this should involve thorough accounting and tax planning – which GBAC can help with.

Contact our accountants in Barnsley to discuss our financial management services today.

Published on 21st March ahead of the new tax year starting on 6th April, the Spring Budget 2023 introduced a range of reforms for pension tax allowances. With more scope for pension savings, these new measures mean it’s a good time to review your retirement planning strategy.

The pension tax change making the biggest splash is the scrapping of the Lifetime Allowance (LTA) for pensions. This tax-free cap has been the cornerstone of pension tax planning since 2006, but rather than increasing the allowance to help pension savers, Chancellor Jeremy Hunt made the surprise move of abolishing the Pension LTA altogether.

The Spring Budget announcement also included several other significant adjustments to pension rules for the 2023–2024 tax year and beyond. Let’s take a look at the new measures to explore how they might affect you and your financial plans for retirement.

Why is the government abolishing the Pension LTA?

The Pension Lifetime Allowance (LTA) is the amount of money you can build up in your pension pot over your lifetime without having to pay an extra tax charge when you withdraw it. This was first introduced in 2006 by Gordon Brown and viewed as a kind of ‘wealth tax’ on the biggest savers, triggering a 55% tax charge for exceeding the LTA.

This allowance started at £1,500,000 in 2006, before increasing to £1,800,000 in 2010–2012, and gradually decreasing until being frozen at £1,073,100 from 2020–2026. This figure may seem more than enough for the average person with minimal pension savings, but it had the unintended consequence of affecting senior public service workers with high final salary pension schemes.

This meant that NHS employees, for example, were deterred from working and saving for longer by the high tax charge – contributing to NHS staff shortages. Chancellor Jeremy Hunt specified in his Spring Budget speech that the aim of removing the LTA is to encourage such senior workers to remain in the workforce for longer, or even to return to work after retiring early.

The abolition of the Pension LTA won’t just help NHS doctors and senior staff, though. Anyone who was considering retirement to avoid triggering the tax charge may now be incentivised to work for longer, keeping more experienced mid-to-high earners in employment.

To clarify, the pension savings cap will not be completely abolished until April 2024–2025, but LTA tax charges have been scrapped from April 2023–2024. This means you can contribute as much as you like to your pension savings from 6th April 2023 without worrying about the LTA charge, and anyone who withdraws their excess as a lump sum from this date onwards will only pay income tax rather than the much higher 55% LTA tax.

Is the Spring Budget changing other pension tax rules?

As of 6th April 2023, the Pension Lifetime Allowance has been reduced to 0%, and it will be fully removed next year with the 2024 Finance Bill. However, this isn’t the only change that pension savers should be aware of. Additional pension measures in the Spring Budget included:

These changes are mostly positive for pension savers, as they offer more tax relief. That said, the tax-free lump sum cap still remains – so the amount you can take out at commencement without being taxed is frozen at £268,275 (25% of the LTA).

Most people will welcome the increased pension allowances, especially considering that many other tax allowances – including personal income tax – have been frozen until 2028, and inflation continues to push workers into higher tax bands thanks to fiscal drag.

What does abolishing the Pension Lifetime Allowance mean for you?

If your combined pension savings are getting closer and closer to the Lifetime Allowance (LTA), the Spring Budget reforms could give you the opportunity to continue working while boosting your pension contributions for longer.

Of course, you’ll still have to be wary of other tax traps – your personal circumstances and where you live as a UK citizen will also affect your pension tax liabilities. Additionally, these rules could change again in the near future, as the Labour Party claims it will reintroduce the LTA
but with special exemptions for NHS doctors if Labour wins the next General Election.

Before taking any action regarding your pension, you may want to seek professional financial planning advice. At GBAC, our accountants in Barnsley offer efficient tax planning services that could help you get the most out of your retirement fund.

Give our team a call on 01226 298 298 to arrange a consultation and learn more about how our accounting services could benefit you and your financial future.

The UK government provides state benefits for parents with dependent children whose partners have passed away, in the form of Bereavement Support Payments.

Previously, bereaved parents were only eligible for these benefits if they were married to or in a civil partnership with their cohabiting partner at the time of their death.

However, the law is now changing to provide financial support for more grieving parents raising children after losing their partner, regardless of the legal status of their relationship.

This means parents who were cohabiting with their partner, whom they have at least one child with, can now apply for Bereavement Support Payments (BSP).

Does this change in the bereavement benefit law affect you? Here’s what you should know about the new rules and who is now eligible to apply.

How are bereavement benefits changing?

Despite just over 1 in 5 couples in the UK living together without being married or in civil partnerships as of 2021, the UK government has brushed off most suggestions for cohabitation law reforms that would give these couples similar legal rights if they split up or a partner passes away.

Cohabiting couples are often treated unfairly by legal frameworks that don’t consider them equal to married couples or civil partners. For example, the joint income of a cohabiting couple is taken into account for state benefit claims like Universal Credit, yet they are classed as unrelated individuals for Inheritance Tax (IHT) purposes.

In the last several years, two cases challenging this differential treatment took the government to court concerning bereavement benefits. The government lost both cases – but not because of discrimination against unmarried couples. Instead, the courts found that the couples’ children were being treated unequally, against the European Convention of Human Rights.

In any case, three years after the second court judgment, the government is now introducing legislation revising the original law. The change means that if an individual in a cohabiting couple with dependent children passes away, the surviving partner is entitled to the same rate of bereavement benefits as a married spouse or civil partner would be.

This has also been backdated to the first Supreme Court ruling in the aforementioned cases, which was on 30th August 2018. It covers the legacy benefit Widowed Parent’s Allowance (WPA), too, which was replaced by Bereavement Support Payment (BSP) in April 2017.

Who can apply for backdated bereavement benefits?

The eligibility criteria changes came into effect on 9th February 2023, meaning that cohabiting parents whose partner passes away after this date may now be able to claim BSP. This is expected to help up to 1,800 more families a year, who would otherwise be struggling financially and unsupported by the state following the death of a parent and partner.

For cohabitating partners who were bereaved before this date, the Department for Work and Pensions (DWP) has opened a 12-month
application window for retrospective claims.

The Childhood Bereavement Network (CBN) estimates that around 21,000 widowed parents will now be able to make a retrospective claim. If the claimant is eligible, the government could make payments dated back to August 2018.

These families could even have been bereaved as far back as 2001
– if the partner passed away before 6th April 2017 and the survivor would have met the eligibility criteria for the replaced WPA on or after 30th August 2018, they could now apply for backdated BSP.

The amount the claimant will be entitled to depends on when their partner passed away, their partner’s National Insurance Contributions (NICs), their age, and whether they were pregnant with their partner’s child at the time of their death or have been entitled to/receiving Child Benefit for at least one child with their partner.

Unfortunately, this means that only unmarried couples with dependent children are eligible for BSP, so cohabiting couples who don’t have dependent children are still excluded and can’t make a claim.

How to claim Bereavement Support Payments

To apply for BSP, you can either use the trial online service, call the Bereavement Service helpline, or download and print a BSP1 Form to send in the post. You can find more details on Bereavement Payment Support eligibility and the information you’ll need to provide on the government website.

BSP is usually awarded as an initial lump sum of £3,500, followed by up to 18 monthly payments of £350. You may receive fewer payments depending on when your partner died, or different amounts depending on when and how they died if you are applying for WPA instead.

While BSP is a tax-free benefit, any payments after the first year of receiving it could then affect other benefit claims, such as Universal Credit. It’s important to consider how these payments, especially larger back payments, may affect your entitlements and liabilities.

While the BSP rates were set back in 2017, they haven’t been adjusted since, which means inflation has now reduced their value by up to a fifth. This is yet another reminder that the state’s ‘safety net’ for cohabiting couples is inadequate, showing how important it is to build your own financial safety net to protect your family both in the present and the future.

Here at GBAC, we provide a selection of helpful financial planning services for individuals and businesses, from tax consultancy
to wills and probate. If you would like professional fiscal advice and support with managing your family finances, contact our accountants in Barnsley to find out how our services could benefit you and your family.

During the COVID-19 pandemic, the government provided millions of pounds in support to struggling businesses, which would eventually have to be paid back. Meanwhile, the closures of courts created a backlog in insolvency cases, along with restrictions on cases against debtors whose inability to pay resulted from the pandemic.

Since the temporary restrictions were lifted and the courts are catching up, HMRC is now ramping back up when it comes to chasing debt.

With a tax gap of up to £32 billion, the tax agency is under increasing pressure to collect the missing money. As a result, HMRC is filing more and more winding-up petitions against companies in serious tax debt to recover the tax from their liquidated assets.

These debt enforcement measures come at an especially bad time for most UK businesses, who are already struggling with the strain of inflation, high interest, and decreased consumer spending.

The last quarter of 2022 saw a 36% increase in companies in financial distress compared to the previous year, with winding-up petitions increasing by 131% compared to 2021. This January, compulsory liquidations resulting from winding-up petitions were up by 52%
year-on-year.

With so many businesses in financial crisis, what happens if a winding-up petition is filed against you? Read on to learn more about how you could avoid this by communicating with HMRC.

How does a winding-up petition work?

A limited company that cannot pay its debts could be liquidated (‘wound up’) if the person or organisation they owe applies to the courts. They can get a court judgment or a statutory demand officially requesting payment, or apply for a winding-up order, which would force the company to close and liquidate its assets.

Applying for a winding-up order is known as a winding-up petition. If the petition is accepted by the court, they will set a hearing date, during which they will decide whether the company should be deemed insolvent. The company can attempt to dispute the petition if the debt in question is inaccurate, or the petition isn’t valid.

Otherwise, if the court decides that the company is not capable of paying its debts, a winding-up order will be issued, and an Official Receiver appointed to irreversibly liquidate the company. The debtor will have 5 working days from its issue to apply to rescind the order if they can prove that they can pay their debts in some other way.

For example, if the company can negotiate a Company Voluntary Arrangement (CVA) with the creditors then they can apply for a stay of proceedings. Alternatively, they could override the order by hiring an insolvency practitioner (IP) to move the company into administration.

If an unchallenged winding-up order goes ahead, the company accounts will be frozen so the business can no longer trade, and it will be public knowledge that the company has been forced into liquidation to distribute the assets to its creditors.

Will HMRC help if a company cannot pay its tax debts?

If your company owes money to HMRC, there is a chance that the tax agency will work with you to arrange an alternative agreement for repayment, rather than applying for a winding-up petition against you. However, this depends on your company’s financial situation.

HMRC is willing to work with businesses experiencing temporary financial setbacks or short-term cash flow issues, but only if they have a viable future. The agency will consider the company’s overall financial position, including any outstanding COVID-19 loans and bank debt alongside tax liabilities.

If there is little chance of the business recovering financially from its debts, HMRC is unlikely to agree to an alternative repayment plan for tax debts. Instead, they’re likely to enforce debt collection.

If the company cannot pay and continues to accrue debt, this may result in a winding-up petition application. This is even more likely if the business doesn’t communicate with HMRC at all.

The best thing for a company accruing tax debt to do is to contact HMRC and discuss its position as early as possible. Engaging with the tax agency early could avoid investigations and subsequent enforcement action, as HMRC could allow the business to set up a Time to Pay arrangement.

What is a Time to Pay (TTP) arrangement?

HMRC recognises that circumstances outside of a company’s control can lead to missed deadlines and financial difficulties. In cases where a business is experiencing genuine financial difficulty and needs additional time to pay off tax arrears – including VAT, PAYE, and Corporation Tax – the agency may allow them to set up a Time to Pay (TTP) arrangement.

A TTP agreement provides a repayment schedule for paying off outstanding tax debt, typically through monthly payments for a period of up to 12 months. The length of the arrangement and the monthly amount should be reasonable, so the debt is paid off as quickly as possible, but the repayments are still affordable for the business.

There is no legal right to be granted a TTP
arrangement, so a company applying for one would have to provide a solid case to HMRC. The tax agency will want to know about financial prospects and previous efforts to raise funds. For example, selling assets to raise money for repaying tax liabilities.

The larger the tax liability, the more diligently HMRC
will investigate the company’s finances. A good record of tax compliance could sway things in the company’s favour, while a history of late payments and previous applications for government support could decrease their chances of success.

A key aspect of the TTP scheme is that the company must keep up with current tax payments at the same time as paying off arrears. HMRC
will monitor and review the business for continued tax compliance, and if they fail to keep up, the TTP arrangement may be cancelled and the debt recovered immediately in full – potentially through a winding-up petition.

Should you apply for a Time to Pay agreement?

If your business has been facing financial difficulties and you’ve found yourself with mounting tax arrears, you may want to consider applying for a Time to Pay (TTP) arrangement. You may be able to successfully negotiate a repayment schedule if:

You can find more information on how to contact HMRC about Time to Pay on the government website. If you would prefer to have someone liaise with the tax agency on your company’s behalf, you may want to hire a tax consultant to help get your tax affairs in the best shape possible and manage ongoing HMRC enquiries for you.

Our accountants in Barnsley provide professional financial advice and tax management services for a variety of businesses. Whether your company is large or small, you can contact GBAC to get started with improving the financial position of your business.

The new points-based penalty system for late VAT return submissions began on 1st January 2023, meaning the first monthly returns to be affected were due by 7th March. The first quarterly returns affected are due by 7th May.

This new regime replaces the old default surcharge system, along with a separate penalty regime for late VAT payments and a new system for charging interest.

From the start of 2023, the late submission penalties will apply for all accounting periods if a VAT return is submitted late – including nil VAT returns and repayment returns.

This means that if you keep missing VAT return
deadlines and accrue too many late submission penalty points, you could be hit with a £200 fine. Keep reading to learn how the points system works and how to avoid getting a financial penalty.

Late VAT penalty points thresholds

VAT-registered businesses are expected to submit a Value Added Tax return by the deadline for their accounting period. Every time a trader misses a deadline, whether it’s monthly, quarterly, or annually, they will receive 1 penalty point.

There is a different points threshold depending on the submission frequency, but if the trader continues to miss deadlines after the first time and receives a certain amount of penalty points, they will have to pay a £200 fine.

These are the points thresholds for each VAT accounting period, indicating how many late submissions you can make before having to pay a fine:

VAT accounting period

Penalty points threshold

Monthly

5

Quarterly

4

Annually

2

Some late VAT returns will not receive a penalty point in certain circumstances. For example, the first submission for a newly VAT-registered business, the final submission after de-registering, or a one-off submission covering a different period.

Late VAT return compliance

The points threshold is not a limit, meaning you can continue to accrue penalty points and further fines. If the trader passes the threshold and then misses further submission deadlines, HMRC will charge an additional £200 for each late submission.

In order to avoid this and reset their penalty points to zero after hitting the threshold, the trader must submit every consecutive VAT return on time throughout a minimum ‘compliance period’. Here are the compliance periods for each VAT accounting period:

VAT accounting period

Compliance period

Monthly

6 months

Quarterly

12 months

Annually

24 months

For example, from the fifth late monthly submission onwards, a £200 fine would be charged for every late return. If the trader was on 4 penalty points and wanted to avoid the fine, they would have to submit 6 consecutive returns on time for their points balance to reset.

Penalty points can only be removed and the balance reset to zero if the trader ensures that all outstanding VAT returns from the previous 24 months have been submitted, and follows the relevant compliance period.

Otherwise, individual penalty points will expire after 24 months (if the submission deadline wasn’t on the last day of a month) or 25 months (if the return was due on the last day of a month).

Late payment penalties and interest

In addition to getting penalty points for late filing, traders also have to bear in mind that submitting their return late makes it likely that they’ve also missed the payment deadline.

With the exception of the Annual Accounting Scheme, returns must be filed and outstanding tax paid no less than 1 calendar month and 7 days from the last day of the accounting period.

If a trader doesn’t pay their tax bill on time, the outstanding balance (including any fines) will begin to accrue daily interest charged on top at the Bank of England rate plus 2.5%. They won’t be charged more if they pay off the outstanding tax bill within 15 days.

However, a percentage of the late payment owed will be charged as a penalty, as follows:

Of course, interest will be charged until the total is cleared, so it can be easy for financial penalties to rack up over time if a trader doesn’t stay on top of their tax returns and payments.

Get help with late VAT penalties

More information about the new VAT penalty system can be found on the government website. The regime shouldn’t worry you too much if it’s rare for you to miss a deadline, but for traders who consistently submit tax returns late or miss payment deadlines, these mistakes can be costly.

Avoiding tallying up penalty points and fines can be difficult without careful planning. It’s important to stay on top of your online VAT account, and take steps to address penalties as quickly as possible. Depending on your circumstances, you may be able to appeal against a VAT penalty.

If you need help with VAT management, including dealing with penalties, enquiries, and appeals, our accountants in Barnsley can assist you. Browse our website to learn more about what we do and contact GBAC to get started with our tax consultants.

Tax codes for the 2023–2024
tax year, which begins on 6th April 2023, have already been issued for most employees and directors.

Employers will use these codes to collect Income Tax
and National Insurance Contributions through PAYE – but what if you’ve been assigned the wrong tax code?

This could result in you paying too much tax, which can affect your monthly budgeting, or paying too little tax, which could lead to an unexpected Income Tax bill.

The last thing anyone wants is to overpay tax and have to fight for a refund, or to underpay tax and suddenly owe significant back payments.

Here’s what you should know to make sure you’re on the right tax code and paying the appropriate amount of Income Tax in 2023.

Income Tax codes and allowances

In the UK (excluding Scotland), Income Tax is charged as a percentage of an individual’s earnings from employment and/or profits from self-employment. It may also be due on some pensions, savings, and investments.

Everyone has a Personal Allowance of £12,570, which is the amount you can earn tax-free. Any income or profits over this amount are liable for Income Tax at progressive rates:

The new tax year sees the upper threshold of the higher rate and the lower threshold of the additional rate drop from the previous £150,000 to £125,140 – this is because your Personal Allowance is reduced by £1 for every £2 you earn above £100,000.

This means that some higher earners will be pushed into the additional rate tax band and receive a new tax code. The threshold for basic rate tax and the lower threshold for higher rate tax have been frozen until 2028, which also means that lower earners may be pushed into a higher tax bracket as wages increase.

What is my tax code?

HMRC assigns every employed earner a tax code, which employers and pension providers use to deduct the appropriate amounts of Income Tax from the earner’s pay or pension. This code is made of numbers and letters that indicate your tax allowances, based on your circumstances.

The most common tax code is 1257L, which indicates that the earner is entitled to the standard £12,570 tax-free allowance. This applies to most people in employment with one job – but if you have more than one job or pension, you’re likely to have more than one tax code.

You can find your tax code on your payslips, coding notices from HMRC, P60s at the end of the tax year, P45s when changing jobs, and in your personal information in the HMRC app.

If you aren’t sure what the letters at the end mean, you can check this tax code letters guide. The letters should indicate whether you’re entitled to the full Personal Allowance, which rate of Income Tax you’re paying on this income stream, and whether you’re using a Marriage Allowance.

Why is my tax code wrong?

Ending up on the wrong tax code invariably means paying the wrong amount of tax, and while HMRC’s mistake is a hassle for the taxpayer, it’s actually the individual’s responsibility to check they’re on the right code and notify HMRC if there’s an issue.

There are many reasons why you may be on the wrong tax code, and why HMRC might update your tax code incorrectly at the start of a new tax year – such as:

This usually happens because HMRC has outdated information about your income and allowances, which affects their ability to calculate your current tax liabilities. Allowable expenses and taxable benefits can change from year to year, so it’s important to make sure your employer keeps their PAYE system up to date.

Emergency tax codes

If your employment circumstances or income level change, but HMRC doesn’t receive enough information about this to adjust your tax liabilities, then you may be given an emergency tax code.

If your tax code ends in W1, M1, or X, you could be paying emergency tax. Meaning everything earned above the Personal Allowance is taxed, without accounting for any other allowances or benefits you may be entitled to.

This is usually only temporary, as HMRC should adjust your tax code as soon as they receive up-to-date information about your change in circumstances, but it can still cause cashflow problems for taxpayers. If your changing circumstances mean you haven’t been paying the correct amount of tax, you’ll stay on the emergency code until you’ve caught up.

If your tax code ends in K, this isn’t an emergency code, but it does mean that you have taxable income worth more than the Personal Allowance from another source that is now being taxed through PAYE. For example, repaying previously owed tax through your wages or pension, or receiving taxable benefits (state or company). No more than half of your pre-tax wage or pension can be taken when you have a K tax code.

What to do if you’re on the wrong tax code

In most cases, your employer should supply the updated information to HMRC when your circumstances change, and HMRC will then update your tax code automatically. When this doesn’t happen, you’re highly likely to end up on the wrong code, so it’s worth checking your tax code sooner rather than later.

You can view your current tax information by logging into your personal tax account with your Government Gateway ID, or using the HMRC app. If you are worried that you have the wrong tax code, you can use the ‘check your income tax’ service on the government website to make sure your employment details are correct.

You can also use this service to update HMRC with your current employment details and notify them of any income changes that may have affected your tax code. Alternatively, you can do this by contacting HMRC directly – you may be asked to provide details of your annual income and any benefits or pension payments you receive.

If your tax code needs to be changed, HMRC will contact you and your employer and/or pension provider with the revised code. This should show on your next payslip, along with any adjustments to your pay if you had been paying the wrong amount of tax.

The tax agency should send you either a P800 tax calculation letter or a Simple Assessment letter to notify you if you’ve been paying too much or too little tax. If you’ve overpaid, you could receive a refund via a tax deduction for the current year, or a cheque for previous years. If you’ve overpaid, you’ll either receive an outstanding tax bill to pay, or be put on an emergency tax code until you’ve paid off the outstanding Income Tax.

Save money with efficient tax management

With fiscal drag pulling more and more people into a higher tax band, and the cost of living crisis cutting into budgets across the country, it’s not a good time to find out you haven’t been paying enough tax because you’re on the wrong tax code.

Of course, it would be a great time to find out you’ve been overpaying, and are actually due a tax rebate instead – but either way, you won’t find out unless you check your personal tax account and stay on top of your tax code information.

Do you need help managing your tax affairs? Whether you’re an individual dealing with a HMRC enquiry
over a tax code dispute or an employer looking to outsource payroll services
for more efficient management, our accountants in Leeds and Barnsley
could provide a solution.

Contact us on 01226 298 298 or at info@gbac.co.uk
to speak to GBAC, accountants in Barnsley, team today, and find out how our tax planning services could benefit you.