HMRC used to focus on cash sales when looking at businesses declaring suspiciously low turnovers. Now, thanks to the decline of cash – exacerbated by COVID-19 – there has been a rise in businesses using electronic sales suppression (ESS) tools to falsify their sales records.

Electronic sales suppression involves hiding the true amount of sales or the true value of sales with ESS software, hardware, or computer code scripts. This is done at or after the point of sale, with the electronic records appearing to be credible and compliant, while really reducing the amount of tax that the business should be paying.

This counts as tax evasion, so HMRC is cracking down on individuals and businesses who use ESS tools to commit tax fraud. Criminal investigations into ESS can result in financial penalties and even prison sentences – so time is running out for anyone who has used ESS tools to reduce tax to come clean to HMRC.

What are the penalties for ESS?

HMRC has legal powers to request certain documents and information from individuals and businesses to confirm their tax position. If the person or company does not comply with a notice from HMRC, the tax agency can open a full investigation – and if evidence of electronic sales suppression is found, HMRC can charge them with significant penalties.

Penalties can apply whether you are in possession of an ESS tool, or made, supplied, or promoted an ESS tool. You don’t need to have actually used an ESS tool to suppress your sales or actively avoid tax; possessing or distributing the tool, or even trying to access one, is enough to warrant a penalty.

Penalties for possessing ESS tools

The initial penalty for possessing an ESS tool is up to £1,000, plus up to £75 a day until HMRC is satisfied that the taxpayer no longer possesses the tool. The daily penalties can run up to a maximum of £50,000. Of course, this is all in addition to the avoided tax that must be paid back – including any fraudulent VAT, income tax, or corporation tax reductions.

The taxpayer may be able to avoid the initial penalty if they can prove that the tool is no longer in their possession within 30 days
of receiving the notice from HMRC. However, if the taxpayer has already been subject to a similar penalty before, HMRC will enforce the fixed penalty.

HMRC can also charge further penalties for filing inaccurate tax returns, providing false information, and failing to notify the tax agency of taxes due. As card payments for unreported sales are often routed through offshore bank accounts, it can be difficult to prove that concealing such information wasn’t a deliberate act of tax fraud.

Penalties for making, modifying, supplying, or promoting ESS tools

The penalties for creating or distributing ESS tools are a little more complicated. HMRC may not charge an initial penalty if you can prove that you weren’t aware the tool was intended for electronic sales suppression, or if you have already been criminally convicted for your involvement.

HMRC can charge a maximum penalty of £50,000 per incident of making, supplying, or promoting an ESS tool, but the penalty will typically be a percentage of this amount. The percentage will be calculated based on the complexity of the ESS tool and whether the fraudulent activity was disclosed voluntarily or following prompts from HMRC:

Complexity of the ESS tool

Unprompted disclosure

Prompted disclosure

Low

10% – 40%

20% – 40%

Medium

30% – 80%

45% – 80%

High

50% – 100%

70% – 100%

If you make a ‘quality disclosure’ – working as honestly and co-operatively as possible with HMRC to provide all the information requested – then the tax agency may reduce the penalty. If the maximum reduction available is 100%, HMRC may offer 30% for telling them about the tool and your involvement, 40% for helping to identify others involved in spreading the tool, and 30% for giving them access to records of users, suppliers, and promoters.

Should your business disclose ESS?

The best way to avoid such penalties from HMRC is to not use or engage with ESS tools at all. You should not install ESS tools on any devices, configure settings within electronic point-of-sale (EPOS) systems to activate ESS, or access someone else’s ESS tool in any way.

Of course, you should also be maintaining complete and correct financial records for your business activities. This will ensure that you don’t accidentally under-report your turnover, and will make it easier to provide the required evidence if you do receive a notice from HMRC.

You can find detailed ESS guidance on the government website. If you have been involved with electronic sales suppression, whether accidentally or intentionally, the government is allowing voluntary ESS disclosures about misusing till systems until 9th April 2023
– doing so could reduce any penalties you may be liable for.

Should you need professional assistance with bookkeeping and VAT, or managing HMRC enquiries
and tax investigations, you can turn to GBAC. Our accountants in Barnsley, and Leeds, work with individuals and businesses of all sizes to provide efficient tax management services – so get in touch today to learn how we can help you.

The cost of living in the UK increased sharply in 2022, with annual inflation reaching its highest rate in over 40 years at 10.5% – up from 5.4% in 2021.

The Office for National Statistics (ONS) states that this is the highest annual inflation rate since 1981, but what caused this drastic effect? Its research into the components of inflation in 2022 reveals the biggest contributors to soaring prices.

Causes of inflation in 2022

To calculate inflation, the ONS monitors the prices of everyday items in a hypothetical ‘basket of goods’ – known as the Consumer Price Index (CPI). The inflation rate is tracked with monthly figures, which hit an all-year high at 11.1% in October 2022.

The ONS ‘basket’ above is presented as a hierarchy graph, showing the annual inflation rates for 12 categories, which are weighted according to the average household expenditure in each category. As you can see, not all components faced an inflation increase in the double digits.

While ‘transport’ was the sector with the highest inflation, households spent less proportionally on this category than three others with slightly lower rates.

The largest spending category had the second-highest inflation rate at 13.1% – with ‘housing, water, electricity, gas and other fuels’ coming in at just 0/1% below transport. Unsurprisingly, gas and electricity were the largest contributors to inflation in this section, with prices shooting up as a result of supply pressures brought about by the war in Ukraine.

The next largest category after this was ‘food and non-alcoholic beverages’ at 11.6%, which was also influenced by the war and international sanctions on Russia, as these affected agricultural exports such as wheat. Other factors, like Brexit, also contributed towards rising prices for goods such as milk, cheese, olive oil, sugar, honey, chocolate, and soft drinks, amongst others.

As the main categories contributing to inflation – food and fuels – saw prices rise because of the Russia/Ukraine war, this should hopefully stabilize now we’re over a year on from the invasion.

Will inflation go down in 2023?

With supply chain bottlenecks easing and wholesale gas prices falling, the Bank of England anticipates that inflation will begin to fall by the middle of the year, and should drop to about 4% by the end of 2023 – on track to lower to the government’s target of 2% in 2024.

Prices are likely to remain high for the time being, so financial pressures will ease slowly enough that many people may not notice a difference in their month-to-month expenditure. Inflation will also still be high enough that long-term financial planning should take this into account.

If you could use financial planning services to help you manage your expenses, including taxes, our accountants in Barnsley and Leeds would be happy to hear from you. Call us on 01226 298 298 or email info@gbac.co.uk to discuss your requirements and learn more about what we can do for you.

The official HMRC app was launched several years ago, but the revamped version launched in 2022 has been gaining popularity as a particularly helpful resource for self-assessment taxpayers.

On top of encouraging taxpayers to use the app, HMRC
is also trialling a text messaging service to help people who contact them by mobile phone to find relevant information online.

Here’s a summary of how the app and text message service work, and a reminder of what you can do to avoid being caught out by scammers pretending to be HMRC.

How to use the HMRC app

To set up the HMRC app on your smart device, you must first download it from the App Store for iOS or the Google Play Store for Android. Apple users have given the app an average rating of 4.5/5 stars, while Android users rate it 4.7/5 stars.

Once you’ve followed the instructions to download and set up the app, you’ll need to sign in using your existing Government Gateway ID and password. If you don’t already have an account, you can register to create one. After this first log-in, you can set up fingerprint or facial recognition or a six-digit PIN, so you can log in faster next time.

Any time you access the app, you can use it to check important tax details, including:

The app allows you to update your address, report changes, and claim refunds for overpaid tax. There is also an in-app tax calculator that you can use to work out your take-home pay after National Insurance contributions and Income Tax deductions.

New HMRC texting service

In January 2023, HMRC launched the trial version of its new SMS/text message service. It’s designed to redirect individuals who call the helpline about routine matters to digital services that could provide the relevant guidance, rather than waiting to be put through to an adviser.

Some callers will be offered the choice between holding for an adviser, which could take a while, or receiving a text message with information that matches the key words used to describe their tax query. If the caller opts to receive the text, the call will be disconnected after this is confirmed.

The technology may automatically send a text and disconnect the call without the option to hold for an adviser if it’s considered a routine query, such as:

The message received may point the caller to guidance published on the government website (gov.uk) or to alternative contact information for the appropriate HMRC department. If the caller finds this insufficient and wants to call back, they must use different wording for their query.

Be wary of HMRC scammers

The app and messaging service are part of HMRC’s efforts to reduce customer service backlogs by directing routine queries to secure sources of information. Unfortunately, the news that HMRC is sending official text messages may encourage criminals to conduct phishing scams, pretending to be the tax agency in order to steal sensitive information or money.

You should always remember that messages from HMRC
will never ask you to provide personal details or financial information, nor will they include phone numbers or links to non-government websites (other than their official survey platform). Check the HMRC scam guide if you’re unsure, and report any scams that you identify to phishing@hmrc.gov.uk before deleting them.

If your tax affairs are too complex to manage individually through the app, or you’re concerned about getting stuck in a text message loop instead of being able to speak to an adviser, you might prefer to hire a tax consultant. Contact GBAC, accountants in Barnsley, today to learn more about our tax consultancy
and HMRC enquiry
services.

Following the dramatic increase in the number of people earning a living online since the lockdown days of the COVID-19 pandemic, HMRC
is now sending ‘nudge letters’ to those who may have failed to declare taxable income from online activities in the last few years.

These letters are currently targeting over 2,000 people who earn money or accept gifts in exchange for content creation on social media platforms such as TikTok, Instagram, and YouTube. HMRC also plans to send another wave of letters to 2,000 sellers regarding their income from online marketplaces such as eBay, Etsy, and Facebook.

This ‘nudge letter’ exercise is part of the tax agency’s attempts to keep up with the digital economy, using data analytics from a range of online platforms to identify people whose online activities may have resulted in undeclared taxable income.

If you participate in online trading, content creation, or sponsored influencing, you may have already received one of these letters – or can expect to receive one soon. This blog explains what these HMRC notifications could mean for you, and the next steps you should take.

Why is HMRC contacting content creators and online sellers?

Online trading and content creation have experienced a boom in activity in recent years. A global study by the software company Adobe revealed that ‘content creators’ in the UK doubled from 8 million in 2020 to 16 million in 2022, with 76% using this as a ‘side hustle’.

Despite the majority of these content creators being millennials or Gen X, there are many young people in their teens and twenties who don’t know much about tax, meaning they may not even realise that they should be paying income tax on the money they earn online.

The same goes for online sellers and influencers, who may not realise that there is an annual tax-free allowance of £1,000
for trading and miscellaneous income, and that turning a regular profit or accepting gifts for promotional purposes is likely to exceed it.

With content creators and influencers in the UK earning an average of £94–122 an hour according to Adobe’s study, it’s not surprising that HMRC is chasing down high online earners to recoup missing tax revenue.

However, the letters they’re sending out aren’t accusing individuals of tax evasion, so you shouldn’t panic if you get one. The agency is simply informing people that they might owe unpaid tax, and giving them the opportunity to declare their income.

What counts as online trading or online income?

Some people believe that they only need to worry about the Personal Allowance, which currently allows people to earn £12,570 income tax-free, but this isn’t the case. Many aren’t aware that all profits made from online activity are taxable, or that there is a yearly allowance of £1,000
earnings from such activities before income tax is chargeable.

There are no special rules for different types of online income – individuals need to register with HMRC and submit an annual self-assessment tax return if their online income exceeds the allowance. Alternatively, if you decide to set up a company for your online activities, you have to register for corporate tax instead.

Essentially, if you earned more than £1,000 from online activity within a tax year, you need to declare this to HMRC. It doesn’t matter whether you consider yourself self-employed, full-time or part-time, or not – any online activity you participate in with the aim of making a financial profit can be considered trading activity, with income that must be declared via self-assessment.

This applies even if you’re a content creator or influencer exchanging promotional activity for gifts rather than actual money. The cash value of the goods at the time you received them counts towards your earnings, so you must calculate what they’re worth and report this to HMRC if their value exceeds the allowance.

There are many ways to earn additional income from one-off activities, so if you aren’t sure whether your ‘side’ earnings are taxable, the government website has an online tool that can help you to figure out whether you need to submit a self-assessment tax return or not.

What should you do if you receive a tax letter from HMRC?

If you get one of these letters from the tax agency, it will ask you to submit a ‘certificate of tax position’ within 30 days
of receiving it. They recommend using the government’s secure online disclosure service to voluntarily disclose your additional income, after which you’ll have 90 days from receipt of the letter to pay any outstanding tax calculated.

You’re not legally obligated to complete the certificate of tax position and return it to HMRC, but not responding to their ‘nudge’ will only draw more attention. The agency may open an investigation into your tax affairs, and deliberate avoidance could result in financial penalties and even court action on top of having to pay the outstanding tax and interest you’re liable for.

Under no circumstances should you ignore the letter. It’s much better to respond before the deadline by making a voluntary disclosure, or explaining a valid reason why your online income didn’t need to be declared. Compliance will make the process faster and easier for you, potentially reducing late tax penalties and allowing you to arrange a tax repayment plan.

To work out the total amount you should declare, you’ll need to keep track of all the money and cash equivalents you’ve earned, as well as any tax-deductible expenses you may be able to claim.

Tax advice for online sellers and influencers

HMRC is making its message clear – anyone with undisclosed income from online or digital activities urgently needs to take action to bring their tax accounts up to date. If they don’t, they risk becoming the subject of a tax investigation and having to pay additional fines and penalties.

The ongoing process of keeping financial records and filing tax returns can seem stressful and complicated to online traders and content creators who are new to tax matters, but the government has published a step-by-step guide
on setting yourself up as a self-employed sole trader.

If you’d rather have an expert handle your tax affairs on your behalf than wrangle accounting software on your own, GBAC can help with a range of accounting services, including:

Contact us, accountants in Barnsley on 01226 298 298 or email info@gbac.co.uk to find out how we can help you, so you can spend more time concentrating on growing your online business or following.

The UK government’s current Energy Bill Relief Scheme (EBRS) is continuing to offer discounted energy costs for non-domestic consumers of wholesale gas and electricity until the end of March.

This six-month scheme, which started on 1st October 2022
and will end on 31st March 2023, was always intended to be a temporary measure to help businesses continue to operate throughout the cost of energy crisis over the winter.

Now this is coming to an end, the government will be replacing it with the new Energy Bills Discount Scheme (EBDS) from 1st April 2023 until 31st March 2024. This twelve-month scheme will be less generous, as there is no ‘government supported price’ cap, and businesses with energy costs below a certain amount will not qualify.

Here’s how the new energy bill support scheme for businesses will work, and how it could affect your business in the next year.

How will the Energy Bills Discount Scheme work?

Just as the Energy Prices Act 2022 gave the government powers to create the EBRS, the EBDS will also be regulated under this law. While the previous scheme was based on fixed prices, the EBDS will only provide a discount on existing wholesale energy prices.

These per-unit discounts are applied in MWh (megawatt hours), whereas energy is typically billed in kWh (kilowatt hours). The conversion results in a discount of around 2p per unit for electricity and 0.5p per unit for gas, which isn’t much of a reduction.

Who is eligible for the Energy Bills Discount Scheme?

As with the first scheme, the EBDS will be available for all energy consumers on a non-domestic contract. This includes businesses, organisations in the voluntary sector, and public sector organisations – including charities, hospitals, care homes, and schools.

To be eligible, your business must be on an existing fixed-price contract that began on or after 1st December 2021, signing a new fixed-price contract, out of contract on a standard variable tariff, or on a flexible purchase contract.

Again, as per the earlier scheme, eligible customers don’t need to apply. Energy suppliers will apply the reductions automatically, and the government will compensate them for the savings they’re passing on to their non-domestic consumers.

The discount should be detailed on customers’ energy bills in p/kWh (pence per kilowatt hour), with individual bills continuing to vary across different contracts, tariffs, and usage patterns.

What about energy intensive businesses?

Some businesses in Energy and Trade Intensive Industries (ETII) may be eligible for a greater discount, but they’ll have to apply for this level of support. The higher discount only applies to 70% of the energy volume, with the following thresholds:

The government has shared a list of eligible ETII sectors for the higher level of support under the EBDS, and energy suppliers should be sharing application procedures for their business energy customers in due course.

Other energy bill support options for businesses

Though most businesses won’t need to take any specific action to receive the energy bill reduction under the EBDS, all businesses should still be considering how the changes in government support for energy costs will impact their cash flows from April 2023.

To this end, you may also want to look into other energy bill discounts for businesses to make sure you’ve been receiving the support your business has been eligible for, including:

If your business is making the most of government support for energy bills, but you still have concerns about your cash flow, you may benefit from professional accounting services. Contact our accountants in Barnsley and Leeds to learn more about how GBAC could help your business.

With so much upheaval around the mini-budget and Autumn Statement at the end of last year, some of the details that would usually have been published with the Statement took some time to emerge. This included information on the fuel benefit charge for company cars, which arrived in a bulletin from HMRC three weeks late.

This tax applies to employees whose job requires the use of a company car or van that can also be used outside of work hours, with fuel paid for by their employer – which HMRC classifies as ‘free fuel’ and therefore a taxable benefit. If the employer doesn’t subsidise the benefit, it will cost the employee, as the tax still needs to be paid.

The fuel benefit charge for company vehicles has been updated annually in line with the September Consumer Price Index for several years now, so the anticipated figure of 10.1% based on the CPI published in October turned out to be correct. This blog explains the changes to the fuel benefit charge from April 2023 and how this may affect employees and employers.

Fuel benefit charge rates for 2023

The changes in fuel benefit charge rates between 2022–2023
and 2023–2024 are as follows:

The taxable value of your company car’s ‘free fuel’ for the next tax year will be calculated by multiplying your car’s scale charge percentage by £27,800. The percentage to multiply it by depends on the vehicle’s CO2 emissions bracket.

As an example, an employee with a company car that runs on petrol with emissions of 125–129g/km (grams per kilometre) would have a scale charge of 30%. The taxable value would then be £27,800 x 30%, or £8,340 added to their annual taxable income. If the employee pays higher rate income tax at 40%, then £3,336 of this would go to the Exchequer.

If an average petrol car costs 19.1p per mile to run, then the example employee would have to drive around 17,466 miles a year to use £3,336 worth of fuel. If the employee was driving less and spending less than this amount on company car fuel, then the fuel benefit probably wouldn’t be worth it, as they’d still have to pay the calculated fuel benefit charge.

Who is affected by the fuel benefit tax?

Though the rates have increased in line with inflation, there are no changes to the methods of reporting and enforcing the fuel benefit charge, so employees and employers will not need to make significant changes other than updating tax codes for PAYE if this is applicable.

Unfortunately, when it comes to taxation, a ‘free’ employee benefit is rarely actually free. Even with less harshly taxed vehicles such as electric cars, employees could face higher fuel benefit costs than expected. Similarly, employers who provide a company car as an employee benefit will have to pay Class 1A National Insurance Contributions (the most recent rate being 14.53%).

You can find out more about company car fuel benefits on the government website, and use the HMRC fuel benefit calculator to work out the taxable value if you don’t have the appropriate commercial software.

Alternatively, you can contact GBAC on 01226 298 298 to discuss our tax consultancy and cloud accounting services, and learn more about how our accountants in Barnsley can help you to manage taxes on employee benefits.

Many parents are not aware of the High Income Child Benefit Charge (HICBC). It’s a confusing kind of tax, requiring individuals who need to repay some or all of the Child Benefit payments they’ve received to submit a tax return every year, even if their income is already taxed through PAYE.

Since there is little public awareness about the requirement to pay back Child Benefit if your income is above a certain threshold, many people are at risk of receiving penalties from HMRC and having to pay back thousands of pounds they weren’t even aware they owed.

Currently, the number of people estimated to be in default for the High Income Child Benefit Charge is over 60,000. If you’re liable for paying the HICBC, but haven’t been submitting Self Assessment Tax returns each year, then you could be one of many middle-income families who will find themselves owing several thousand pounds in backdated Child Benefit repayments.

Read on to find out how the High Income Child Benefit Charge works, who it applies to, and what will happen if you’re liable for this charge but haven’t been paying.

What is the HICBC and who has to pay it?

As most parents in England and Wales will know, Child Benefit is a monthly payment from the government to help pay for a child’s living costs. The rates vary according to the number of children you have, being higher for the first child and lower for additional children.

One adult can claim for any child they’re responsible for until the child is 16 years old (or up to 20 years old if they continue to live with their parent or guardian and stay in education or training).

However, in 2013, the government introduced the High Income Child Benefit Charge to claim back some or all of these payments from parents and guardians who are higher earners. This charge means that for every £100 you earn over the £50,000 threshold, you would have to pay back 1% of the total you’d received in Child Benefit payments that year.

This threshold hasn’t changed since its introduction a decade ago, so it hasn’t kept pace with inflation, rising wages, or updated Income Tax thresholds. Even for higher earners, an unexpected HICBC bill
can have a negative impact on household budgeting during the cost of living crisis.

If you earn £60,000 a year or more, you’ll have to pay back all of the Child Benefit you’ve received. This could result in a HICBC bill of over £1,000 a year for an only child, and almost £700
a year more for every additional child.

Not to mention that failing to submit a Self Assessment Tax return, filing incorrectly, or failing to pay the HICBC could also add late fees and other financial penalties to your tax bill.

Complications of the High Income Child Benefit Charge

A particular issue with the HICBC that causes confusion is that it only applies to one parent or guardian of the child, and only the highest earning parent or guardian.

In a two-parent household with both earning over the threshold, the person who has the highest income will be responsible for paying it – even if their partner is the one claiming Child Benefit, and even if the child in question isn’t theirs.

Meanwhile, single parents earning over £50,000 a year will have to shoulder the HICBC bill by themselves. However, if they enter a relationship and their partner moves in with them, this can complicate things further.

The government includes couples living together as partners when determining HICBC liability, so it doesn’t just apply to those who are married or in a civil partnership.

For example, if Partner A is the single parent, and Partner B moves in with them and their child while earning over the HICBC
threshold and more than Partner A, they may suddenly find themselves responsible for paying the HICBC for Partner A’s child.

Additionally, if a couple separates and no longer knows what the other person’s income level is, they may not realise that they are the one responsible for paying the HICBC.

As mentioned earlier, with little public knowledge of this charge and salary increases in the decade since it came into force, it’s also quite easy for people’s income to cross the threshold and trigger liability without them even knowing that they should be filing a tax return for it.

What happens if you don’t pay the High Income Child Benefit Charge?

The government has been carrying out compliance checks on thousands of families every year to make sure those who are liable for the charge are repaying what they owe.

Individuals who are responsible may receive a letter from HMRC, but even if they haven’t, this doesn’t necessarily mean that they aren’t liable. It’s the individual’s responsibility to file a tax return and pay any amount due.

Failure to notify HMRC could result in a fine of up to 30% of the amount they already owe, plus interest charged for every day past the deadline for filing and payment for that year. Even if you didn’t know about it, the longer you failed to declare it in a Self Assessment Tax return, the higher the bill will be racking up.

For example, someone earning £60,000 a year and mistakenly claiming Child Benefit for a single child for 3 years could face a total HICBC bill surpassing £10,000 once all penalties and fines have been added. Even setting up a Time to Pay arrangement to repay this in instalments would have a significant negative effect on family finances.

This is why it’s so important to check whether the High Income Child Benefit Charge
applies to you or your partner, and to make sure that you file a tax return on time for every year that you’re liable. If you realise that you’ve been liable in previous years, the sooner you contact HMRC, the better. They are more likely to be lenient with penalties to reward compliance following genuine mistakes.

Getting help with the HICBC

Given that the deadline for filing and paying Self-Assessment Tax is 31st January, it’s crucial for anyone who thinks that the HICBC may affect them or their partner to look into it immediately. If you were liable for the HICBC in the 2021–2022 tax year or earlier, then you could be hit with fines on top of your Child Benefit repayments.

You may be considering opting out of receiving Child Benefit altogether to avoid the HICBC.

If you’re wondering what you can do about this charge, tax planning services can help you assess your tax liabilities and manage your filing responsibilities – ensuring that you pay what you owe, when you owe it, and avoid the hassle of backdated assessments and late penalties.

If you believe you could benefit from professional tax advice regarding the High Income Child Benefit Charge, please contact GBAC
today. You can speak to our accountants in Barnsley or Leeds by calling 01226 298 298 or emailing info@gbac.co.uk.

First-time homebuyers are still finding it a struggle to get on the property ladder. Increases in house prices, mortgage rates, and the cost of living are making it harder than ever for would-be buyers to save up a deposit large enough to purchase their first home.

As a result, many young people are turning to their parents for financial support, also known as ‘the bank of mum and dad’. Almost half of first-time buyers under 35 years old needed financial help from their parents, whether through a gift, loan, or joint mortgage.

However, even with the best intentions, it’s not always wise for parents to give a significant amount of money to their child this way. If it isn’t planned carefully, there could be tax consequences down the line that practically wipe out your initial financial gift.

Here are the main taxes you need to think about before helping your children to get on the first step of the property ladder, and how they could affect such a financial transaction in the long term.

Inheritance Tax

If you give your child some money to go towards their deposit as an outright gift, there may be no tax due for them or you at first.

It will count as a gift under Inheritance Tax (IHT)
rules, which set an annual limit of £3,000 per person for tax-free gifting. However, you can carry over unused allowances from the previous year – so if two parents hadn’t gifted any money in the last 2 years, they could both gift £6,000 each to their child, for a total of £12,000
tax-free.

The only concern is that if the parent gifting the money was to pass away within 7 years, and their total estate (including the financial gift) was worth over £325,000, then the child could be liable for an IHT payment of up to 40% as the recipient.

The amount they’ll have to pay depends on how many years have passed since the financial gift was given at the time of the giver’s death. The IHT rate starts at 40% for the first 3 years, reducing by 8% for each year after that until 0% is reached if the parent passes away after 7 years or more.

An alternative option is to set up an interest-free loan arrangement, ensuring that you eventually get the money back from your child and avoid the IHT implications of a non-repayable gift. This would require a solicitor drawing up a legal document setting out the repayment terms and what happens if anyone involved passes away before the fulfilment of the contract.

Additionally, the child must declare the loan agreement to any other lenders if they’re also applying for a mortgage. Factoring these repayments into their outgoings could have an impact on lenders’ mortgage affordability calculations, potentially limiting the deals they can apply for.

Stamp Duty

Rather than gifting or loaning money, some parents might consider joint ownership of their child’s new property. However, buying a property with your child is likely to incur Stamp Duty.

Stamp Duty Land Tax (SDLT) is charged on purchases of residential property valued at £250,000 or above. You’ll have to pay 5%
on anything between this amount and £925,000, then 10% on any amount between this and £1.5 million, and 12% on anything above that.

In England and Northern Ireland, Stamp Duty relief is available if the property is the buyer’s first home, allowing 0% SDLT
up to £425,000. The problem is that if you, as a parent, have bought a property before, the joint ownership won’t qualify for this relief.

Not only will you have to file and pay SDLT within 14 days of completing the property purchase, but parents who already own a property must also pay a 3% SDLT surcharge, because it will be counted as a second home.

For example, if you were to jointly purchase a property worth £300,000 with your child, the Stamp Duty Land Tax breakdown would look like this:

You would therefore pay 11% SDLT totalling £11,500, when your child buying on their own would be able to avoid SDLT on this property price under the first-time buyer relief scheme.

Capital Gains Tax

Another tax issue with joint ownership is that purchasing a second home with your child when you already have a main residence means that the second property will be considered an asset, and therefore subject to Capital Gains Tax (CGT) when it’s sold.

Should your child want to sell the property that you jointly own further down the line, and it’s increased in value since the initial purchase, then you’ll have to pay CGT on your half of any gains made from the sale. Neither of you will be able to benefit from Private Residence Relief for selling main homes.

If you’re a basic rate Income Tax payer, you’ll end up paying 18% on the gains made from selling the residential property. However, if you’re a higher or additional rate Income Tax payer, then you’ll have to pay 28% on the gains from the property sale.

While it’s possible to reduce taxable gains by deducting valid costs, such as legal fees and maintenance, the annual CGT allowance has been slashed to £6,000 in 2023 and will drop again to £3,000 in 2024. Unless your gains are lower than this, you’ll be facing a CGT bill.

One way to avoid this is by gifting your main residence or family home to your child, making the transfer eligible for Private Residence Relief, and entitling you to a partial or full CGT exemption. However, that leaves you needing to buy another home for yourself – or you could continue to live in the family residence with your child as the homeowner.

If you continue to live in the property, you must pay rent to your child at the market rate, otherwise it could still be considered part of your estate, triggering Inheritance Tax when you pass away.

Tax advice for the Bank of Mum and Dad

As frustrating as it can be, it’s important to always consider tax liabilities before gifting large sums of money or pursuing joint ownership property purchases. This can even include Income Tax – if you set up a loan agreement to avoid IHT but charge interest on the loan, then this can be classified as income and taxed accordingly.

For more information on ways to help a child buy their first home, you can view the HomeOwners Alliance guide on this topic. Alternatively, if you require professional tax advice on the allowances and reliefs mentioned in this article, you can contact GBAC. Our accountants in Barnsley can provide detailed tax guidance tailored to your circumstances.

Due to the challenges of the current economic environment, the UK government announced in December 2022 that the Making Tax Digital (MTD) rollout for Income Tax Self-Assessment (ITSA) has been postponed for 2 years.

Previously, people responsible for submitting Self-Assessment Tax returns were expected to switch to the Making Tax Digital
service from April 2024 if they earned over £10,000 from self-employment in a tax year. Now, this will not be mandatory until April 2026.

This means that self-employed individuals, including landlords, will have more time than expected to prepare for the transition to MTD for ITSA. Here’s a summary of what’s happening with MTD and other changes you should know about due to this postponement.

What is MTD for ITSA?

Making Tax Digital is the government’s initiative to move self-employed individuals and small businesses away from paper tax returns, improving the efficiency of the Self-Assessment Tax system by switching to an online digital platform.

Making Tax Digital for VAT was phased in starting in 2019, becoming compulsory for all VAT-registered businesses to submit their VAT returns digitally in 2022. The phasing in of Making Tax Digital for Income Tax was supposed to start this year, but was pushed back to 2024 due to the disruption of the COVID-19 pandemic – and it’s now been delayed again to 2026.

The MTD system involves submitting quarterly updates through compatible software rather than an annual Self-Assessment Tax return. This will allow you to receive an estimate of the tax that will be due at the end of the tax year, allowing businesses to report income more accurately and budget for tax payments ahead of time.

You’ll receive your actual tax bill rather than the estimates after submitting a final report by the 31st January deadline following the tax year in question (this current deadline will remain the same).

The government is hoping that this method will reduce both fraud and careless errors, increasing the revenue collected by HMRC and making business run more smoothly for everyone using MTD.

Income reporting thresholds

Not only has the deadline for joining MTD for ITSA been pushed back by 2 years, but the government also announced that they are raising the thresholds for reporting income via MTD.

From April 2026, instead of annual earnings of £10,000 or more, only those earning more than £50,000 a year will have to register and use Making Tax Digital to provide quarterly updates for their Self-Assessment returns.

From April 2027, it will be mandatory for those earning between £30,000 and £50,000
a year to sign up and switch to the digital platform.

There is currently no deadline for those earning below £30,000 a year, as the government plans to conduct a further review of the needs of smaller businesses.

Should you wish to sign up for Making Tax Digital earlier than this, it’s possible to join voluntarily before the mandated rollout. If you are a UK resident and register before 6th April 2025, you’ll have to declare both domestic and foreign earnings, but those living abroad will only have to declare earnings within the UK.

The delay and changes to the previous income threshold are actually good news for many self-employed people, as fewer taxpayers will be impacted at each stage, with the slower rollout giving them more time to get their tax affairs in order.

ITSA for general partnerships

General partnerships – arrangements where 2+ people run a business together, sharing the profits and liabilities – were due to start submitting reports through MTD for ITSA from April 2025. This is now on hold, with no due date currently set for general partnerships to join MTD.

Non-general partnerships – which have a corporate partner rather than only individuals – and limited liability partnerships were both excluded from the previous deadline, and this is likely to remain the case when the government eventually announces a new date.

If this is later than 2027, it could be possible for a self-employed individual to avoid earlier MTD mandates by converting to a general partnership with a family member as a partner, such as a spouse or other relative.

There is also currently no information on Making Tax Digital for Corporation Tax, though a consultation on the matter closed back in 2021. This is unlikely to be mandated before 2026.

Preparing for Making Tax Digital

What all of this means is that for the moment – and for up to 2 more years – Making Tax Digital is primarily only mandated for reporting VAT. However, it’s not a bad idea to sign up early ahead of the 2026 deadline for MTD for ITSA so you can get everything set up stress-free.

It’s important to remember that while this postponement means that a new system of Self-Assessment Tax late penalties won’t come into effect until 2026 either, VAT late penalties already came into force in January 2023, and will not be impacted by the ITSA delays.

Additionally, the basis period reforms have not been postponed. This means that the government’s attempt to align accounting periods to the tax year, which runs from 6th April–5th April, will still go ahead in 2023–2024. This will affect businesses with different accounting periods due to seasonal fluctuations in business or alternative tax management plans.

If you are self-employed, a landlord, or a small business owner, and any of the information in this article will impact you in the coming years, you could benefit from professional assistance. At GBAC, our accountants in Barnsley are trained in tax management and cloud accounting software and would be happy to help you get started with Making Tax Digital.