Taxpayers who submitted 2021–2022 tax returns with provisional figures need to resolve these and provide the final figures by the end of November.

HMRC has been sending nudge letters to tax agents representing taxpayers whose provisional tax returns are still unresolved, and may also send them directly to unrepresented taxpayers who do not have an agent to manage their tax files.

While using provisional figures is sometimes necessary, submitting a high number of provisional tax returns can draw unwanted attention from HMRC, and leaving them unresolved could result in fines for failing to meet your tax obligations.

That’s why HMRC is also encouraging taxpayers and tax agents to get ahead by submitting 2022–2023 tax returns early – preferably with finalised figures.

Deadline for amending provisional figures

While an estimated figure is used as final when a more accurate figure cannot be provided, a provisional figure is a temporary placeholder for a more accurate final figure that should be submitted later when more information is available.

HMRC will be aware if your tax return contains provisional figures that are due to be amended, as you should have checked the relevant box when submitting it.

The tax authority is now requesting that those needing to update provisional figures should do so well ahead of the statutory deadline, which is 31st January 2024.

If you now have the actual figures to hand, you should submit an amended tax return by 30th November 2023. If you have yet to source the figures, you should aim to find them as soon as possible and submit them by 31st December 2023.

Should the missing figures be too old and impossible to obtain, it would be necessary to confirm to HMRC that the provisional figures are final.

These deadlines are not statutory, which means it is not compulsory to take action by these dates and you will not be penalised for missing them.

However, HMRC recommends taking action now to get ahead, giving more time to prepare your next return before the statutory deadline for 2022–2023 tax returns, which is also 31st January 2024.

File your next tax return early

Nobody wants to stress over filing last-minute tax returns, but it happens to many every year when workloads get heavier and record-keeping isn’t what it should be.

Getting your accounts in order and filing as early as possible will give you more free time to focus on business in the new year and ensures that you avoid a whole host of problems that can come with late or inaccurate tax return submissions.

Filing your 2022–2023 tax return sooner offers the benefits of establishing tax liabilities early enough to enable more accurate financial planning, receiving any tax refunds owed earlier, and allowing you to use a HMRC payment plan if you cannot pay your tax bill in full.

Guidance on Self-Assessment Tax Returns is available on the government website – or you can consult professional tax advisers like gbac for assistance with managing your accounts and submitting final tax returns.

Contact our Barnsley accountants by calling 01226 298 298 or sending an email to info@gbac.co.uk
to enquire about our tax consultancy services.

Recently, HMRC released new Income Tax liability statistics covering the tax years 2020 to 2021 and 2023 to 2024 – but what do the latest figures mean?

The table below lists the average Income Tax rate for the main taxpayer categories, showing the average percentage of income paid in tax by marginal rate in 2020 and the projected percentage for the current tax year.

These numbers project a 0.4% increase for basic rate taxpayers, but decreases of 1% and 0.3% for higher rate and additional rate taxpayers respectively.

At first glance, this seems like good news for higher and additional rate taxpayers, but it doesn’t necessarily mean that people are actually paying less tax.

What’s the story behind the Income Tax numbers?

HMRC’s explanation for these differences is the simple statement that average tax rates vary over time depending on taxpayer numbers, both overall and in each tax band, in addition to income growth and changes to thresholds and allowances.

Realistically, the average for basic rate taxpayers has increased because average weekly earnings have increased since 2020, while the tax-free Personal Allowance
has barely risen at all, pushing more earners into the basic rate band.

When it comes to the decreasing average for higher rate taxpayers, HMRC did not mention in their summary that the upper threshold for this tax band was higher in 2020. It has now dropped from £150,000 to £125,140, so those at the higher end were pushed into the additional rate band.

The lower starting point for the additional rate tax band means there are around twice as many taxpayers in this bracket than before, with those at the lower end pulling down the average due to their lower incomes.

With the Office for Budget Responsibility forecasting around 3.5 million people moving into a higher Income Tax band between 2023 and 2028 due to threshold and allowance freezes, it’s important to make sure you know what your tax liabilities are and how changing rates could affect you.

Do you need professional tax advice?

Do you know which tax band you fall into for the current tax year, and whether income changes could affect your tax liability? Do you have any concerns about your tax code?

If you need guidance on reviewing your tax situation and managing your liabilities, you can consult with our tax advisers at gbac. Our friendly team of accountants in Barnsley could help you to maximise your tax savings while maintaining compliance.

Contact us by phone on 01226 298 298 or send an email to info@gbac.co.uk to enquire about our financial services.

The Lifetime Allowance (LTA) was introduced over fifteen years ago, setting the maximum amount of pension savings that an individual could contribute to registered pension schemes before their savings would be subject to a tax charge.

As part of efforts to incentivise those who have retired or are planning to retire to return to work and boost the economy, the government has abolished this allowance – meaning workers can save more into their pensions without triggering the tax charge.

Though the LTA was scrapped in April this year, further changes were needed to support its removal and facilitate the taxing of lump sums and death benefits without it.

To this end, draft legislation and an accompanying policy paper have been published to set out the changes due to take effect from 6th April 2024. These include the introduction of a new lump sum allowance and death benefit allowance.

If the legislation is enacted, these will be the same as the previous LTA – which was frozen at £1,073,100 in 2020. There will also be significant changes to the taxing of death benefits when a pension saver passes away before they turn 75 years old.

Here is what we can learn from the policy document and how abolishing the LTA could affect the future of pension planning for many savers.

Lump sum death benefits

A beneficiary can typically receive tax-free lump sum death benefits if the deceased saver did not access the pension yet (known as uncrystallised benefits).

While the LTA has been removed, there will still be a cap to limit the amount that can be taken as a tax-free lump sum – which is set at the same level as the LTA.

The allowance is combined for tax-free lump sums and death benefits, meaning the amount available for a lump sum death benefit would be reduced by any tax-free lump sums the pension saver may have taken during their lifetime.

Before the LTA was scrapped, any excess over the £1,073,100
cap would be taxed at a high rate (55%). From next April, excess will be taxed at the beneficiary’s marginal tax rate. This means their Income Tax
rate will apply, which is likely to be much lower.

Whether lump sum death benefits were paid from crystallised or uncrystallised funds will no longer matter, as both count towards the lump sum allowance.

When there is more than one beneficiary, the allowance will be allocated between them to determine each beneficiary’s tax liability.

Income death benefits

The policy paper also proposes a new approach to taxing uncrystallised death benefits taken as income, either from a drawdown fund or annuity, which was not announced with the initial news about abolishing the LTA.

Previously, pension income was exempt from tax, as a drawdown arrangement would be a ‘benefit crystallisation event’ under the LTA, and the charge would not apply to funds received by beneficiaries within two years of the saver’s death under 75.

Now, it seems that withdrawals from a drawdown scheme inherited from a saver who passes away before 75 will no longer be tax-free from next April, with such pension income also becoming taxable at the beneficiary’s marginal tax rate.

As lump sums taken from the same uncrystallised funds would be completely tax-free if the amount was lower than the lump sum and death benefit allowance, this could push beneficiaries into choosing to take a lump sum even if income would have been a more suitable option for their needs.

We will have to await further information to find out whether this will also apply to death benefits from crystallised pension funds.

How will this affect your pension?

The policy paper on abolishing the lifetime allowance is available to read on the government website. As the legislation is still in the draft stages, further changes may be made before it is implemented in 2024 to 2025.

It will be essential for anyone who may be affected, including savers and their potential beneficiaries, to keep up with the latest developments as the legislation is finalised. Reviewing individual pension plans and protection levels is vital.

Regardless of the level of your pension funds, it’s a good idea to consult with a financial advisor to make informed decisions about what’s best for your retirement plans and for your beneficiaries in the event of your death.

If you would like to get ahead and maximise your pension planning, get in touch with gbac to discuss your options with our accountants in Barnsley.

You can call us on 01226 298 298 or email info@gbac.co.uk to get started.

The legislative rules that apply if a person dies without a Will, which set out who is responsible for the administration of their estate and who will inherit, are known as the rules of intestacy.

In England or Wales, the amount that the surviving spouse or civil partner can inherit under intestacy rules – the statutory legacy – has been increased from July 2023.

Under the Administration of Estates Act 1925 (Fixed Net Sum) Order 2023, the UK government has raised the statutory legacy sum
from £270,000 to £322,000.

The previous sum was set at the start of 2020 and would usually be due for review in five years, but this period can be overridden by inflation increases of 15% or more.

This means that the uplift applied from 26th July 2023
is actually several months late, and the government’s failure to keep up with the consumer price index in this regard could mean some inheritors would have lost out on thousands of pounds.

What is the statutory legacy for intestacy?

When someone dies without a legally valid Will, this is called dying intestate. Intestacy occurs when the deceased person’s assets cannot be clearly allocated.

It’s also possible for a person to die partially intestate if they have a Will that doesn’t account for certain eventualities, such as the intended beneficiary passing away first.

In cases like these, intestacy laws must be followed, which can be complicated and inflexible, and may not align with what the deceased would have wanted.

If the individual is survived by a spouse and children and did not leave a Will, they will be entitled to the statutory legacy. The spouse can directly claim their deceased partner’s personal effects and now up to £322,000 of their estate value.

It’s commonly believed that spouses inherit everything if their partner dies, but this isn’t always the case with intestacy rules. The spouse or civil partner will only be the sole beneficiary if the deceased did not have children.

If the deceased had children, 50% of the remainder of the estate (if any) above the statutory legacy amount also goes to the spouse and the remaining 50% will be divided equally between the children or their descendants.

The deceased’s children would inherit equal shares of the entire estate if the individual died without a spouse or civil partner. In all cases, if any of the children are under 18 years old, their share will be held in a Trust until they turn 18.

A provision for adopted children allows them to benefit from the estates of their adopted parents, but not the estates of their biological families. There are no provisions for the parents or siblings of anyone who dies intestate with a spouse and no children.

Why is it important to leave a will?

The statutory legacy increase will help the spouses of those who pass away intestate after 26th July this year, but having a Will means that your loved ones won’t have to rely on intestacy rules and any other changes that may be enforced in the future.

If you leave the distribution of your estate to the government, there are only certain circumstances that allow particular relatives to be beneficiaries, leaving nothing for other close relations. This means those not in a marriage or civil partnership – such as ‘common law’ partners and cohabiting couples – will not benefit from the statutory legacy.

Formalising your personal wishes in a Will gives you the choice to specify who should be entitled to your estate, including which elements and to which extent. This provides flexibility to divide assets amongst all your loved ones, including non-family members, who otherwise wouldn’t benefit under intestacy law.

When you create your Will, you can choose who to appoint as executors of your estate, speeding up the administration process and easing the burden on your family. In the case of intestacy, you and your family would have no control over the appointed administrators, who are unlikely to operate with your wishes in mind.

The intestacy rules also do not cater for care provisions for children under 18 – so, if you would prefer for specific guardians to take over parental responsibilities in the event of your death, you must write this into a Will.

Nobody knows what will happen in the future, so it’s essential that you don’t take anything for granted and expect your estate to be distributed a certain way upon your death without preparing a valid Will.

How will the statutory legacy change affect you?

The old intestacy rules will continue to apply to deaths occurring before 26th July 2023, while the higher statutory legacy entitlement will apply to deaths on or after this date. You can use the government’s online tool to check who inherits if someone dies without a Will in your circumstances.

As discussed above, the rules of intestacy don’t always reflect modern relationships and family arrangements, with the assets of those who die intestate potentially being distributed to people they wouldn’t have named as beneficiaries and/or incurring a more complicated Inheritance Tax bill.

The best way to ensure that your estate benefits the people who you want to inherit it, in the ways you prefer, and to minimise their tax burden, is to write a Will with the aid of professional tax-efficient planning. You may also want to hire a financial advisor to manage assets in a Trust.

At gbac, we have a team of accountants in Barnsley who could assist your estate management with tax planning and probate services. Get in touch by calling 01226 298 298 to arrange a consultation, or email any queries to info@gbac.co.uk.

At present, UK taxpayers who inherit properties located in the European Economic Area (EEA) can qualify for agricultural relief on Inheritance Tax in the UK.

However, since the UK left the EU, which the EEA is an extension of, the Inheritance Tax treatment of properties in the EEA is due to be brought in line with properties in the rest of the world – meaning EEA properties will no longer qualify.

The 2023 Spring Budget announced the government’s plans to change the geographical scope of Agricultural Property Relief (APR) and Woodlands Relief, restricting these Inheritance Tax reliefs to properties in the UK only.

Draft legislation has now been published confirming that this geographical restriction will be enforced next year from 6th April 2024.

This means that any property located in the Isle of Man, the Channel Islands, or non-EU EEA countries (Norway, Iceland, and Liechtenstein) will cease to qualify.

How are Agricultural Relief and Woodlands Relief changing?

Back in 2009, the Finance Act expanded the scope of both APR and Woodlands Relief to include property in the EEA to ensure compliance with EU law.

After Brexit, the UK government no longer has to comply with this EU law, so the new legislation will now reverse those measures and treat properties in the EEA the same as those anywhere else outside the UK for Inheritance Tax (IHT) purposes.

It will also reverse the expansion of APR to property in the Isle of Man and Channel Islands from the 1970s, removing this relief in line with the unavailable Woodlands Relief.

Agricultural Property Relief exempts land or pasture used for growing crops or rearing animals from IHT, applicable for both lifetime gifts and property inherited on death.

To qualify, the owner or their spouse must have occupied the property and used it for agricultural purposes immediately before the transfer of ownership for 2 years, or 7 years if the land was occupied by a tenant farmer.

To claim 100% relief, the owner must have farmed the land themselves, allowed someone else to use it on a short-term grazing licence, or let the land through a tenancy that began after 1st September 1995. Other cases will only qualify for 50% relief.

Woodlands Relief is not as generous, because it has stricter conditions and only covers growing timber on the land and not the land itself.

The inheritor liable for IHT can exclude the value of trees or underwood on the land from the value of the deceased individual’s estate if they had owned the woodlands for at least 5 years, but IHT will be due on profits from any timber sales.

Neither relief will be available for properties in the named areas from April 2024.

Who will be affected by these tax relief restrictions?

The changing legislation will affect UK taxpayers who own or inherit land or property occupied for agricultural purposes within the European Economic Area, the Isle of Man, and the Channel Islands, and trustees of trusts with an interest in such properties.

Transfers of value and other occasions where IHT is due in respect of these properties will no longer be eligible for the named tax reliefs from the date that the new legislation comes into force, but there are otherwise no changes to administrative obligations.

There is no indication that business reliefs will be restricted in the same way, so it could be possible to restructure agricultural interests to maintain eligibility. Most businesses will qualify for Business Property Relief (BPR).

However, as this isn’t available in all circumstances, the government is consulting on how APR
could be extended to environmental land management. The aim is to prevent landowners and farmers from avoiding sustainable farming and nature recovery schemes out of concerns over losing agricultural and woodland reliefs.

Get help with Inheritance Tax planning

If you own an estate or could be liable to inherit an estate that previously would have qualified for these reliefs, there are several options to explore before the new measures take effect next April, such as gifting land early or restructuring a business.

Detailed information about Agricultural Relief on Inheritance Tax can be found in a guide published on the government website, but if you own a property that is likely to be affected and are concerned about your tax planning, you may want to seek professional advice.

If succession and tax planning guidance would benefit your situation, please get in touch with the tax advisers at gbac. Our accountants in Barnsley could help you to mitigate the impact of losing these reliefs through tailored IHT planning.

Call us on 01226 298 298
or email enquiries to info@gbac.co.uk to find out more.

Though the High Income Child Benefit Charge (HICBC)
has been in place for ten years now, many parents or guardians may still be unaware of its requirements.

It’s effectively a tax applying to any parent or guardian who earns more than £50,000 a year and claims Child Benefit for a child living in their home.

To pay this charge, the individual must file a Self-Assessment Tax Return – but many employees don’t realise this, because they are used to having taxes deducted from their earnings automatically through the PAYE
system.

As a result of the lack of public awareness about the HICBC
rules, thousands of families could be hit by surprise fines and expected to pay back years of Child Benefit.

To address widespread criticism surrounding this issue, the UK government has stated that they will introduce changes to allow taxpayers to pay the HICBC through PAYE.

How does the HICBC work?

Parents and guardians in England and Wales can claim monthly payments from the government to help them with living costs for children in their care.

Child Benefit is available for any child until they are 16 years old, or up to 20 years old if they continue to live in the household while in approved education or training.

The rate is higher for the first child and lower for additional children, being £24 a week for the first child and £15.90 a week for subsequent children in 2023–2024.

As the government pays Child Benefit regardless of the parent’s or guardian’s income, the High Income Child Benefit Charge (HICBC) is their method for claiming the payments back from higher earners who do not need the financial support.

The charge comes into play when the individual claiming for their child, or their partner, earns an annual income exceeding £50,000. Whoever is the highest earner would be responsible for paying the HICBC, even if they weren’t the claimant.

For every £100 earned over this threshold, the government deducts 1% from their Child Benefit allowance – meaning that the charge reaches 100% and benefit eligibility becomes 0%
for those who earn £60,000 or above.

The charge could then require higher earners to pay back several hundred pounds a year – and if they fail to submit a tax return, HMRC can charge a penalty of up to 30% of the balance, as well as adding late fees and interest to the bill.

How is the HICBC changing?

The HICBC threshold has stayed the same since it was first introduced in 2013, so it has not been keeping up with adjusted Income Tax thresholds or inflation.

This has pushed more and more families into owing the HICBC
and losing benefit eligibility – with the latest data from HMRC
showing that the number of families claiming and receiving Child Benefit
is at its lowest since the charge was introduced.

With public knowledge of the HICBC system lacking, and wages rising in the last decade, it’s likely that hundreds of thousands of families could owe several years of Child Benefit repayments without even knowing it.

A backdated HICBC bill and late penalties can cause severe disruption to household budgets, even for higher earners, in a difficult economic climate. Perhaps this realisation has pushed the government to acknowledge the system is failing families.

In July, the Financial Secretary to the Treasury – Victoria Atkins MP – made a written Parliamentary Statement announcing the intention to simplify the process of paying the HICBC by enabling liable employees to do so through PAYE.

Further details will be provided in due course to explain how individuals can adjust their tax code to pay the HICBC through salary deductions. This would eliminate the need to register for Self-Assessment
and submit HICBC tax returns.

In addition to this time-saving measure that should prevent some families from falling foul of late filing penalties, the government is also due to announce how those who opt out of receiving Child Benefit
can get retrospective National Insurance credits to maintain State Pension eligibility, as announced on Tax Day in April.

Tax planning for the High Income Child Benefit Charge

Whether you claim Child Benefit for a single child or multiple children in your household, it’s essential to check whether the HICBC
applies to you (or your partner).

You can find detailed HICBC guidance on the government website, and use the Child Benefit tax calculator to estimate how much you might be liable for.

If it turns out that you should have been filing tax returns and paying the charge, it’s best to contact HMRC as soon as possible, as the tax agency may be more lenient if you comply after learning of your genuine mistake from lack of awareness.

It can also help to get professional advice on tax planning to reduce your HICBC liability, and assess whether it would be worth it to opt out of Child Benefit completely.

As this Child Benefit charge can become tangled with Income Tax and other benefits such as the State Pension, it could be helpful to contact our accountants in Barnsley to make sure you take the right steps for your family’s financial future.

Reach out to gbac by calling us on 01226 298 298 or emailing us at info@gbac.co.uk to learn more about how we can help with the HICBC.

According to the annual Sunday Times Rich List, the 350 richest families and individuals in the UK have a combined wealth of £796.5 billion.

At a time when many people in the UK are struggling to afford necessities like food and heating, it’s not surprising that campaigners are using the Rich List to renew calls for a wealth tax to reduce the growing inequality between the richest and poorest.

This would be a tax on net wealth, rather than a levy on specific income or asset types. A one-off wealth tax has been proposed before by the Wealth Tax Commission.

Back in 2020, the think tank suggested a 5% tax on wealth above £500,000, payable over five years, which could have produced around £260 billion. Despite receiving considerable media attention, the government seemed to take no notice.

A few years on, several organisations have come together to campaign for a different wealth tax on the very richest, which could raise up to £22 billion a year.

New annual wealth tax proposals

Analysis by three tax reform campaign groups – Tax Justice UK, the Economic Change Unit, and the New Economics Foundation – suggests that a modest annual wealth tax in the UK could help to reduce inequality and ease the cost of living crisis.

By applying a 2% annual tax on wealth over £10 million, the UK government could generate between £17–22 billion a year to invest in public services. Only around 22,000 individuals in the UK would be rich enough to be liable for this tax.

The campaigners say that similar taxes in Norway, Switzerland, and Spain have helped to ease the economic crisis for poorer people in those countries.

Representatives of these groups have spoken out against the ‘fundamental unfairness in the tax system’ that means working people who earn their income are taxed more than wealthy people whose assets come from investments and inheritances.

They reiterate the urgency of reforming the tax system to make sure that those who own the most are taxed fairly, allowing working people who are struggling with falling standards of living due to increasing costs to also benefit from a growing economy.

As an example, the revenue gathered from their suggested wealth tax could fund the construction of 145,000 affordable homes a year, helping to ease the housing crisis.

It could also be put to use investing in drastically underfunded hospitals, schools, and public spaces across the UK, repairing broken services that should benefit us all.

Is there public support for a wealth tax?

Even before the pandemic caused costs to spiral, the general public was becoming more aware of growing wealth inequality around the world.

Earlier this year, YouGov polls revealed that the majority of Brits support a wealth tax on millionaires. A 2% tax on wealth above £5 million drew support from 73% of respondents, while 78% supported a 1% tax on wealth above £10 million.

Meanwhile, only 53% supported the Wealth Tax Commission’s proposal.

Introducing a new tax might seem like something that most taxpayers should be against, but the point of a wealth tax is to target a small percentage of taxpayers, who would only pay this tax on a small percentage of their excess wealth.

In addition to Income Tax, most taxpayers are already targeted by other forms of wealth tax, such as Capital Gains Tax (CGT) and Inheritance Tax (IHT).

Currently, inflation and tax threshold freezes are pushing more people than ever into paying more tax, while the wealthiest often hide their assets in offshore tax havens – but only 41% of YouGov respondents supported increasing CGT.

In any case, if the government’s lack of response to the Wealth Tax Commission’s proposal is anything to go by, the latest alternatives are also likely to be ignored, as the government seems to be focused on raising revenue by freezing tax thresholds.

Organise income and assets with tax planning

It’s important to ensure that you’re paying the taxes you owe, but also to make sure you aren’t paying more than your share – supporting the public purse while protecting your retirement funds and assets that you want to pass on to your family.

Managing income and savings with assistance from professional tax consultants like gbac can help individuals and their families to plan for the future, especially those who are self-employed, small business owners, or landlords.

Our accountants in Yorkshire could help you to get your tax affairs in order, regardless of your wealth status. Call us on 01226 298 298 to arrange a consultation, or email your enquiry to info@gbac.co.uk
and we’ll be in touch with more information.

HM Revenue and Customs (HMRC) revealed in June that the estimated tax gap has stayed at 4.8% for the 2021–2022 tax year, the same as the revised figure for 2020–2021.

Published annually, the Measuring Tax Gaps report analyses the difference between the amount of tax HMRC expected to take and the amount of tax actually paid.

While the headline figure shows the tax gap hasn’t changed in percentage terms, in monetary terms, the difference has increased from £31 billion the year before to £35.8 billion in 2021–2022.

The tax gap percentage has likely remained stable despite the monetary difference because tax liabilities also rose from £643 billion the previous year to £739 billion, in turn likely due to inflation and fiscal drag.

Overall, the tax gap has been gradually falling over the years from 7.5% in 2005, as the government has continued to adjust policies to address the tax evasion, criminal activity, and general carelessness that contribute to it.

Here’s what the latest figures reveal about what’s causing the tax gap, and what this could mean for businesses and self-employed individuals.

What are the main causes of the tax gap?

When analysing the gap by tax type, Income Tax, National Insurance, and Capital Gains Tax all make up 35% of the total (£12.7 billion). Around 3% of these taxes went unpaid, a figure which is more or less stable, as it has fluctuated between 2.9%–3.6% since 2016–2017.

Corporation Tax makes up the next largest component of the total gap at 30% (£10.6 billion), with revised estimates based on new data showing that this 13% tax gap is at its highest since 2005
and has been steadily increasing since 2011–2012.

While the tax gap has increased for all other groups from 2020–2021, reflecting larger overall tax liabilities, Excise Duty is the only tax to show a reduction in both percentage terms and real terms – down from 7.7%
and £3.8 billion to 6.1% and £3.4 billion.

The VAT gap is up 0.4% and £1.3 billion
from the previous year, but it has decreased significantly since 2005–2006, falling from 14% and £11.9 billion down to 5.4% and £7.6 billion in 2021–2022.

Who is contributing to the tax gap?

When analysed by customer group, small businesses represent the largest component of the total at 56% (£20.2 billion). Criminals, large businesses, and mid-sized businesses follow with 11%
each (respectively £4.1 billion, £3.9 billion, and £3.8 billion).

Wealthy individuals are responsible for 5% (£1.7 billion) of the tax gap, while all other individuals contribute to the remaining 6% (£2.1 billion).

These figures mostly held steady from the previous year, with small percentage decreases for large businesses and criminals.

When it comes to behaviours contributing to the tax gap, failure to take reasonable care is the largest factor at 30%, followed by error at 15% and evasion at 13%.

Legal interpretation issues represent 12% of the tax gap, with criminal attacks following at 11% and non-payment at 9%. ‘Hidden economy’ makes up 6%, with avoidance representing the final 4%.

As criminal activities, if criminal attacks, hidden economy, and evasion are combined, then criminal activity matches lack of reasonable care at 30% of the tax gap.

The only behaviour with a year-on-year tax gap reduction is non-payment, which may be due to cashflows returning to normal after the COVID-19 pandemic, an increase in debt management enforcement, or both.

Small businesses have the largest share

The figures above show that small businesses are responsible for the largest share of the UK tax gap in 2021–2022 at 56%. This has increased for four consecutive years, rising by 16% and £7.4 billion
since 2017–2018.

There is a possibility that the rising tax gap for small businesses is a consequence of the economic effects of the pandemic followed by inflation.

There isn’t enough information yet to make any definitive conclusions, but smaller businesses could be declaring less income than they actually made or overclaiming deductions on expenses through electronic sales suppression.

Despite the figures also revealing an increasingly high level of non-compliance with Corporation Tax, the results of the latest annual report may encourage HMRC to increase tax investigations into small-to-medium businesses.

Small businesses who may have been getting away with tax avoidance over the years while HMRC was focusing on large businesses could now be investigated and caught out, so it may be time for them to get ahead of this and organise their taxes properly.

Make sure your business is tax compliant

HMRC publishes tax gap estimates every year to provide transparency, aiming to increase public trust in the UK tax system and highlight areas where improvement in supporting taxpayers to meet their obligations is a priority.

However, the concept of tax gap reports has been criticised, as some believe that HMRC uses this information to push agendas rather than reporting objectively – particularly pushing for the introduction of Making Tax Digital.

While MTD for VAT has been implemented in stages over several years, and is now compulsory for almost all VAT-registered businesses, the equivalent for self-employed individuals and landlords has been delayed for a few more years.

As the latest tax gap report has shone a spotlight on small business non-compliance, self-employed people and landlords may not want to wait to get started with Making Tax Digital for Income Tax Self-Assessment (ITSA).

Whether you are self-employed or run a small business, it’s crucial to ensure that your operations are tax compliant. Upfront savings in tax could soon turn into long-term losses from repaying fines on top of taxes owed when HMRC catches up.

Should you need help assessing your tax liabilities and getting to grips with digital tax returns, our accountants in Barnsley can provide a range of tax management services. Give gbac a call on 01226 298 298 or email us at info@gbac.co.uk to learn more.

The Department for Business and Trade has published a list of 202 companies that failed to pay their lowest-paid workers the minimum wage.

Ranging from major high street retailers to small businesses and traders, the named companies have altogether underpaid 63,000
workers.

Not only have these employers been ordered to repay their workers, but they also face penalties of almost £7 million for breaching the law.

The naming and shaming of non-complying companies and charging of penalties makes it clear that no business is exempt from paying the minimum wage.

However, with even major retailers being caught out, it is also clear that statutory minimum wage rules can be complicated, and compliance can be difficult.

Let’s look into some of the reasons for these failures, and how other employers can learn from them to avoid breaking minimum wage laws.

Why aren’t businesses paying minimum wage properly?

The minimum wage is meant to be a guarantee that all workers in the UK will receive a decent standard of pay to help them afford average living costs.

Investigations by HMRC between 2017 and 2019 found that the named companies underpaid workers by either deducting pay from wages, failing to compensate workers correctly for working time, or paying the wrong apprenticeship rate.

The details have only been published now after allowing time for companies to appeal and make the repayments owed, but this proves that more education is needed – for example, on when deductions for lunch breaks or uniform costs are violations.

Work uniforms

Many businesses do not realise that the rules regarding staff uniforms can differ, depending on whether uniforms are a condition of employment or optional.

If workers are required to wear a specific uniform as part of their job, any employer deductions to cover uniform costs could reduce the employee’s pay below minimum wage.

The same applies if employers expect their employees to reimburse them for their uniforms or purchase their uniform by themselves.

If employee uniforms are optional, pay will only be reduced if the employer deducts the cost of uniforms from the pay of workers who opted to have them.

This can cause confusion, which is evident in the case of brands like WHSmith and Lloyds Pharmacy each failing to pay thousands of staff around £1 million due to misinterpreting the way minimum wage rules apply to staff uniforms.

Working time

According to the details published by the Department for Business and Trade, 39% of the offenders on the list failed to pay workers properly for their working time.

This may often be unintentional, but many employers can be naïve in how they apply statutory wage rules to ‘working time’ when calculating wages.

Any time spent training, on call, travelling for work, or attending mandatory work-related events – even trial shifts – should all be paid for as working time.

However, it’s not always that simple. For example, being on standby only counts as working time if it is spent near the workplace, not at the employee’s home.

Similarly, travelling is only considered working time if it is between assignments, not from the worker’s home to their first assignment or from the last assignment back to the worker’s home – unless the worker spends those trips working on the train.

Payroll errors

Other named and shamed high street brands like Marks & Spencer and Argos, who each shortchanged thousands of employees by around £500,000, attributed their mistakes to unintentional technical errors dating back several years.

It’s certainly concerning that even big brands with more resources are making these errors by failing to keep adequate records and maintain accurate payroll systems.

It is essential for employers to keep their payroll operations up to date in compliance with the latest legislation, and to know how minimum wage rules apply based on how payroll is set up for their organisation and their record-keeping measures.

Outsourcing payroll should be carefully considered rather than simply implemented as a cost-cutting move, but professional payroll services
could help with this.

Penalties for failing to pay minimum wage

The government is making a point to UK employers that minimum wage entitlement should not be taken lightly, as non-compliance will result in robust action.

Employers who fail to pay staff correctly could be charged up to 200%
of the unpaid wages as a penalty, up to a maximum of £20,000 per employee – but companies can cut the penalty in half by paying the unpaid wages and penalty within 14 days.

Of course, non-compliant businesses will also be publicly named and shamed by the government, resulting in reputational damage from negative media attention.

Employers can check whether they are paying the National Living Wage and National Minimum Wage correctly online using the HMRC minimum wage calculator. Government guidance on calculating the minimum wage is also available online.

HMRC also encourages workers to check that they are being paid correctly themselves through the Check Your Pay website, and to report underpayments.

If you are an employer who is uncertain about your position regarding minimum wage regulations, it could be worth seeking professional advice.

As providers of a variety of bookkeeping, payroll, and HMRC-related services, you can trust gbac accountants to guide you well. Get in touch by phone or email today.