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.

As of June 2023, taxpayers who were named in the leaked Pandora Papers are being given a final chance to set their tax affairs straight.

The leak in October 2021 revealed through almost twelve million documents that some taxpayers were using shell companies to hide wealth, avoiding tax charges on property and luxury items like yachts.

After reviewing the papers, HMRC has identified UK residents who may have untaxed assets in offshore havens and is now writing to warn them of potential penalties.

The letters inform recipients that if they do not report their overseas income correctly, they could face financial penalties or prosecution.

If you have received a HMRC Pandora Papers letter, here is what you should know about the situation and what you should do next.

What are the Pandora Papers?

Almost two years ago, the ICIJ (International Consortium of Investigative Journalists) published over 11.9 million records from 14 offshore service providers.

Known as the Pandora Papers, the 2.9 terabyte
release is the largest ever leak of financial documents, surpassing the Panama Papers back in 2016.

The ICIJ leaked these papers with the aim of prompting governments around the world to take action against the named individuals and recover unpaid taxes.

Following the release, HMRC began to review the data, comparing the information to the details they already had on their Connect database and through Common Reporting Standard (CRS) reports from overseas jurisdictions.

Rather than launching formal inquiries right away, HMRC is sending ‘nudge’ letters to those identified as having irregularities in their tax returns.

These letters will notify the recipient that they have a limited period to make any necessary disclosures about overseas income before the authorities will take further action against them – which is usually 30 days from receipt of the letter.

Why make a voluntary disclosure?

Have you received a letter from HMRC identifying you as an individual of interest relating to the Pandora Papers? If so, then you should act on the letter as soon as possible, especially if you have undisclosed taxable wealth.

It is best to speak to your financial adviser to determine what you need to declare and which type of disclosure you should make.

Even if you haven’t received a letter – yet, as HMRC is likely to send more – then you should still speak to a professional tax adviser about making a voluntary disclosure.

The last thing you should do is ignore such letters or decide not to disclose. This could force HMRC to open a formal tax investigation against you, increasing the time and financial cost taken to resolve the issue, and potentially increasing penalties.

By disclosing voluntarily, you will have more control over the disclosure process. This could help to resolve matters faster on more favourable terms for you, as your proactivity could mitigate penalties enforced by HMRC.

A ‘wait and see’ approach could lead to an even deeper dive into your finances over the last few decades, with months or years of uncertainty during HMRC’s investigation concluding in severe penalties or criminal prosecution.

HMRC’s penalty system is notoriously complicated, but the maximum penalty for this type of tax avoidance is usually up to 200% of the tax balance owed.

As it is a criminal offence, prosecution for tax fraud is a possibility if HMRC considers your behaviour dishonest. Taking advantage of the voluntary disclosure facility and complying with its obligations could give you immunity against prosecution.

If you fail to disclose and pay taxes owed, and are named by HMRC, the long-term reputational damage could also be severe.

How to disclose undeclared income

There are several options for disclosing omissions in your tax returns to HMRC, depending on whether the failure was intentional or a genuine mistake.

The first option is the Worldwide Disclosure Facility (WDF), which can be used by anyone disclosing a UK tax liability relating to offshore matters.

This may be more appropriate for non-deliberate non-compliance – the WDF does not provide protection from prosecution for deliberate fraud.

Those who knowingly committed tax evasion can come clean using the second option, which is the Contractual Disclosure Facility (CDF).

As part of the Code of Practice 9 (COP9), this process can only be used to admit to tax fraud, and is the only option that offers protection from prosecution.

Through a CDF agreement, HMRC will agree not to launch a criminal investigation or prosecute, as long as the individual makes a full disclosure.

It is essential to only use the correct disclosure facility for your situation, which is why you should consult a tax professional before acting.

Seek professional tax advice

Read the HMRC press release for more information about these nudge letters and disclosure options for taxpayers who receive them.

As HMRC has twelve years to investigate offshore tax non-compliance, the latest response to the Pandora Papers should serve as a reminder that if you fail to declare overseas income and pay the correct taxes, HMRC will find out eventually.

The longer the deception goes on, the more serious the consequences will be when it is uncovered. So, if you have offshore assets and gains that you should have declared, it would be better to speak to a tax adviser sooner rather than later.

Every case is different, but tax experts like gbac accountants can help you to resolve HMRC enquiries
as efficiently as possible.

We can conduct a review of your onshore and offshore interests in the context of your existing tax returns to identify any arising liabilities, and register you for the appropriate disclosure facility if necessary.

Should you require it, we can prepare a disclosure that minimises your exposure to penalties and interest, potentially negotiating pay arrangements with HMRC to resolve the matter cost-effectively.

For a no-obligation consultation about a tax dispute, please contact gbac by calling 01226 298 298 or emailing info@gbac.co.uk and we will assist you confidentially.

The time limit for an individual to fill gaps in their record by paying voluntary National Insurance contributions is 6 years, but deadline extensions are now giving people extra time to plug gaps and boost their State Pensions.

Originally, the cut-off for making voluntary NI contributions for the tax years from 2006–2017 was this April, but the government extended the deadline to the end of this July to give people a little more time to address gaps in their records.

Now, as announced in June, the government is further extending this deadline to 5th April 2025 – allowing an additional couple of years for people to make retrospective NI payments for gaps between 2006–2007 and 2017–2018.

It’s believed the deadline has been extended this far to ensure as many people as possible can get the help they need with completing their NI records, as the government’s pension helplines were reportedly overwhelmed in the last few months.

The cost of voluntary NI contributions for these years is also frozen until the new deadline, at the former rate of £15.85 per week (though the current rate is £17.45).

This means that people can properly consider whether they need to pay voluntary NI contributions or not, preventing some from missing out on increasing their State Pension entitlements. Read on to learn how your pension could be affected.

Why do National Insurance contribution years matter?

The new State Pension can be claimed by men born from 6th April 1951 and women born from 6th April 1953 onwards when they reach the eligible age.

To be able to claim, the individual must have enough ‘qualifying years’ on their National Insurance record. These are tax years during which the person made enough NI contributions through employment taxes or voluntary payments, or received enough National Insurance credits through claiming certain state benefits.

How much you will receive in your State Pension when it’s time to claim it – currently £203.35 per week – will also depend on how many ‘qualifying years’ you have.

Generally, you need at least 10 years to claim a part-pension, and around 35 years to claim a full State Pension. Years when you didn’t pay NI contributions, or only partially paid, can create gaps in your record that won’t count towards these numbers.

Fortunately, the government allows people to fix these gaps by making voluntary NI payments known as Class 2 or Class 3
contributions.

To add a full year of contributions would cost around £824, though partially complete years may be cheaper to fill with payments of £15.85
for each missing week.

Making voluntary contributions doesn’t always increase pension payments, but it’s likely to do so for people who may be employed or self-employed with low earnings, unemployed without claiming benefits, or living/working outside the UK.

As mentioned earlier, there is usually a strict time limit for ‘buying back’ years of NI contributions, so it’s important to check whether you have any missing years.

You’ll lose the opportunity to restore ‘qualifying years’ between 2006–2018 after the April 2025 deadline, so bear this in mind when considering voluntary payments.

How to check your National Insurance contribution record

If you are concerned about your State Pension eligibility, the first thing you should do is check your National Insurance record online.

Your personal tax account will state how many full years you have contributed since the age of 16, and how many non-full years have created gaps in your record.

The second thing you should do is check your State Pension forecast. This will tell you how much you would get in your pension based on your current NI record.

If you have incomplete years and your forecast shows less than the current £203.35 a week, you could improve this by making voluntary NI contributions.

You will need your existing Government Gateway ID and password to log in and access this information, or you can sign up to create a personal tax account if you don’t already have one.

Is it worth paying voluntary National Insurance contributions?

Voluntary contributions don’t always increase pension amounts, and not everyone will benefit from making voluntary ‘top-up’ payments.

For example, if you are already projected to receive a full pension, or are currently receiving a full State Pension, you cannot receive more than this, so there is no need to make voluntary payments for any years that might be missing.

If you are a man and were born before April 1951, or you are a woman born before April 1953, you should be on the old State Pension, so the new rules won’t apply to you.

If you are currently at or near State Pension age – which is 66 years old
until 2028, when it will increase to 67 years old – you should definitely check whether voluntary contributions could give your pension a final boost before you retire completely.

If you have enough time between your current age and the State Pension age to complete enough ‘qualifying years’ – i.e. enough working years – then you may not have to worry about top-up payments right now, unless you are moving abroad.

Similarly, if you are under 45 years old, you are likely to have enough years left to make full NI contributions through work or benefit credits to qualify for the State Pension before you reach the minimum age to claim it.

Even if you are relatively young, it’s never too early to plan for your retirement properly, so it’s still worth looking for any partial years that could be upgraded to full ‘qualifying years’ with minimal voluntary NIC payments.

There may also be some scenarios where you can fill gaps in your record for free with backdated National Insurance credits, depending on your circumstances.

Get help with National Insurance contributions for your State Pension

You no longer need to rush or panic over filling gaps in your National Insurance record by the end of this month, as you now have up to two more years to work out the best plan for your State Pension
before the transitional rules come to an end.

That said, you shouldn’t put it off for much longer – especially if you are close to retiring. You can also fill gaps in your NI record even if you’ve already started claiming your State Pension, so you shouldn’t wait to find out whether you could receive extra support.

There are many complex considerations involved in optimising your National Insurance contributions to get the most out of your State Pension, which all depend on your personal circumstances throughout your working life.

This is why it’s so important to get personalised advice by calling the Future Pension Centre (or contacting the Pension Service if you are already of age to claim).

After checking your record and forecast in your personal tax account and consulting the appropriate government pension department, you may want to seek personal financial advice to help you with pension planning.

At GBAC, our friendly financial advisers would be more than happy to discuss your situation and assist you with maximising savings and managing tax liabilities.

Get in touch with our Barnsley
accountants to find out more.

Fraud is now the most common crime committed in England and Wales, with 1 in 15 people falling victim to fraudsters and 9 in 10 internet users encountering online scams.

Financial fraud can have a devastating impact on people’s lives, with bank accounts and life savings drained in a matter of minutes – fraud victims lost a collective £2.35 billion in 2021.

It can also be costly for businesses, with 18%
falling victim in 2017–2020, and UK Finance members from the banking and finance industry losing over £1.3 billion to fraud in 2021.

To tackle the growing threat of fraud in the UK, the government has announced a new initiative – ‘Fraud Strategy: Stopping scams and protecting the public’.

What is the Home Office’s new Fraud Strategy?

The updated Fraud Strategy published by the Home Office introduces the launch of a new National Fraud Squad (NFS), which will overhaul the way fraud is investigated.

Despite fraud accounting for over 40% of all crime in England and Wales, barely 1% of police resources is used for dealing with fraud and supporting victims.

To counter this, the NFS will use a specialist team of 400 investigators working with the UK intelligence community and local forces to shut down criminal fraud cells.

The anti-fraud strategy involves several measures to prevent fraudsters from exploiting people, including bans on telecom network abuse and cold calling.

Working with Ofcom to stop telecom network abuse

Many fraud scams begin with unsolicited phone calls and text messages, with scammers pretending to be a trustworthy individual or organisation with authority.

Working with the telecommunications regulator Ofcom, the government will disrupt telephone scams by making it harder to ‘spoof’ numbers, which allows fraudsters to impersonate legitimate UK phone numbers or businesses and trick people into answering.

SIM farms, devices which can hold hundreds of SIM cards and send thousands of text messages in seconds, will also be banned. The government will be reviewing the use of mass text aggregators that facilitate sending messages in bulk, potentially requiring registration to use them legitimately.

Banning cold calls for investment products

Under the Financial Guidance and Claims Act 2018, there is currently already a ban on cold calls from pension providers and personal injury firms unless the consumer has already agreed explicitly to be contacted by the company.

There are now plans to extend this ban to cover all investment and financial products completely, preventing scammers from cold-calling and talking victims into purchasing fake investments or products they will never receive.

Banning cold calls related to all financial products and making the public aware of this change means that if people receive such a call, they’ll know it’s a scam and hang up.

Providing more protection for victims of fraud

Victims being able to get their money back as soon as possible is a major concern when dealing with financial fraud. If your bank card was stolen, your bank would legally have to reimburse you for any money stolen within 48 hours – but if you were tricked into authorising a transaction, you currently would not be eligible for this protection.

The Financial Services and Markets Bill, which is making its way through Parliament, will introduce powers to make payment service providers (PSPs) treat customers fairly and reimburse victims of ‘authorised’ fraud, too.

Banks will be allowed to delay processing payments for longer to investigate suspicious transactions, preventing victims from unknowingly handing over their money. A new framework will also be created to ensure repatriation of funds.

Replacing Action Fraud with an updated system

For many victims, it’s difficult to know how to report fraud or how to recover what’s been stolen from them. Some struggle to recognise fraud even after experiencing it before, with 18% of adult victims being re-victimised and falling for further scams.

To improve communications about protecting yourself against fraud and how to report it, the government plans to replace the Action Fraud service with a state-of-the-art system for reporting fraud and cybercrimes within the next year.

Around £30 million will be invested in this simpler system, which should provide shorter waiting times and an accessible online portal for victims to check the progress of their case. The National Economic Crime Victim Care Unit (NECVCU) will also be expanded to provide tailored local support to victims across England and Wales.

Regulating the tech sector through the Online Safety Bill

The Online Safety Bill, which is currently progressing through the House of Lords, will put more pressure on the technology sector to enforce extra protections and penalties, keeping their customers safe and punishing those who enable fraud.

Regardless of which online platform you’re using, you should be able to easily report a fraud or scam within a few clicks – not just for adverts, but also for false endorsements, identity fraud, and other kinds of online content.

The government will incentivize tech companies to combat fraud on their platforms by publishing transparent reports on fraud levels, showing which are the safest to use and which aren’t, in addition to fining those who fail to protect their customers against fraud.

Watch out for financial fraud

Fraud can involve a variety of dishonest acts with the intent of gaining money or property through deception, but technological advances have given criminals so much more access to personal data that identity theft and financial fraud are almost too easy.

The Home Office’s strategic crackdown on popular fraud methods is overdue, but these proposals will take time to move through Parliament and become enforceable legislation – giving fraudsters more time to get creative and target more victims.

Until the Fraud Strategy comes to fruition, the one piece of advice you can rely on is that if you answer an unsolicited phone call from your bank, the police, or anybody else, you should tell them that you’ll call them back on the official phone number. A scammer pretending to be the trusted source will try to stop you from doing this, while genuine callers won’t.

Another way to help prevent fraud, especially for businesses, is to outsource accounts to an accredited accountancy firm. With our Barnsley accountants managing your books, it’ll be harder for fraudulent transactions to slip by unrecognised.

Photovoltaic (PV) systems like solar panels harness energy from sunlight and convert it into electricity, which you can use to power your home or business.

Generating renewable electricity instead of relying on an energy supplier can help to reduce your energy costs. The Energy Saving Trust estimates the average household could save £455 a year by installing solar panels on the roof.

If you generate more electricity than you need, you can sell the excess back to the National Grid, converting the extra energy into extra cash.

With energy prices remaining high, now could be a great time to install solar panels on your property, generating your own energy and selling the excess back to the Grid – but you should be aware of the rules, including potential taxation.

How does the Smart Export Guarantee (SEG) work?

The Smart Export Guarantee (SEG) is a government-backed scheme that requires electricity suppliers with at least 150,000 customers to provide a tariff that pays small-scale electricity generators for the energy they export to the National Grid.

To qualify for the SEG scheme, your installation must be accredited by the Microgeneration Certification Scheme (MCS), your solar panels must have a capacity of 5 megawatts or less, and you’ll need a smart meter to track half-hourly energy exports.

Generators must apply for an SEG tariff through an approved supplier. This doesn’t have to be the same as your current import supplier, as multiple suppliers can use the same smart meter. You can shop around for the SEG licensee with the best rates.

SEG tariffs can be fixed or variable, and rates can vary from 1p/kWh to a possible 15p/kWh, but the best rates are usually available when you use the same energy supplier, as most companies will offer discounts for existing customers.

Are solar energy exports exempt from tax?

The amount of money you can make from selling excess solar energy back to the National Grid depends on many factors, such as the location of your home, how much sunlight the roof panels receive every day, and how much energy your property uses.

However, you have to think about the possibility of paying tax on the money you make from selling energy to the Grid. This income is only exempt if the system is installed on or near a residence, and does not generate more than 20% in excess of the home’s consumption.

This means a domestic property can generate up to 120%
of the energy needed to run the home, and sell up to 20% excess energy without it becoming taxable.

Even if the sales do become taxable, they could still be exempt under the £1,000 trading allowance. If your annual income from excess energy sales is more than this tax-free allowance, you must report it to HMRC, though you could still deduct the £1,000 from the taxable total.

If your microgeneration system is too large, or you don’t have a solar battery for storing excess energy, you may end up selling too much back to the Grid. These taxable sales could mean it takes much longer than the usual 10-year period to recoup the costs of the initial investment in the solar panel system installation.

There’s also the fact that VAT-registered businesses who generate their own energy and sell excess to the Grid must agree to self-billing of output tax, with VAT added to export payments that must be declared to HMRC on tax returns.

You can learn more about SEG tariffs through the government website, and if you have concerns about your tax liability, you can get in touch with our accountants in Barnsley.

After Inheritance Tax (IHT) receipts doubled between 2012–2022, the latest figures from HMRC revealed that 2023–2024 is on track to become another record-breaking year for IHT revenue.

In 2022–2023, the Treasury raised £7.1 billion from IHT receipts, and based on figures from this April–May being up 9.1% (£1.2 billion) on the previous year, this is likely to rise again to £7.7 billion for the current financial year.

The Office for Budget Responsibility (OBR) predicted that annual IHT bills will only raise £7.2 billion this year and reach £8.4 billion by 2027–2028, but the early data suggests that the Treasury’s takings will surpass the official forecasts.

This is likely due to the ongoing nil-rate band (NRB) threshold freeze – fixing the tax-free IHT allowance at £325,000 until
2028 – combined with increasing property values.

With more estates being dragged into the IHT net, the average bill is now almost £62,000, with even larger amounts due for estates that include property in London or South East England.

Here’s a summary of what’s happening with IHT, and what you can do to minimise your estate’s Inheritance Tax liability and leave as much as possible to your loved ones.

Why are more people paying IHT?

Inheritance Tax is levied by the UK government on the estate of a deceased person. Their estate includes all of the deceased’s assets – not just property, but also personal possessions (e.g. vehicles, jewellery, artworks), investments, and some lifetime gifts.

If the total value of their assets does not exceed the nil-rate band (NRB), no tax will be levied. If the estate is worth more than the NRB threshold, which has stayed at £325,000 since 2009, the inheritors will be taxed 40% on the excess value.

The residence nil rate band (RNRB) was implemented in 2017 to increase the allowance for main residences passed onto a direct descendant. At £175,000, this boosts the tax-free value to £500,000 for spouses, children, or grandchildren inheriting a residence.

As the RNRB applies per person, the allowance for a married couple would increase to £350,000. Any unused NRB is also transferable to the deceased’s spouse, meaning married couples can potentially pass on property worth up to £1 million with no IHT due.

These allowances may seem generous initially, but the NRB
has not changed since it was it introduced. With the freeze lasting until 2028, this threshold will have been the same for almost 20 years, while asset values have continued to rise.

The average UK property value has risen by 86% since 2009
– despite property prices fluctuating recently, the average detached house increased in value by £20,000 from March 2022–March 2023. With the average price of a detached house being £454,000 (closer to £525,000
in London), a typical estate could now be worth almost £480,000.

If the RNRB doesn’t apply, the IHT bill for such an estate would be around £62,000, whereas no IHT would have been due if the NRB had been updated to keep pace with inflation.

How can you reduce IHT?

Now that a tax initially targeting the wealthy is affecting average families, it’s even more important to plan your estate and manage taxes carefully. There are several things you can do to reduce your IHT
liability and keep your estate value within the taxable threshold.

For example, if your entire estate is valued below £2 million and your main residence is worth £500,000 or less, you could pass your home directly to your widowed spouse, children, or grandchildren without them having to pay tax on the residence.

You may decide to share your assets with family members during your lifetime, whether in the form of regular payments or gifts worth up to £3,000 a year. Wedding gifts to children or grandchildren (up to £5,000
or £2,500 respectively) can also be exempt from tax. You can give unlimited gifts of up to £250 to anyone else who hasn’t already received one, too.

However, you must be wary of the fact that IHT can still be charged on these gifts if you pass away within 7 years of giving them. This will be levied on a tapering scale, but if you pass away within 3 years of giving the gifts, the full 40% will be charged.

You could also choose to donate a portion of your estate to a charitable organisation. If you leave 10% or more to a charity or community (sports) club, this will trigger a 4% discount on IHT. So, if your estate value is still above the threshold after deducting the charitable donation, the excess will be taxed at 36% instead of 40%.

Other options include setting up trusts for relatives, or transferring ownership of assets such as a property or business while you’re still alive – but ‘gift with reservation’ tax rules may apply.

Financial planning for IHT

High house prices and frozen tax bands are sure to push more estates over the IHT threshold in the coming years, so people shouldn’t risk leaving IHT planning too late if they want to protect their estate and reduce the tax burden for their heirs.

You can read through HMRC’s Inheritance Tax guide
online to learn more about IHT exemptions, but remember there are risks in attempting to reduce your tax liabilities by yourself. It’s such a complex area that it’s easy to fall foul of the rules, and mistakes can be costly.

If you’re serious about financial planning, it’s best to get professional guidance from a financial adviser. At gbac, our accountants in Barnsley
can help individuals and families evaluate their financial positions and plan for their futures.

This includes helping with estate valuation, gift giving, placing assets in trust, and minimising liability for income taxes and Capital Gains Tax (CGT) as well as IHT. We can regularly review your finances and identify ways to help you meet your goals.

To learn more and get started with IHT financial planning, call us on 01226 298 298, or send an email to info@gbac.co.uk and we’ll be in touch soon.

There are many reasons why it may be necessary to file a Self-Assessment tax return, but most workers who are taxed through PAYE are exempt from having to do this.

This exemption previously had a total income ceiling of £100,000, but this threshold is now increasing to £150,000 (including gross salary, taxable benefits, and investment income).

At the end of May, HMRC confirmed in Issue 108 of Agent Update that the higher threshold for Self-Assessment tax returns will apply from the current tax year onwards.

This means that PAYE taxpayers who would have been required to complete a Self-Assessment return under the previous threshold – earning over £100,000 a year but less than £150,000 a year – may no longer have to do so from the 2023–2024 tax year.

When should you submit a self-assessment return?

Even if a PAYE employee earns an annual income below the new threshold of £150,000, other criteria could still require them to submit a Self-Assessment tax return.

This typically involves other income that has not been taxed through PAYE, such as:

Taxpayers may also be required to file a Self-Assessment return if they are liable for paying the High Income Child Benefit Charge, or Capital Gains Tax under the new allowances.

Even if they don’t meet the above criteria, some taxpayers may want to submit a tax return anyway in order to claim tax reliefs for pension contributions or charity donations.

If you don’t file Self-Assessment tax returns, it’s important to check your tax code to make sure you’re paying correctly for taxable benefits and savings. There’s also a HMRC online service
that allows you to check whether you should be filing Self-Assessment returns
or not.

When is a self-assessment return not required?

Taxpayers who are likely to be affected by the Self-Assessment return threshold increase must still complete and submit their tax returns for the 2022–2023 tax year, due by 31st January 2024, for which the previous threshold applies.

Those who submit a 2022–2023 tax return with total annual earnings between £100,000–£150,000, who don’t meet any of the other criteria for filing requirements, should receive an ‘exit letter’ from HMRC confirming they do not need to file again from next year onwards.

In some cases, taxpayers may need to contact HMRC directly to inform them that filing a Self-Assessment return is no longer necessary. If you submit a return late when you aren’t required to submit one, you can apply for withdrawal and waiving of any penalties.

Get help with self-assessment tax returns

Though an adjustment affecting returns due by January 2025 may not seem pressing right now, it’s important to take this into account alongside other tax reforms that could change the amount of PAYE tax
you pay or how you manage taxes on self-employment income.

While Making Tax Digital for ITSA won’t become mandatory until April 2026, HMRC scrapped paper tax returns this year, meaning everyone needs to get to grips with filing Self-Assessment tax returns online as soon as possible – ready or not.

If you are uncertain about your Self-Assessment tax liability or need help setting up digital accounting for online tax management, you’re in the right place to find professional assistance. Get in touch with our Barnsley accountants to benefit from our range of financial services.

Under Ofgem’s latest price cap revision, annual energy bills for typical households are expected to fall to £2,074 from 1st July 2023 – the lowest in over a year.

The Energy Price Guarantee (EPG) that the government introduced last October capped energy prices per unit to limit the average bill to £2,500 a year until 30th June 2023, helping domestic consumers to save compared to Ofgem’s £3,280 cap for the current quarter.

The EPG is due to increase to £3,000 from 1st July
and will remain in place until March 2024, but Ofgem reducing their cap to £2,074 means most people are unlikely to pay that much.

This seems like good news for families, home-based employees, and small business owners working from a residence – but will energy bills really change that drastically?

Why is the energy price cap going down?

Since the energy price cap was introduced in 2019, setting a maximum rate for standard tariffs to prevent suppliers from overcharging customers, the regulator Ofgem has increased the frequency of its energy price reviews from twice a year to once every three months.

Over the last two years, the price cap kept increasing due to a range of factors, including wholesale gas supply issues exacerbated by Russia invading Ukraine in early 2022. More than a year on, even as the war continues, European gas prices have dropped as supply is able to meet demand again.

Quarterly reviews of energy market rates allow Ofgem to adjust its unit price cap as closely as possible to the market’s fluctuations, which is why the cap soared to £4,279 in the first quarter of 2023 and is now dropping to £2,074 in the second half in response to lower demand.

This cap will take effect from 1st July – 30th September 2023, and Ofgem will announce the next energy price cap for the last quarter of the year at the end of August.

How will this affect households in the UK?

Most household energy bills haven’t been as high as the Ofgem price cap since last October, thanks to the Energy Price Guarantee. Though the EPG is increasing by £500 in July, many will see their bills fall to the lower Ofgem price cap instead.

This means the average customer on a variable tariff is expected to pay around £400–450 less annually based on the current price cap. However, it’s important to remember that the cap applies to the price per unit, not energy bills in general.

So, if you use more energy than average, you will still end up paying more for your increased usage, and if you use less energy, you could save more than the estimate. This will depend on your property’s energy efficiency, the number of people living in it, and how they use it.

It’s also important to note that even with savings of around £400 under the new price cap, the average household will essentially be paying the same as they were last winter, when the government’s temporary Energy Bill Support Scheme provided a £400
discount.

Therefore, despite the latest Ofgem cap being lower than the previous cap and the EPG from April to June, most people won’t see much of a difference in their energy bills after all.

What does this mean for future energy prices?

Though the Ofgem price cap dropping from £3,280 to £2,074 seems like a dramatic reduction, the current cap is still much higher – almost double – than the £1,162 it was before wholesale gas prices began to increase in August 2021.

Experts across the industry predict that energy prices will remain stable for the rest of 2023 and into 2024, meaning households will have to adjust to annual energy bills remaining at around £2,000 for at least the next year.

Unfortunately, this could continue for several more years, as the Energy and Climate Intelligence Unit (ECIU) predicts that annual energy bills may not fall below £1,700 for the rest of the decade.

That said, there’s hope that stable prices will enable the return of fixed energy deals with competitive rates. This could help customers to save money and budget better with a fixed price – but there’s still the risk of fixed tariff customers paying more than variable tariff customers if market rates fall below the fixed rate.

You can find more information about the energy price cap and Energy Price Guarantee in the government’s research briefing, and Ofgem will publish their next price cap review on 25th August.

If you need assistance with financial planning for the current year, especially if you are a self-employed small business owner who works from their residence with specific tax considerations, you can always reach out to our Barnsley accountants to learn more about our services at gbac.