Users of HMRC’s interactive PDF service for submitting up to 150 P11D forms may be surprised to find that it’s now being decommissioned.

If you’re one of the small employers who relied on the convenience of this Online End of Year Expenses and Benefits service, you might wonder what your options are now.

It’s important to note that P11D returns are not going away completely – it’s just the way you report benefits in kind
that’s going to be different from now on.

This blog explains how P11D submissions are changing in 2022 and the alternative methods for reporting taxable benefits and expenses.

What’s happening to the P11D form?

Though the P11D return has been around since the 1960s, long before the creation of HMRC as we know it today, the time has apparently come for HMRC to retire its ‘legacy’ reporting method.

To clear up any confusion about what a P11D is, it’s a form used by employers and company directors to declare ‘benefits in kind’. These are taxable perks from the business that aren’t a part of the employee’s or director’s salary – such as company cars, health insurance, or relocation expenses.

Employers need to submit a P11D to HMRC for every employee and director receiving these benefits, and a P11D(b) form
to summarise the total. The business can then pay any outstanding Class 1A National Insurance contributions.

Previously, companies with up to 150 employees could use the Online End of Year Expenses and Benefits Service to create and send P11Ds and P11D(b)s electronically, which could also be printed and posted if the business preferred to submit them that way.

However, the February 2022 Employer Bulletin announced that HMRC would be retiring this service from April 2022. Unfortunately, this means that employers won’t be able to use it when filing P11Ds for the 2021–2022 tax year – for which the deadline is 6th July 2022.

With the move towards Making Tax Digital, where all tax returns can be submitted digitally through the same portal for convenience, it’s not that surprising for HMRC
to discontinue the older service – but with many businesses still using it, the transition may be rockier than they anticipated.

While HMRC says they’ll still accept limited P11D paper returns from businesses who can’t file online or set up payrolling for valid reasons, this is likely to be phased out, too.

What are the alternatives for filing P11Ds?

Now that HMRC’s End of Year Expenses and Benefits service
is out of commission, there are two ways left to submit electronic P11D returns. Of course, there’s no need to complete these forms if there are no benefits in kind for you to declare – but if there are, here’s how to do it.

Firstly, if you’re already using payroll software, it makes sense to use it for P11Ds, too. The problem for many businesses is that not all such software has features for benefits and expenses, and it might not be a good time to change providers. Getting new software can be expensive and disruptive, after all – even with payroll software guidance from HMRC.

However, employers needing to submit more than 500 forms
are required to do so using payroll software, anyway. It can still be much faster than using the old PDF or paper return services.

Secondly, you have the option of moving to the PAYE Online Service. This shouldn’t be a difficult switch if you were using the online PDF service – PAYE
has even more functionality. All your business needs to access it is your Government Gateway ID, the same as before.

HMRC’s PAYE Online Service caters to companies with 150 to 500 employees, and also allows you to check payments and file P46 (Car) reports for company cars. It’s much easier to access, as you don’t need a specific browser or the latest version of Adobe Reader to do so.

Though the February announcement didn’t give much notice, businesses must decide which of the remaining options works best for them.

Should you payroll taxable benefits?

Though it’s not an option for the 2021–2022 or 2022–2023
tax years, bookkeepers might be interested in the potential of payrolling benefits in kind.

When the taxable value of a benefit or expense is put directly through payroll software, there’s no need to file a P11D
separately for the employee. The tax liability is applied for each pay period (usually monthly) rather than making an annual declaration of the total.

There’s more frequent administration involved with payrolling taxable benefits this way, but you’ll have the advantage of only having to submit a P11D(b) for all benefits and National Insurance contributions instead of submitting individual P11Ds as well.

You’ll just have to register online with HMRC to let them know that you’ll be payrolling taxable benefits in kind. Since the deadlines for registration have already passed, it’s too late to apply for the next tax year, but you have until 5th April 2023 to register for the 2023–2024
tax year.

Once you’ve registered and begin operating this way, you should find that there’s less paperwork, fewer HR enquiries, and more accurate monthly tax deductions with simpler tax codes.

Get P11D advice from GBAC

We’re well aware of the fast pace of financial digitalisation here at GBAC, where our highly trained team of accountants likes to be ahead of the curve. We’ve been helping businesses of varying sizes overhaul their payroll and tax systems for years – so we’re well-placed to help yours, too.

Whether you need professional guidance on payroll software, keeping accurate accounts, or filing P11D forms correctly, GBAC, accountants in Barnsley, can provide a range of financial services. Just get in touch by calling 01226 298 298 or emailing info@gbac.co.uk
to get started on updating your business.

In late May 2022, the Chancellor of the Exchequer announced a new set of measures to counter soaring living costs. With consumer prices hitting a 40-year high of 9.1% inflation and the already astronomical energy price increases expected to rocket to £3,000 a year this autumn, the previous package – based on estimates that were much lower than real-life price rises – was not enough.

For individuals, families, and businesses alike, the financial squeeze is getting tighter. So, what kind of support is now available, and what does it mean for the people of Britain and our economy?

Initial economy support measures for 2022

First announced in February 2022, the Chancellor initially announced a limited package designed to reduce the negative impact of Ofgem’s energy price cap increasing in April 2022. This included:

Where measures are applied to England only, the Treasury uses the Barnett formula to adjust them for the constituents of Scotland, Wales, and Northern Ireland.

These measures initially had a value of around £9 billion, but it soon became apparent that they wouldn’t be enough to keep up with rising inflation and Ofgem’s price cap. Eventually, by the end of May 2022, the Chancellor had to update this package with a further £15 billion in support measures.

New approach to the cost of living crisis

After much speculation about windfall taxes, the new cost of living measures were revealed to be:

These one-off payments are tax-free, non-repayable, and do not count towards benefits caps – so they won’t affect existing benefit claims. The same applies for the previous £150 council tax rebate, which should have been issued by English councils by now.

While the energy bills grant will be paid to energy suppliers, the government will make Cost of Living Payments directly to recipients, and Household Support Fund payments will be provided to eligible people by local councils.

Where is the money coming from?

Since the cost of living crunch is so severe, you might be wondering where the £15 billion for this new package will come from. The government plans to finance these measures with a temporary levy on energy profits for oil and gas companies, increasing the amount of tax they have to pay.

The Energy Profits Levy aims to address the inappropriately high profits that energy companies are making at the expense of UK consumers, and will be phased out when energy prices fall back to historically acceptable levels. The levy will be in force from 26th May 2022
until the start of 2026.

It currently doesn’t apply to the electricity generation sector, but the Energy Profits Levy will add 25% tax to the existing 40%
for oil and gas companies. It will be calculated in a similar way to the existing taxes that make up the 40% (the Ring Fence Corporation Tax
and Supplementary Charge).

This measure is expected to raise around £5 billion
in the first year. Companies cannot offset losses or decommissioning expenditures against their profits to reduce the levy – but as an incentive, the Investment Allowance will encourage companies to reinvest their profits for at least 80% tax relief.

Will these measures be enough?

The new measures are certainly an improvement on the woefully inadequate package announced in February, but are they good enough? After all, the energy support payments don’t come close to offsetting energy prices that more than double.

That said, since the majority of the money will go to the most vulnerable households in the UK, it’s sure to give billions of struggling people at least a little more breathing room.

Additionally, the Chancellor suggested that the social security rates from April 2023
will be based on the Consumer Price Index from September 2022, which is predicted to be higher than the average inflation rate for next year. This could mean an increase of 10% in social security payments.

If you’re concerned about managing your money more effectively in these difficult times, you might benefit from our expert financial services here at GBAC, accountants in Barnsley. Call us on 01226 298 298 or write to us at info@gbac.co.uk and we’ll do our best to assist you.

We’ve covered the Making Tax Digital scheme before on the GBAC blog, but are you staying on top of the latest MTD updates that could affect your business?

Tax automation using digital accounting systems and cloud accounting software is revolutionising the way businesses are run in the UK, so you don’t want to be left behind.

While VAT-registered businesses have been keeping records and filing tax returns digitally since 2019, this became a requirement for all VAT returns in April 2022.

Now, a few months on, all liable businesses should be running MTD-compliant software and following the new rules – with the risk of financial penalties if they don’t.

What about other types of tax, though? Do self-employed people and landlords need to worry about MTD yet when it comes to filing self-assessment income tax returns?

Read on for the latest information about Making Tax Digital in 2022.

How to sign up for Making Tax Digital

Businesses liable for VAT should have already signed up for MTD, or had an agent register them on their behalf. If this applies to you, then you should be keeping digital records after choosing MTD-compliant accounting software and registering through your Government Gateway account.

Your digital records should cover the start of your usual VAT period, from 1st April 2022 onwards. You can still keep paper copies if you choose, but you must also make digital copies. If you record your VAT information in a spreadsheet, you’ll need bridging software to submit it through MTD.

If you aren’t sure whether you’re complying with current MTD rules, it’s worth getting financial advice. You may want to hire a tax agent, who can register for MTD up to 12 months in advance.

Which Making Tax Digital software to use

Even if you decide to use spreadsheets to record your financial information, you’ll still need bridging software to transfer the data to MTD – and you’ll also be losing out on the benefits of a full digital accounting software package. Bridging software is great as a temporary first step, but in the long run, choosing a suitable accounts software package will be much more helpful for business growth.

So, how can you select the right software for your business? MTD-compliant software
must be:

The government website has a list of HMRC-approved MTD software, including already well-known programmes like Xero, Sage, and QuickBooks. We’re very familiar with these systems ourselves here at GBAC, so our financial advisers can help you to find the best fit for your unique business needs.

Eventually, all non-PAYE taxpayers will have to sign up and file their taxes completely digitally. It’s better to get ahead now and set up a seamless digital reporting system that will make things run more smoothly. You can always test out free trials before committing to purchasing a full package.

When to switch to filing taxes digitally

As explained above, any business charging VAT on their products and services should have made efforts to implement appropriate software and register for MTD. You can only put this off a while longer if your current accounting period began before 1st April 2022 – once this ends, you must have an MTD-compliant digital accounting system in place for the start of the next accounting period.

Aside from VAT returns, the delayed schedule for digital Income Tax returns is set for 6th April 2024 rather than the initially planned date of 6th April 2023. This means that anyone who submits a self-assessment tax return has an extra year before they have to go fully digital – including landlords.

Sole traders and anyone who earns income of more than £10,000 a year from self-employment will be expected to follow the Making Tax Digital system from the 2024-2025 tax year onwards. This will mean switching from one annual return to quarterly returns and one final declaration at the end of the year. The quarterly submission dates will be the 5th of May, August, November, and February.

When it comes to Corporation Tax, general partnerships have a Making Tax Digital start date of 6th April 2025. This only applies to smaller partnerships with individuals as partners – larger partnerships with 20 people or more have not been given a start date yet, but it’s unlikely to be earlier than 2026.

Even if your business hasn’t been legally mandated to switch to the Making Tax Digital platform yet, why not sign up sooner rather than later? Early voluntary registration allows you to get to grips with the new system in advance, giving you time to work out any issues ahead of the enforced start date.

Is your business prepared for Making Tax Digital?

While digital tax submissions make things more efficient for everyone, there’s still a lot of work involved. If you’re not certain about your tax liabilities or MTD compliance, or how to get started with Making Tax Digital in the first place, you can always ask the experts – the team at GBAC, accountants in Barnsley.

Give us a call on 01226 298 298 or email your enquiries to info@gbac.co.uk
for Making Tax Digital advice. We can help you with a range of related problems, from upgrading your software and assisting with training your team to handling all of your tax returns entirely on your behalf.

With financial penalties for non-electronic submissions in the near future, you should definitely prepare your business for the Making Tax Digital transition as soon as possible, if you haven’t yet.

Disclosures are crucial for corporations who want to gain the trust of more business partners and customers. When companies aren’t transparent about their operations and responsibilities, the public is likely to lose confidence in them and takes their support elsewhere – as do investors.

In the world of corporate finance, disclosure means releasing all the relevant information about a business to the public, whether the data is positive or negative. This includes all the facts and figures, procedures, dates, and developments that can influence investor or consumer decisions.

Even smaller businesses may be legally required to publish certain details. After dozens of major companies collapsing has dented the trust of the British people in recent years, the UK government is planning to reinforce the UK disclosure regulations in an attempt to restore faith in the market.

This blog explores what this means for small companies, and how you can prepare for the changes.

What counts as a small company or micro-entity?

The size of your company accounts depends on three factors: your annual turnover, the average number of employees, and the balance sheet total (including both current assets and fixed assets).

Company size

Annual turnover

Balance sheet total

No. of employees

Micro-entity

£632,000

£316,000

10

Small company

£10.2 million

£5.1 million

50

To qualify as either a micro-entity or small company, your business must not exceed at least two of the three thresholds. Both were previously able to submit abridged balance sheets to Companies House, with less information than the balance sheets they provide for members and shareholders.

When you run a limited company, your financial information will be available to the public. Small companies and micro-entities aren’t currently required to file profit and loss accounts, so less information is available – often as little as their current assets and liabilities, and total fixed assets.

However, this will soon change when Companies House
upgrades its rules. The February whitepaper Corporate Transparency and Register Reform
suggests that the government will make it compulsory for all micro-entities and small companies to file their profit and loss accounts for everyone to see.

How are business disclosure rules changing?

As mentioned, the key changes are that small companies will no longer be able to submit abridged accounts, and must now submit a director’s report. Both micro-entities and small companies will also have to file full profit and loss accounts. This information will now be available to competitors, employees, customers, family, and any other parties with an interest in the company’s profitability.

While these reforms haven’t been written into law yet, they are likely to be within the next year. With the aim of improving company ownership transparency and preventing fraud, the whitepaper also proposes the following actions:

The government is aware that there is potential for criminal misuse of the system for reporting accounts, which is why they want to streamline the process to make it as simple as possible for both businesses filing the information and those accessing it to inform their own business decisions.

Their proposed reforms will boost confidence in the integrity of businesses by improving the accuracy of their financial data. In the future, the whitepaper suggests exploring the new approach of filing everything once a year with the government, rather than filing different parts with different departments at varying times. This would be more efficient for all parties, reducing inconsistencies.

What does your business need to do?

Though the extended filing regulations won’t come into effect for a while yet, they should inform your decisions when making changes to an existing business or setting up a new company. When they do become law, there is likely to be a transition period to give companies time to comply.

If your business isn’t compliant with the new requirements by the end of the transition period, your company could face civil penalties or even criminal sanctions. If company directors fail to register with Companies House and verify their identities, they will also be committing a criminal offence.

You can find current guidance for Companies House accounts online, but it may be worth consulting a professional accountant if you have any uncertainties about your company’s liabilities. It’s also a good idea to get ahead with implementing a digital accounting system, if you haven’t done so yet.

Accurate disclosure is the key to staying on top of financial reporting regulations while protecting your company’s reputation, tracking your progress, and giving yourself an edge over less transparent competitors. If your company could benefit from expert advice and assistance with preparing and filing digital accounts, get in touch with GBAC, accountants in Barnsley, today on 01226 298 298 or at info@gbac.co.uk.

Between July 2021 and March 2022, the government reduced VAT rates for tourism and hospitality businesses to help these industries recover from the impact of the COVID-19 pandemic.

However, as of 1st April 2022, the standard VAT rate is back to normal. This means that if you’re selling food and drinks that aren’t zero-rated, you’ll have to pay 20% VAT on those products.

Unfortunately, when it comes to baked goods and confectionery, it can be difficult to distinguish between zero-rated food and standard-rated food. Everyone knows the common argument over whether Jaffa Cakes count as a biscuit or a cake – which are both taxed differently.

Complying with arbitrary food VAT regulations can feel like navigating a minefield. So, how do you stay on HMRC’s good side while saving your business money and making your customers happy? Let’s investigate which foods can be zero-rated and when you have to pay standard-rated VAT.

Which foods are standard-rated for VAT?

Generally, the standard VAT rate applies to food and drink served hot as part of a catering service. If you’re a retailer selling cold consumables to take away, these will be zero-rated.

However, any ‘eat-in’ products count as a catering sale. So, if you sell cold meals or drinks that customers consume on your premises – with or without hot products – then the otherwise exempt cold items will also be liable for standard VAT.

Though these categorisations widely apply, there are quite a few exceptions. For example, most cold drinks are standard-rated, but HMRC specifies that takeaway iced coffee, iced tea, and milkshakes are zero-rated
(though ice cream, which many milkshakes contain, isn’t).

Similarly, certain cakes and desserts are zero-rated, as are vegetable-based snacks. Yet savoury snacks like potato crisps, popcorn, nuts, and confectionery all fall under the standard rating.

When tap water is exempt but bottled water isn’t, and, how are businesses supposed to stay on top of charging the right prices to pay the right VAT rates?

How does VAT apply to baked goods?

One of the biggest sources of confusion for sellers of food and drink is the murky area of baked goods and confectioneries. The VAT rating of a sweet snack can hinge on whether it includes chocolate, which is standard-rated, while biscuits with any other coating are zero-rated.

Most confectionery will be given a standard VAT rating, while the rating of most baked goods will depend on whether they’re sold hot and/or eaten on the premises. For example, a cold takeaway pastry (such as a croissant) would be exempt, while a hot pasty would be eligible for full VAT.

Any sweetened food item usually eaten with the fingers counts as confectionery, such as chocolates, candies, and cereal bars. There are very specific instances where similar items and ingredients are rated differently. For example, sweets, gum, and dried fruits for snacking are classed as standard-rated, but candied fruits and chocolate pieces or spreads used for baking are exempt.

To make things even more confusing, you need to ‘apportion’ your sales of goods with mixed ratings. If customers buy cold takeaway food but consume it on your premises anyway, you must keep adequate records to calculate the appropriate VAT liability for this percentage of sales.

What if you sell a product that contains both zero-rated food and standard-rated food at the same time? This counts as mixed supplies, in which case the whole item is likely to be standard-rated. However, if you sell hot and cold items together in a package for consumption off the premises, only the hot portion is liable for VAT – so you’ll have to calculate that amount accordingly.

What happens if HMRC disagrees with your VAT rating?

Producers, manufacturers, wholesalers, and retailers alike should be wary of ignoring government guidance on VAT for food and drinks. If your own estimates don’t align with HMRC’s definitions, you could be looking at a tribunal case and paying a fine – or even going out of business completely.

Take these two cases as a warning. First, Glanbia Milk
produced low-calorie flapjacks with less sugar and fat but more protein than traditional flapjacks. HMRC argued that their product was not a zero-rated cake like regular flapjacks, but rather a standard-rated confectionery, and the tribunal agreed.

Second, in a similar case, start-up DuelFuel may end up closing down. HMRC does not consider their range of protein cake bars and flapjacks to be traditional cakes based on the ingredients, texture, and marketing. Therefore the company will have to pay the 20% standard rate
instead of zero VAT.

If a flapjack crosses into cereal bar territory, HMRC
has proven that they won’t show any leniency. This is why it’s so important to pay attention to even marginal differences between the way you categorise your own products and HMRC’s definitions – which you can find in VAT Notice 701/14.

Should your business need help with reviewing your sales systems and VAT liability, the financial consultants at GBAC, accountants in Barnsley, would be glad to assist you. Call us on 01226 298 298 to discuss tax advice, or email your enquiries to info@gbac.co.uk. We’ll be happy to arrange a VAT consultation with you.

In April, inflation in the UK rose to 9% – the highest it’s been since 1982. As the cost of goods and services continues to increase faster than wages and savings can keep up with, consumers have no choice but to limit their spending.

This means that owners of small businesses are hit twice over. Not only do rising prices limit their own spending power, but struggling customers buying less is also reducing their revenue.

The BBC
reports that higher energy bills and surging fuel prices were the cause of around 75% of April’s inflation increase. Most other goods and services are also rising in price, with the Bank of England anticipating another recession this year if inflation passes 10%.

So, what does this mean for small businesses and consumers in 2022? This GBAC blog explores what’s happening with UK inflation and how to reduce its negative impact.

How can consumers manage spending?

Now the UK has the highest inflation rate of the G7 countries, the economy is undoubtedly shrinking. Many people are trying to cut costs wherever they can, from limiting car journeys to cancelling streaming subscriptions.

Switching to own-brand items for isn’t going to help everyone with the cost of living crisis, but there are a few things you can do to build up short-term savings.

Cancelling or pausing subscriptions can save you more than you might think. Not just media services, but things like gym memberships, magazines, computer software, and monthly delivery boxes. Most of us will have a rolling contract for paid music, gaming, or dating apps, but do you use them enough to justify the price? Is there a free alternative?

Similarly, if your current broadband and mobile contracts are coming to an end, start comparing deals and switch to the best one. If you don’t want to swap providers, you can try contacting your current company to haggle, armed with competitor prices.

You should definitely assess every direct debit and recurring payment coming out of your bank account every month, and cancel anything that isn’t necessary. If you’re struggling to keep up with mortgage payments, don’t attempt to cancel them without contacting your lender, as you could be in breach of your contract.

Another option is to pause or reduce your pension contributions, if you regularly pay into a private pension. It’s not advisable to opt out of your workplace pension contributions, though, if you don’t want to lose out on employer contributions.

Generally, we all should think more carefully before we spend. Blocking notifications from retailers you buy from infrequently can help reduce the temptation to make unnecessary purchases, while signing up for loyalty cards can get you discounts at the places you shop regularly.

How can small businesses handle inflation?

According to the Financial Times, operating costs have risen for almost 90% of small businesses compared to this time last year. As business expenses increase and customers cut back on superfluous purchases, SMEs (Small to Medium Enterprises) need to make difficult choices on how to trim their spending and cover rising costs.

Startups Magazine reports that 26% of small business owners have already had to increase their prices in the last year, largely due to rocketing energy costs. However, not everyone is able to raise the prices of what they sell, and it also risks driving away more customers.

There are also other factors contributing to the financial squeeze, including rising National Insurance and business rates, plus labour shortages and international supply chain disruptions due to Brexit, the COVID-19 pandemic, and the war in Ukraine.

Most retailers will need to keep their prices competitive and retain a human touch, especially when providing services on credit. Customers may delay or even cancel payments that will have a knock-on effect on your cashflow, so it’s important to constantly keep things under review and adjust your long-term plans with regular re-budgeting.

When it comes to dealing with inflation as a small business owner, there are mostly two choices. You can either keep things small by cutting back on non-essential production costs, or take the risk of investing in growth. This may involve focusing on marketing and technology that could increase your sales enough to at least keep up with inflation, if not outpace it.

Where to get financial advice in 2022

It’s an unfortunate reality that inflation is a constant, so everyone needs to be aware and prepared. However, the current pace of inflation in the UK is unusual, and it won’t last forever. Until inflation returns to a more manageable level, individuals and businesses should be thinking over solutions to carry them through this tough time.

If you find yourself struggling with the cost of living, there is a helpful MoneySavingExpert survival guide with plenty of tips on how to save money and be smarter about spending it. Should your budget cover professional financial planning, GBAC, accountants in Barnsley, are always willing to help employers and the self-employed to streamline their business finances.

Simply give our accountants a call on 01226 298 298, or email your enquiry to info@gbac.co.uk and one of our financial advisers will be in touch.

Paying more than basic rate tax in the UK was once like being part of a select club. Following the introduction of the additional higher rate tax band in 2010-2011, the percentage of taxpayers over the higher rate threshold was just 10.4%.

By 2015-2016, austerity measures were pushing this number up to 16%. After raising the threshold, the proportion of higher rate taxpayers dropped to 13.6% in 2019-2020. However, it began to rise again, and is continually increasing.

The Office for Budget Responsibility (OBR) estimates that the Personal Allowance freeze will not only make more earners liable for Income Tax, but also push more people from the basic rate band into the higher rate band.

As Income Tax allowances will be frozen until 2025-2026, while wages gradually increase in an attempt to catch up with inflation, up to 19% of taxpayers could find themselves paying double the tax they previously owed.

What does this mean for UK taxpayers?

The FT Adviser reports that wage growth has been increasing faster than expected as the economy recovers from the pandemic, which could result in 1 in 5 taxpayers becoming liable for the higher rate (40%) or additional rate (45%) by 2024-2025.

According to Steve Webb, former pensions minister, original estimates were far lower than the reality. The OBR estimated wage growth of 2.9% from 2020 to 2022, but have since revised this to reflect the 2.6%
growth in 2020-2021 and 7.5% in 2021-2022.

This average wage increase of more than 10% is likely to have pushed over a million more people across the frozen higher rate threshold than anticipated. Compared to the estimated 1 million expected to be liable for the higher rate between 2019-2020 and 2024-2025, Webb predicts the number will be closer to 2.5 million over the duration of this Parliament.

If these newer estimates are correct, this means that up to 20%
of taxpayers could end up paying more Income Tax during this period. Since this doubles the percentage from 2010-2011, it’s safe to say that being a higher rate taxpayer is no longer a select club.

What are the options for higher rate tax relief?

This type of ‘stealth tax’ is even more unwelcome than unusual as the cost of living crisis continues in the UK. Many people will find themselves passing a larger cut of their income to HMRC in the next few years, if they haven’t already been dragged into a higher tax band since the 2019 election.

It’s certainly an incentive to reassess your tax liabilities and financial habits. So, is there anything you can do to minimise your losses to the Exchequer? Here are some examples of actions to take:

If you’ve joined the ever-expanding club of higher rate taxpayers, or believe that you’re likely to in the next few years, you could benefit from expert financial advice. Here at GBAC, we offer a range of tax consultancy services and HMRC enquiry support for a variety of clients throughout the UK.

Call 01226 298 298
to speak to our team, or send an email to info@gbac.co.uk
with your query. Our highly qualified accountants are available to assist you from 9am to 5.30pm, Monday to Friday.

The rise of remote working throughout the COVID-19 pandemic has opened new opportunities for many people wanting to escape the office full-time. Not only can employees work from their own homes, but they can choose to establish a home office anywhere – even if it’s in another country.

If all you need to do your job is your computer and a secure internet connection, why wouldn’t you want to set up shop somewhere better? Becoming a digital nomad seems like a dream come true for most workers. However, it’s not always that easy to relocate overseas whilst keeping the same job in your country of origin. Time zones and accessibility aside, residency and taxation can be a roadblock.

Let’s look into what it takes to be a digital nomad, and what this style of remote working means for individuals and employers when it comes to work permits, residency visas, and international taxes.

What is a digital nomad?

A digital nomad is a remote worker who travels, using technology to do their work from wherever they might be at the time. Some digital nomads move around within their home country, while others move to another country to work remotely from there instead. The more adventurous travel around the world from country to country – though this truly nomadic lifestyle isn’t for everyone.

While remote workers operate outside of business premises, they aren’t necessarily nomads, as they can also work in the office if required. The main differentiating factor is that remote working is a necessity for digital nomads because they travel further afield. Opportunities to do this were mostly limited to freelancers and the self-employed, but many employers are now offering more flexibility.

There are many professional roles that are compatible with the lifestyle of a digital nomad, such as:

It’s not restricted to e-commerce entrepreneurs and online influencers anymore. As long as you have the equipment you need and legal permission to work wherever you’re going, anyone can be a digital nomad nowadays. You’re only limited by employer policies and international tourist laws.

Can you get a digital nomad visa?

While it’s not an official term or specific document, a digital nomad visa is a permit allowing the holder to work remotely from a country other than their primary residence. It’s easy to get a tourist visa for visiting most countries, but these don’t always allow you to earn income while staying there.

This is why you need a ‘right to work’ visa if you plan to receive payment for remote work, even if the payment comes from outside the country you’re working in. You must operate in line with the immigration laws for whichever country you’re in, including ‘freedom of movement’ agreements.

Since the increasing popularity of digital nomad working during the pandemic, some countries are introducing targeted schemes along the lines of a digital nomad visa. For example, Barbados has a ‘welcome stamp’ for digital nomads, who can work there for a year if they earn a certain amount.

Malta also has a ‘nomad residence permit’ that allows remote workers to live there if they meet the minimum monthly income requirements. Bermuda has a similar ‘work from Bermuda’ scheme, and Iceland also offers a long-term remote worker visa. Other countries with digital nomad visa options include Germany, the Czech Republic, Norway, Estonia, and Portugal, plus Mexico and Costa Rica.

Where do digital nomads pay tax?

The issue with working remotely from a secondary country while sourcing your income from another is that filing and paying taxes can quickly become complicated. You’ll need to consider tax liabilities in both your country of origin (where you maintain citizenship) and the country you’re working in.

Even if the country you’re residing in offers a tax exemption for your type of temporary residency, it doesn’t mean you’ll be exempt back home. For example, if you were working in Barbados under the tax-free scheme, but your earnings were still being paid by an employer in the UK, that income would still be subject to UK taxes – including Income Tax and National Insurance contributions.

On the other hand, if you were working remotely in a secondary country but your earnings were paid within the same country, you would need to determine your primary country of residence to find out whether you still owed tax on that income back in the UK. If you’re unlucky, you could end up paying taxes twice on the same income, unless both countries have a double taxation agreement.

Wherever you go as a digital nomad, you need to take the tax residency requirements of each place into account. For many countries, you must live there for more than 183 days out of the year to be classed as a tax resident, but the rules can vary. It’s vital to know the country’s rules before working from there. To check your UK tax residence status, take the HMRC Statutory Residence Test (SRT).

What are the implications for businesses hiring digital nomads?

It might not be as much of an issue for those in self-employment, but hiring a digital nomad as an employer can have complications. Employers can state where an employee is obliged to work in their contract, so they decide whether to allow working from another location or not. This may be negotiated on a case-by-case basis, especially if it concerns a single employee working overseas.

It’s not wise for UK companies to allow employees to work remotely from wherever in the world they like, and definitely not without investigating your company’s legal obligations in each country first. In some cases, your employee working from abroad could mean you’re obligated to register as a foreign employer in that country, which could then make you liable for corporate tax there, too.

Employers also have to consider wider implications like the employee’s ability to maintain their quantity and quality of work, and how effective communication will be for collaborative purposes. Not only will employees need the appropriate equipment and software, but companies also need to ensure they comply with data protection laws in each country if they access sensitive information.

Are you an employer or employee affected by the rise of digital nomads?

If you’re planning to become a digital nomad, you need to get into the habit of keeping thorough financial records (if you don’t already do this). You’ll need to stay on top of your income, business expenses, and relevant tax legislations to avoid missing deadlines and receiving penalties. It can help to have a tax consultant in your primary country of residence to handle all the paperwork for you.

If you’re an employer with an employee who would rather be a digital nomad, you’ll need to work out a detailed legal agreement after researching the individual and corporate tax regulations in each jurisdiction. Having an accountant to manage bookkeeping and payroll can assist with gathering the financial information you need and ensuring that taxes are paid on eligible income for all employees.

As the working world continues to change with ongoing digitalisation, it’s likely that more and more countries will introduce some kind of digital nomad visa to encourage foreigners to live and work there. Should you need assistance with financial planning related to remote work and taxation, you can contact our team at GBAC, accountants in Barnsley, by calling 01226 298 298 or emailing info@gbac.co.uk.

Though it was introduced almost a decade ago in January 2013, many parents and guardians may still be unaware of the High Income Child Benefit Charge (HICBC). This Child Benefit Tax applies to anyone earning more than £50,000 a year while claiming Child Benefit
for a child in their household.

However, many workers who are used to being taxed through their employer’s PAYE system won’t realise that the government expects them to submit annual self-assessment tax returns for HICBC. This has led to HMRC sending hundreds of thousands of letters about suspected non-compliance, hitting families with surprise bills and fines during a time that’s already financially difficult for many.

The Office for Tax Simplification (OTS) has been extremely critical of the HICBC
implementation, issuing recommendations for improvement that HMRC has yet to follow. The question is, can the Child Benefit Tax be fixed? Or are the problems with enforcing HICBC declarations and collecting HICBC payments only the tip of the iceberg? Should the government rethink the whole scheme?

What is the Child Benefit Charge?

In England and Wales, an adult responsible for raising a child under 16 years old (or under 20, if they stay in education or training) can claim Child Benefit. This is a four-weekly payment at a weekly rate of £21.80 for the first child and £14.45 per additional child. Only one adult can claim for each child.

With a monthly payment of £87.20 for an only child, this can add up to a tax bill of over £1,000 if the parent is required to pay it back. For families with multiple children, the High Income Child Benefit Charge
can claw back over £600 more for each additional child. While having an adjusted net income above £50,000 would make you a high earner, this can still drastically affect budgeting and cashflow.

For every £100
you earn above the threshold, you would have to repay 1% of the total Child Benefit you received that year. This may not seem like much, but if your adjusted income exceeds £60,000 then you’ll find yourself having to pay back every penny. If you don’t submit your HICBC tax return or fail to pay, HMRC could fine you 30% of the balance, plus a £100
late fee, and interest on top.

What’s even more confusing is that the HICBC only applies to one parent. If both parents earn above the threshold, the person with the highest earnings would be responsible for the HICBC, even if their partner was the Child Benefit claimant. Single parents will also have to shoulder the bill themselves.

The threshold for ‘high income’ has stayed the same since 2013, while the higher rate Income Tax threshold has surpassed it (reaching £50,270 in 2022). This has pushed even more parents into higher tax repayments. According to the Institute of Fiscal Studies (IFS), the HICBC affected 1 in 8 families when the higher rate threshold was £42,475 – and are now expected to affect 1 in 5.

With this unfair and mismanaged policy seeming to punish parents, what options do they have?

Can you opt out of Child Benefit Tax?

If your income is above the threshold, or your partner’s, this will make one of you liable for HICBC payments. You have the choice to receive Child Benefit and repay the proportional charge at the end of the tax year, or opt out of receiving Child Benefit completely to avoid paying the HICBC.

However, it’s not as simple as just declining state child support payments. Claiming Child Benefit allows you to gain National Insurance credits
and allows each child to automatically receive a National Insurance number
when they turn 16. To avoid losing out on these advantages, you should register for Child Benefit, but opt out of receiving payments by unticking the ‘zero rate’ box.

This is a practical course of action for those earning over £60k, who would have to pay everything back at the end of the year anyway. It can be a trickier decision for those earning above £50k but below £60k – some might prefer to claim Child Benefit throughout then pay a percentage back.

In some cases, where one parent earns just a little over the threshold, clever tax planning could help to take your earnings below £50k. This would remove your HICBC liability. For example, ‘salary sacrifice’ schemes increase your employee pension contributions, putting more into your retirement pot and reducing your income for various tax thresholds – though this also cuts your take-home pay.

Given the complexities of state benefits and income taxes, it’s best to seek professional advice before taking such steps. If you need help with financial planning, why not contact GBAC, accountants in Barnsley, also covering Sheffield and Leeds, for expert assistance from our tax consultants?

Call 01226 298 298
or email info@gbac.co.uk
whenever you’re ready for a tax consultation, and the GBAC team will discuss our comprehensive services with you.