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

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

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

Fuel benefit charge rates for 2023

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

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

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

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

Who is affected by the fuel benefit tax?

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

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

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

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

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

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

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

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

What is the HICBC and who has to pay it?

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

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

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

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

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

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

Complications of the High Income Child Benefit Charge

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

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

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

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

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

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

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

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

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

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

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

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

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

Getting help with the HICBC

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

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

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

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

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

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

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

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

Inheritance Tax

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

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

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

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

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

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

Stamp Duty

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

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

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

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

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

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

Capital Gains Tax

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

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

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

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

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

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

Tax advice for the Bank of Mum and Dad

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

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

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

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

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

What is MTD for ITSA?

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

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

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

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

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

Income reporting thresholds

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

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

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

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

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

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

ITSA for general partnerships

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

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

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

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

Preparing for Making Tax Digital

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

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

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

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

Despite several tumultuous weeks towards the end of 2022, the Corporation Tax increase will be going ahead in April 2023 as announced back in 2021.

Small companies should already be aware of the incoming tax rate changes, but it’s important to take the associated company rule changes into account, too.

The rate of Corporation Tax applied and when it needs to be paid will depend on the company’s profits and how many associated companies it has. This will affect more companies than just the rate change, so company owners shouldn’t let themselves be caught off guard.

This blog explains the basics of the rule changes and how they could affect your company.

How is Corporation Tax changing?

Effective as of 1st April 2023, there are two rates of Corporation Tax according to company profits:

Companies whose profits fall between £50,000–£250,000
will also be taxed at 25%, but may be entitled to marginal relief, where the rate would be progressive between 19% and 25%.

Some companies might split activities between multiple associated companies in order to benefit from the small profits rate or marginal relief. To prevent this, the new rules will ensure that the tax rate is calculated by dividing profit thresholds by the number of associated companies.

What counts as an associated company?

Determining whether companies are associated or not can quickly become complicated. The basic rules are that a business can be an associated company of another if one has control over the other, or if both are controlled by the same person or people.

Companies are generally considered to be associated if they’re under common control – having a shareholding of over 50%. As an example, if two people both had shareholdings of 30% in two different companies, the companies would then be associated.

Even companies only temporarily associated for part of the accounting period will be considered associated for the entirety of the accounting period, including overseas resident companies. However, dormant companies not carrying out any business during the accounting period would not be counted as associated companies.

Company control can be determined via a series of tests, considering ownership of shares, voting power, or asset entitlements. In some cases, ‘substantial commercial interdependence’ may lead to companies being associated through business partners, relatives, or trustees of controlling shareholders where their commercial activities are interconnected.

The aim of the associated company rules is to prevent owners or shareholders from splitting profits with companies controlled by relatives, for example, in order to apply the higher profit thresholds separately and benefit from lower Corporation Tax.

How will the changes affect associated companies?

When companies have one or more associated companies, the owners will not be able to apply the profit thresholds individually to each company to reduce their tax liability.

Instead, the threshold will be divided by the number of companies. For example, if a company has one associated company, the £50,000
threshold for the small profits rate will be divided by two – only allowing each company to benefit from the 19% rate on profits up to £25,000.

When this happens, both primary and associated companies will end up paying more in annual Corporation Tax individually than if they had simply been one company using the full £50,000 limit. In cases like this, it would be better for the owner to run just one small company.

The number of associated companies will also affect whether a company is considered to be ‘large’ or ‘very large’ and will have to pay Corporation Tax in instalments. This could accelerate tax payment due dates and impact financial plans for the accounting period.

With the changing definition of an associated company taking individuals into account, this could also make companies that were previously not considered to be associated now fall under the new rules for applying Corporation Tax profit thresholds.

For example, an individual with shares in four different companies would lead to HMRC treating each company as an associated company and charging Corporation Tax accordingly.

Preparing for Corporation Tax changes

When associated company rules were last applied before the introduction of a flat Corporation Tax rate back in 2015, they applied when one company was a 51% subsidiary of another, and the profit thresholds were much higher. Now, the lower thresholds and broader associated company rules will affect the tax liabilities of far more companies than the previous rules would have.

This is why businesses with associated companies must take stock of their current arrangements to calculate how these changes will affect their tax liabilities. Some may find that it’s in their best interests to consolidate associated companies or dissolve smaller companies.

You can find more information about the newer associated company rules here. If you would benefit from professional accounting, corporate finance, or tax consultancy services, our accountants in Barnsley and Leeds could be of assistance.

Since 1996, the number of couples living together without getting married has increased by 144%
– with 3.6 million couples cohabiting by 2021. Despite living together for years and often acquiring property and having children, unmarried cohabitants don’t have the same legal protections as people who are married or in civil partnerships.

This led the Women and Equalities Committee to call for family law reforms, publishing a report in August 2022 that proposed changes to improve financial protections for cohabitants and their children if their relationship ends.

Despite agreeing that cohabitation laws are outdated, the UK government made the controversial move of rejecting the reform proposals, stating that they need to finish reforming marriage and divorce laws before they can consider cohabitation.

Which cohabitation law reforms were rejected?

The House of Commons Women and Equalities Committee made six recommendations for updating the legal rights of unmarried cohabiting couples, but the government has rejected most of them outright. The disregarded suggestions include:

The Law Commission already proposed a structure for an opt-out scheme in 2007, but this pre-dates the introduction of civil partnerships. As the government would need to base the legal rights of cohabitants on the rights of married couples or civil partners, the Ministry of Justice claims that this cannot be considered and adapted until wedding laws have been reformed.

Again, the Law Commission put forward the idea of intestacy reform in 2011, but the government continues to reject the suggestion. This is because it could promote the interests of the cohabiting partner over their legally recognised family, including their children.

The Ministry of Justice points out that individuals are free to write wills prioritising their cohabiting partner, and that cohabitants can still make a family provision claim if they were living in the same household as the deceased on the same basis as a spouse for 2 years prior to their death.

The Treasury, being the department responsible for taxation, rejected this proposal by stating that there are no plans to extend the longstanding Inheritance Tax rules for spouses and civil partners to cohabitants. However, the government does agree that there should be better guidelines for pension schemes on how surviving cohabiting partners should be treated.

Realistically, the only accepted recommendation was to improve guidance on and public awareness of the existing rights of cohabiting couples.

What does this mean for cohabiting couples?

The lack of media attention given to the report and the government’s response is a shame, as it’s crucial for cohabiting couples to be aware of their rights.

Unfortunately, there is a popular myth that partners living together are in a ‘common law marriage’ – but there’s no such thing. Cohabitants do not have the same entitlements as married couples or civil partners in England and Wales.

Millions of people, most likely women and vulnerable members of society, are therefore left at risk of financial hardship if they separate from their partner or their partner passes away.

This is why it’s so important to make arrangements yourself if you’re in a cohabiting relationship but don’t intend to enter a marriage or civil partnership. Things you can do include:

1) Making an official Cohabitation Agreement contract that sets out your mutual plans for what happens to your joint and individual assets in the event of separation or death (including provisions for any children resulting from the relationship).

2) Drawing up a Declaration of Trust for your property to confirm the proportions that each of you own and how the value would be split if you end up selling it in the future (a formal agreement can mitigate the risk of future disagreements).

3) Each writing your own Will to confirm which of your assets should go to which named persons in the event of your death (you may want to write a joint Will, as married couples often do, but cohabitants may have a higher risk of separation).

It may not be very romantic, but taking action to set out your wishes now will be beneficial in the future – whether that’s consulting a solicitor to create your own legally binding contract, or hiring accountants in Barnsley for estate administration and probate services.

Lower-paid workers will be welcoming the National Living Wage uplift coming later this year, but these increased costs could mean that employers can no longer afford to employ their workers.

Just as the cost of living crisis is severely impacting many households across the UK, it’s also hitting UK businesses. While some may reduce their employment costs by scaling down their number of staff, this isn’t always possible – meaning some businesses may end up shutting down completely.

Here’s a summary of recent changes affecting employment costs in 2023, and how these are likely to impact employers and their employees.

National Living Wage increase

While the National Minimum Wage applies to workers under 23 years old, the National Living Wage was introduced in 2016 to ensure that adult workers over 23 would be able to earn enough to cover the cost of living.

When the new tax year begins in April 2023, the government will be increasing the National Living Wage by 9.7%. This means that the statutory minimum wage for over-23s will be rising from £9.50
an hour to £10.42 an hour.

At the same time, the National Minimum Wage rates will also be going up by 9.7% for workers between 16 and 20 years old, while 21-22 year olds will see the biggest increase of 10.9% (from £9.18
an hour to £10.18 an hour).

Eligible workers will welcome the pay rise, of course, but it’s still not keeping up with inflation – which rose to a 40-year high of 11.1%
in October before dropping to 10.7%
in November.

While employees are likely to still struggle with the cost of living crisis despite the pay rise, employers are also likely to struggle with the increased costs of employment. It will be especially difficult for self-employed owners of small businesses.

This may lead to many employers having to make hard choices about cutting back their workforce, resulting in increased layoffs as they try to keep their businesses afloat.

National Insurance threshold freeze

On top of the incoming statutory wage increases, employees will also see another small pay rise indirectly via the scrapping of the 1.25% Health and Social Care Levy and frozen thresholds for National Insurance Contributions (NIC).

Several earnings thresholds for NIC rates were already frozen until 2026, but these freezes are now being extended to 2028. This includes the Secondary Threshold – the level that employers must begin to pay Class 1 Secondary NICs for employees – which is fixed at £9,100
a year (£175 per week or £758 per month) until April 2028.

As wages increase but NIC thresholds stay the same, larger employers will soon see their NIC costs stealthily increasing. This is one of many ways that businesses could be caught out by fiscal drag.

Smaller businesses with fewer employees could be somewhat shielded from this particular trap by the Employment Allowance, which can reduce an employer’s Class 1 NIC liability by £5,000.

Would your business benefit from payroll services?

There’s no doubt that 2023 will be another tough year financially across the UK, for workers and employers alike. It’s more important than ever to re-examine your financial operations and ensure that you’re working as efficiently as possible – which includes managing payments and tax liabilities on time, and making the most of any allowances you may be eligible for.

If you are a small business owner, you may benefit from the expertise of accountants in Barnsley and Leeds. Here at GBAC, we provide a range of financial services, from bookkeeping and VAT management to outsourced payroll administration. We may be able to assist you in streamlining your payroll and NIC management, so don’t hesitate to get in touch if you feel that your current system could be more efficient.

Local councils charge business rates on properties used for non-domestic purposes, from shops and restaurants to offices and factories. This tax is based on the ‘rateable values’ of the different property types, which were last valued in 2017.

The Valuation Office Agency (VOA) has therefore been revaluing business rates in England and Wales, with the updates coming into effect from 1st April 2023.

The new valuations will reflect the changes in the property market since the previous revaluation, meaning some businesses are likely to see their business rates increase – though others may see no change, or even a reduction.

Fortunately, to ease the burden of new business rates
in 2023, the government also announced a package of support measures in the Autumn Statement 2022.

Here’s what you need to know about business rates revaluation and relief.

Business rates revaluation

The previous revaluations that came into force in 2017 were based on rateable values from 2 years prior in 2015, and the new revaluations this year are based on rateable values from 1st April 2021.

This means the new rates will take the turbulent effect of the COVID-19 pandemic on the property market into account. There are likely to be significant fluctuations in rateable values between different areas, and between different types of businesses (e.g. online vs bricks and mortar).

Revaluing non-domestic property rates typically doesn’t generate more revenue than before, but helps to distribute the tax more fairly across the business rates system.

A property’s rateable value is based on its rental value, which the local authority then uses to calculate its business rates bill
using the government’s ‘standard’ or ‘small business’ multipliers.

These multipliers will be frozen at 49.9p and 51.2p
respectively, staying at the same rates since 2020 instead of increasing by 3p
each – so all payers should benefit from a 6% lower bill even before the application of any reliefs.

Business rates support package

In addition to the business rates multipliers freeze for 2023–2024, there are multiple relief reforms in the works that will deliver up to £13.6 billion in support over the coming 5 years.

The Transitional Relief Scheme will cap increases caused by the revaluation, at 5% for small businesses, 15% for medium businesses, and 30% for large businesses. Funded by the Exchequer, this scheme is expected to benefit 700,000 payers over the next 3 years.

Additionally, Retail, Hospitality, and Leisure Relief
is increasing from 50% – meaning that around 230,000 properties that don’t qualify for small business rates relief could now get 75%
off their bill (up to £110,000 per business).

The Supporting Small Business Scheme will cap increases at £600 for the year for businesses who lose their eligibility for either small business rate relief or rural rate relief due to the revaluations. This should help around 80,000 small businesses in the next 3 years.

A previously announced relief in 2021 is still due to go ahead, with Improvement Relief ensuring that payers don’t have to face increased business rates for 12 months after making accepted improvements to the property – which will be in force from April 2024–2028.

Downward caps will also be abolished, so businesses with lower rates after the revaluation can benefit from a reduced business rates bill right away.

Get help with business rates

You can now use the ‘Find a business rates valuation’ service to find the rateable value of your property from April 2023, and get an estimate of your new business rates bill.

If you believe there is an error with the information used to value your property, you should contact the VOA. You can also contact your local council to find out whether you are eligible for any type of business rates relief.

Alternatively, you could benefit from hiring a tax consultant to manage your business taxes on your behalf. To find out more about how our accountants in Barnsley and Leeds could assist you with business rates, please get in touch.

The delayed Autumn Statement 2022, which was announced on 17th November, has prompted accusations of the government imposing a ‘stealth tax’ by way of fiscal drag.

The changes to tax rules and continued threshold freezes that were revealed by Chancellor Jeremy Hunt are expected to affect millions of people over the next 5–6 years.

Here’s what you need to know about fiscal drag, the primary taxes affected by the one-two punch of inflation and allowance freezes, and what you can do to reduce the financial squeeze.

What is fiscal drag?

Fiscal drag happens when rising wages combined with frozen tax thresholds ‘drag’ taxpayers into a higher tax bracket. This is also known as bracket creep.

It’s generally referred to as a ‘stealth tax’ because it leads to more people paying more tax, without the backlash that would come with the government actively increasing taxes.

Tax allowances are typically increased to keep pace with the cost of living, but many have been frozen for several years and were set to remain frozen until 2025–2026.

With inflation hitting 11.1%
in October 2022 – the highest in 40 years – the need for wages to increase to keep up with consumer prices will undoubtedly push more people into paying basic rate tax who weren’t liable before, or push them from a lower rate to a higher tax rate.

Fiscal drag on Income Tax

The tax-free personal allowance of £12,570 and the basic rate upper threshold of £50,270 will now remain frozen until April 2028. Anyone whose earnings fall between these amounts will pay 20% in Income Tax, while anyone earning £50,271+ will be charged the higher rate of 40%.

With these thresholds frozen for the next 5 years, if wage growth manages not to trail too far behind inflation, we can expect hundreds of thousands of workers to be dragged into a different tax band.

From April 2023, the additional rate threshold will be lowered from £150,000 to £125,140, meaning anyone earning £125,141+ will have to pay increased Income Tax at 45%.

Other thresholds are also affected by fiscal drag simply because the government ignores them rather than adjusting them. For example, the income limit for withdrawing the personal allowance has remained at £100,000 since its introduction in 2010, which can lead to a 60% tax rate.

Similarly, the income limit for the High Income Child Benefit Charge has stayed at £50,000
since it was introduced in 2013 – now affecting 1 in 5 families, compared to the original 1 in 8.

As an example of how fiscal drag can increasingly affect tax liability, Interactive Investor reports that an average worker earning £30,000 a year could pay £1,919 extra tax between now and 2028–2029. Meanwhile, a worker with an annual salary of £50,000
would pay £4,280 more over this time.

For lower earners on £20,000 a year, their tax burden is likely to increase to 15%
of their take-home pay, costing them an extra £1,267 in Income Tax
if nothing changes in the next 5 years.

Fiscal drag on Inheritance Tax

The Inheritance Tax nil rate band has been stuck at £325,000 since April 2009
and was also set to remain there until 2026 – until the new Chancellor announced the IHT freeze would be extended until 2028 alongside the Income Tax personal allowance and basic rate thresholds.

Inheritance Tax (IHT) is charged at 40% on anything above the £325,000 threshold. So, when someone passes away, the inheritor of their estate could be faced with a large tax bill during an already difficult time.

With property values soaring and wages increasing over the last decade, while the tax-free allowance on inherited assets remained stubbornly the same, is it any wonder that Inheritance Tax receipts have doubled since 2012?

The amount that the government has clawed back in IHT
increased by 14%
between November 2021–November 2022 alone, with the freeze expected to double this to 28% by 2027–2028.

While IHT affects fewer people than Income Tax, the number of people becoming liable for IHT is also increasing, making lifetime wealth planning and tax planning more important than ever.

Why is the government freezing tax allowances?

With such a potentially grim outlook for many people, you might be wondering why the UK government is allowing fiscal drag to negatively impact average working people rather than implementing a wealth tax on the top 10%.

The aim is to raise as much tax revenue as possible from as many people as possible, with the further Income Tax freezes alone expected to raise £26 billion a year for public finances by 2027–2028
(as stated in the latest report from the Office for Budget Responsibility).

Tax planning to mitigate fiscal drag

As with any changes – or lack thereof – to tax allowances and rates, the best way to mitigate negative impacts on your finances is to plan ahead as much as possible.

Income Tax planning is particularly important for spouses, who may be able to share allowances to ease the burden of income limits, but anyone can benefit from measures such as adjusting pension contributions to moderate tax-eligible income.

From writing a will and cleverly managing gift allowances to making the most of residence nil rate band relief, there are several ways to mitigate Inheritance Tax, too.

Whatever your situation may be, gbac can help you to make the most of your annual tax allowances and plan effectively to improve your financial future. If you would like to benefit from our tax consultancy
or probate services, please contact our accountants in Barnsley today.