Companies that claim tax relief or tax credits
on research and development (R&D) expenditure will see some changes to the system for accounting periods starting from 1st April 2023.

Several new activities will qualify for R&D relief, but the process for making R&D relief claims will be different. Not only will the service go completely digital, alongside many other tax services, but the rules are also being adjusted to try to reduce fraudulent R&D claims.

Here’s what you should know about the R&D tax relief
changes that will come into effect next year.

Extending R&D expenditure

As an incentive for research and development to use modern digital approaches, the government is extending qualifying expenditures to include data licences and cloud computing. All cloud-related costs could now fall under the scope of qualifying expenditure for future R&D relief claims.

The government is also adding secondary legislation to amend the exclusion of pure mathematics. This means that research and development
underpinned by mathematical advances, and pure maths in particular, will now be covered under the definition of R&D for tax relief purposes.

However, in an attempt to refocus tax reliefs towards innovation within the UK, these qualifying expenditures will only apply to UK-based activity. This means that expenditure on overseas workers will only qualify to the extent of their earnings being taxed through PAYE, limiting talent searches.

Of course, there will be a few exceptions for cases when the R&D activity can’t reasonably be carried out in the UK. Workforce availability and costs limitations aren’t valid reasons, but factors such as different geography, population, and environmental conditions that aren’t present in the UK but are required for research purposes could be exempt – for example, deep ocean studies or clinical trials.

R&D fraud and compliance

Abuse of the R&D tax relief system and boundary-pushing has become a growing concern for the government over the last few years. According to HMRC’s annual accounts, the estimated level of fraud, error, and non-compliant behaviour is 4.9%
of the relief costs in 2021–2022, up from 3.6% in 2020–2021. In April 2022, HMRC identified an irregular claims pattern that spurred on the reforms.

To tackle non-compliance levels, whether due to deliberate fraud or genuine error, all R&D relief claims must be made digitally in the future. Whether it’s for a deduction or credit, all Corporation Tax returns including an R&D claim must be submitted through HMRC’s online tax returns portal.

Digital R&D claim submissions will also have to provide additional information about the R&D activities being claimed for. This includes descriptions of the research and development work, breakdowns of costs across qualifying categories, details of any advisory agents who helped to compile the R&D claim, and signed endorsement from a senior officer within the company.

HMRC will also require pre-notification of intended claims through their digital service. Companies will need to inform HMRC in advance of an upcoming claim within 6 months of the end of the period that it relates to. However, if a company has already made a claim in one of the previous three periods, they won’t be required to re-notify HMRC of their intention to file another R&D claim.

Companies will have longer to make a claim even after pre-notifying HMRC, as the time limit will be extended to 2 years from the end of the relevant accounting period rather than the current limit, which is 12 months from the statutory filing date.

How will this affect R&D tax relief claims?

The R&D relief reforms are likely to affect companies that claim tax relief for research and development activities their businesses carry out under one of two schemes – Research and Development Expenditure Credit (RDEC) or small or medium enterprises (SME) R&D relief.

The changes could also affect some companies who make a Patent Box election, as this regime uses R&D qualifying expenditure definitions as part of its calculations, requiring further amendments.

Since these reforms come into effect for accounting periods starting on or after 1st April 2023, there could be inconsistencies between businesses reporting relief claims over different time periods. For example, Business A with their year-end in December would first feel the impact from 1st January 2024, while Business B with a March year-end would immediately be affected from April 2023.

This means that Business A could claim under the old rules for up to 9 months longer than Business B, allowing them to get R&D relief for overseas expenditure that would be ineligible under the new rules. As the legislation is still in the drafting stages, the government could adjust this for fairness.

If you’d like to learn more about this topic, you can read through the government’s ‘Research and Development Tax Relief reform’ policy paper. Should you have any concerns about your company’s future R&D tax relief or tax credit
claims, why not contact GBAC, accountants in Barnsley, who also cover Leeds and Sheffield, today to arrange a consultation?

After much speculation, new Prime Minister Liz Truss has announced the government’s plans to handle the ongoing energy price crisis. This highly anticipated statement comes a few weeks after the Ofgem price cap rose to an eyewatering £3,549 a year.

The earlier assistance package proposed by then-Chancellor Rishi Sunak in February was based on projections of the price cap increasing from £1,971 in April to £2,800 in October. Since then, Ofgem has decided to review the price cap every three months instead of every six months.

The regulator’s current price cap of £3,549 for the October–December 2022 period is an increase of 80% on the current level, but projections for the next three-month period’s price cap suggest an even more shocking increase to £6,500 a year in the first quarter of 2023.

To support the British public and businesses with soaring energy bills this winter, the government is taking action to provide financial support and tackle the underlying issues with the UK energy market. This blog explains what you need to know about the new energy price cap.

 

What is the government doing about rising energy prices?

The Prime Minister revealed that the government will introduce an Energy Price Guarantee (EPG) that will take effect from 1st October 2022
and stay in place for the next 2 years. Like the Ofgem price cap, it is a limit on standing and unit charges, not a total bill cap.

This means that you’ll still pay for as much energy as you use, but the price per unit will stay at a fixed rate under the EPG. Even if energy prices continue to fluctuate for suppliers, the government will be taking on the excess costs rather than passing them on to domestic consumers.

Based on average household energy consumption, this will limit average domestic energy bills to a maximum of £2,500 a year. However, Ofgem’s three-monthly price cap reviews are still important, as they’ll determine how much the EPG scheme will cost the government (and taxpayers).

In addition to the EPG, the previously announced Energy Bills Support Scheme (EBSS) is still going ahead. All households in Great Britain with a domestic electricity connection will receive £400
in non-repayable credit to help with winter energy bills.

These will be split into monthly automatic payments over the next six months (£66 in October and November, then £67 for the following months until March). This means that the prospective average bill for October 2022 to October 2023 will actually be £2,100.

Other previously announced assistive measures remain in place, but green levies have been temporarily suspended as part of the new EPG scheme. The plan applies to all domestic households in England, Scotland, and Wales, with ‘the same level of support’ proposed for Northern Ireland.

Anyone who doesn’t use mains energy (such as heating oil instead of gas or electricity) will also receive help in the form of discretionary payments.

 

What is the Energy Price Guarantee?

The government’s Energy Price Guarantee scheme is taking the sting out of the Ofgem price cap, reducing the average bill projection by around £1,000 a year. However, it’s important to bear in mind that the EPG doesn’t put a cap on total annual energy bills – it only limits how much your energy supplier can make you pay per unit and per standing charge.

Your exact bill will depend on how much energy your household uses, just as it did before the EPG. The number of people in your home and their living habits will affect this – so it’s still a good idea to make conscious efforts to reduce your energy consumption this winter.

You won’t need to apply for the EPG scheme, as it will be automatically enforced. Your energy company should calculate how the new measures will affect your specific energy prices and contact you before 1st October 2022 with more information.

Since the projection of £2,500 annual bills is for an ‘average’ household, and not everyone uses the same amount of energy, it’s likely that many people will actually pay less. All households will also receive the £400 from the EBSS, in the following ways:

If you pay ‘inclusive’ rent, your landlord must comply with maximum resale pricing rules (set at the same price as they originally paid for the energy).

 

What about support for business energy bills?

While most non-domestic energy customers in the UK have fixed tariffs, many don’t – which makes things even more difficult for the government. With lots of businesses due to renew their fixed price energy deals in October, and no Ofgem price cap or EBSS payment to protect or support them, lots of businesses are likely to go under when they can no longer afford their utility bills.

To help commercial businesses and public sector organisations (like charities, hospitals, and schools), the government is planning to provide a similar six-month scheme to the Energy Price Guarantee for non-domestic energy users. This ‘equivalent guarantee’ should cap tariffs at the same price per unit, but will only last for six months, compared to the two-year EPG.

After this initial period, the government intends to provide further support to vulnerable sectors, such as hospitality, following a review within the next three months. This review should identify where the government needs to focus their non-domestic energy bill support.

We can expect further details of this business support scheme to be published in due course.

 

Will the government regulate the energy sector?

There are long-term problems with the UK energy sector that are contributing to the underlying causes of soaring energy costs. The government is therefore looking closely at the ways Ofgem operates as an industry regulator and reviewing what needs to be changed.

This includes launching an Energy Supply Taskforce to negotiate long-term contracts with both domestic and international energy suppliers to reduce prices, and an Energy Markets Financing Scheme to address liquidity requirements for UK energy firms.

Other actions include launching new oil and gas licences, lifting the moratorium on shale gas production (fracking), and accelerating the sourcing of new energy supplies (including North Sea oil and gas, and renewables like wind and solar power).

The government is also looking into nuclear energy projects, and reviewing current targets for net zero emissions by 2050. Prime Minister Liz Truss has further ambitions to make the UK an energy exporter by 2040, alongside fundamental energy market reforms.

 

Where to get financial help with paying energy bills

It’s a bit of a waiting game for domestic energy users and businesses alike, as everyone needs to wait for their energy supplier to contact them about their bills changing in October. Each user’s bill will be different, depending on their tariff type and location.

If you find yourself unable to keep up with energy bill payments, you should contact your supplier. They must offer you a payment plan that you can ‘reasonably afford’ in line with Ofgem rules, or provide emergency credit if you can’t top up your meter.

Anyone struggling with serious energy bill debt should look into applying for an Energy Fund grant that could help you to get back on track with repayments.

In addition to the EBSS payment, other vulnerable people may also receive further payments from the government to help with energy bills and other living costs. These include:

You could also contact your local council to enquire about the Household Support Fund., or visit the Help for Households campaign website for more options.

Announcements about the funding methods for these measures are expected in the week beginning 19th September, but are likely to be delayed due to the passing of Her Majesty Queen Elizabeth II.

If you find yourself in need of fiscal management advice and are able to hire a consultant within your budget, please contact GBAC – our team of talented accountants will be happy to assist you.

In July 2022, the UK government published details of new legislation that will allow workers who save for their pension through a Net Pay Arrangement (NPA) to receive the same level of top-ups from the government as workers who save through a Relief at Source (RAS) scheme.

When the new legislation takes effect in April 2024, around 1.2 million workers will receive the government support they previously lost out on due to an anomaly in the system, which has been resulting in less take-home pay for those enrolled in these ‘net pay’ pension schemes.

This correction to the pension tax system means that lower earners could see up to a hundred extra pounds a year added to their take-home pay from the start of the 2024–2025 tax year. Read on to learn more about the previous situation, how it’s changing, and how this could affect your earnings.

How do Net Pay Arrangements work?

When an employee makes contributions to their pension directly from their salary, they should receive pension tax relief based on the rate of income tax
they pay on their earnings. So, basic rate taxpayers should receive 20%
relief, higher rate taxpayers can claim 40% relief, etc.

This means that if you were in the basic rate income tax band and paid £100
into your pension, for example, the tax relief should mean that the contribution only costs you £80 from your take-home pay. However, this depends on the type of pension scheme you’re enrolled in.

An NPA
earner would pay the £100 and likely wouldn’t receive the tax relief they should, instead receiving a marginal tax relief rate of 0%. Meanwhile, the pension schemes of RAS earners should automatically send a request to HMRC to receive a 20% top-up.

This issue mainly affects low earners whose taxable income is above the auto-enrolment amount of £10,000 a year but below the annual Personal Allowance
of £12,570.

The government is thereby taking steps to rectify the problem, giving HMRC the duty of making top-up pension payments
directly to eligible earners from 6th April 2024 once new IT system support is in place for this, regardless of the scheme individuals are registered with.

How will pension top-up payments work?

The Treasury provided an example to explain how the changes are going to work. In this scenario, two employees both earn less than the Personal Allowance (£12,570) and both pay £500 in pension contributions. However, Employee A uses an NPA scheme and Employee B uses an RAS scheme.

Employee A has the full contribution deducted from their earnings before paying tax, so they don’t have to use their Personal Allowance to pay the £500 out of their untaxed income. The rest of their earnings are taxed afterwards, but there is no income tax due – all £500 goes into their pension.

Meanwhile, Employee B has no income tax to pay because their earnings are below the Personal Allowance. The equivalent pension contribution is paid to their scheme as if basic rate tax (20%) had been deducted from the £500, so £400 goes into Employee B’s pension. Though they didn’t pay any tax on it, the RAS scheme provider can still claim £100 tax relief from HMRC, topping it up to £500.

So, while both employees have £500 in their pension, Employee A had the full contribution deducted from their earnings, while Employee B only had £400 deducted, leaving them with more take-home pay. However, Employee B will have used up more of their Personal Allowance
for the contribution.

From April 2025, the tax year after the new legislation takes effect in April 2024, Employee A could qualify for top-up payments on eligible pension contributions from the previous year. HMRC will have a system for identifying and notifying eligible earners like Employee A, and paying them a top-up of 20% of their contributions (so in Employee A’s case, £100 would go into their bank account).

Who will benefit from pension top-ups?

As mentioned, individuals saving into an occupational pension under a Net Pay Arrangement (NPA) while earning an annual income below the Personal Allowance are most likely to be affected by this legislation. HMRC will determine eligibility for top-up payments based on whether you contributed to an NPA pension scheme and if your total taxable income is lower than the Personal Allowance.

When the new measures come into force in April 2024, HMRC
will use the information it already has to identify eligible workers and contact them. These individuals will be invited to provide their bank details to receive their direct top-up payment – they won’t have to confirm their entitlement first.

The payments should be made as soon as possible after the end of the tax year in which qualifying pension contributions were paid – so, from April 2025 at the earliest. If HMRC contacts you about a top-up payment, you’ll have to confirm your details through a digital service so you can receive the money. It will go to your personal bank account rather than your pension, reducing your tax burden.

Unfortunately, these payments will be taxable – but given the lower level of earnings, it’s unlikely to mean that recipients of top-up pension payments will end up paying any additional income tax.

The government estimates that a massive 1.32 million people will qualify for the top-up, with the average worker receiving an extra £53 a year. Around 200,000 low-income workers could receive an extra £100 a year. The vast majority of the beneficiaries are likely to be women, making up 75%.

Should you increase or reduce your pension contributions?

With the cost of living crisis continuing to worsen in the UK, it could be tempting to stop making pension contributions. While this might ease the strain on your finances in the short-term, it won’t help you in the future when it’s time to retire. Cutting back on contributions is likely to mean missing out on various tax reliefs and employer contributions, so you’ll be losing more money that way.

Realistically, most people won’t be contributing up to the Pensions Annual Allowance every year (set at £40,000 for the 2022–2023 tax year­, with unused allowances able to be carried forward from the last 3 years). Currently, around 84.2%
of income tax payers are on the basic rate, meaning the average UK income for most workers is somewhere between the thresholds of £12,571
and £50,270.

Even if you earn a little above the Personal Allowance
and part of your pension contributions already benefit from other tax reliefs, you could still receive a top-up payment for a proportion that doesn’t. It’s always a good idea to seek professional pensions advice to ensure you’re making smart investments in your future, so you’ll be able to get the most out of your retirement fund later on.

If you’re looking for accountants to help you with tax relief planning, you can always contact GBAC, accountants in Barnsley, by calling 01226 298 298 or emailing info@gbac.co.uk. For more details on the pension tax relief legislation changes, view the policy paper on ‘pensions relief relating to net pay arrangements’.

The government’s Help to Grow: Digital scheme, which offers discounts worth up to thousands of pounds on approved digital accounting software for UK businesses, is now expanding its reach.

Previously, only businesses with a minimum of 5 employees
were eligible for the scheme, but it’s now open to businesses with just 1 employee. This means that many more businesses with only one employee can now access discounts and support for digital services through the scheme.

This blog explains the latest Help to Grow: Digital
changes, who can access it, and which support services are available – plus some advice on why your business accounts should be going digital.

How is the Help to Grow: Digital scheme changing?

From 25th July 2022, all businesses in the UK with at least 1 employee can now join the Help to Grow: Digital scheme. This eligibility criteria extension means that around 760,000 more businesses can benefit for the first time, boosting the total number of eligible businesses to 1.24 million.

Additionally, new eCommerce software has been added to the scheme’s list of approved software. This allows businesses to access even more types of software to help them make online sales, manage their inventories, and reach new markets.

Registering for Help to Grow: Digital opens opportunities for discounts up to £5,000
on your choice of 30 types of software from 14 leading suppliers, including Digital Accounting, CRM (Customer Relationship Management), and now eCommerce software.

Though the service isn’t live yet, the government will also be launching advice platforms, so small-to-medium enterprises (SMEs) can receive one-to-one advice on adopting digital technology into their business operations. You can apply to take part in the pilot here.

Who can get a Help to Grow: Digital discount?

To access a 50% discount worth up to £5,000 (not including VAT) on approved software, businesses from any sector must meet all of the following criteria:

You can choose one software product from the list, which is split into three categories. The discount will then cover 12 months of core costs for the software, excluding VAT.

There are currently 14 approved technology providers, most of which offer multiple versions of their software packages to suit different needs. These include the following providers:

The type you need depends on how you want to grow your business – you can find guidance for this on the Help to Grow: Digital website. These software packages are designed to help with storing custom data, tracking and sharing financial information, and fulfilling online sales.

Should your business switch to a digital tax system?

Smaller businesses are less likely to have adopted digital technology due to the financial investment required, which leaves them falling behind other businesses with more resources. The Help to Grow: Digital discount helps small businesses like this to improve their operations and boost their growth.

Adopting new technology can allow businesses to become more innovative and break into new markets, becoming more profitable through increased productivity and cost-efficiency. This will also create more job opportunities across the UK, potentially adding billions to the British economy.

Statistics show that, on average, users of Customer Relationship Management (CRM) software boost their productivity by 18%. Meanwhile, Digital Accounting software leads to an average increase in employee sales of 11.8%
over 3 years, and an average of 7.5%
for eCommerce software.

The government plans to continue expanding the Help to Grow: Digital service, with guidance available to help even the least tech-savvy small business owners to catch up with modern markets. If you’re not the best at computing and the thought of cloud accounting
sets your mind in a spin, why not contact GBAC, accountants in Barnsley, for help with going digital? Get in touch to find out what we can do for you.

Spouses or civil partners in the process of separating can find themselves faced with an expensive Capital Gains Tax (CGT) bill. This puts a lot of pressure on divorcing couples during an already difficult time, as they must meet tight deadlines for transferring assets.

To make things a bit easier for couples during their divorce settlements, the government is proposing that ex-spouses and ex-civil partners should be given up to 3 years to make ‘no gain, no loss’ asset transfers between themselves after they no longer live together.

The proposed changes could also see the introduction of special rules regarding formal divorce agreement asset transfers and Private Residence Relief (PRR). Here’s what you need to know about the current rules, and the changes that should take effect from 6th April 2023.

Previous CGT rules for divorce

According to the current legislation (Section 58 of the Taxation of Chargeable Gains Act 1992):

This means that while the separating couple are still living together, any transfers of assets between them can be made on a ‘no gain, no loss’ basis – treating the acquisition by the receiving partner as the same value as it originally cost the partner transferring it.

Once the couple have stopped living together, this treatment will only apply for the remainder of the tax year. After this point, any transfers will be treated as regular disposals for CGT purposes.

This can cause a lot of stress for the partner disposing of the asset, especially if it’s close to the end of the current tax year when the couple stops living together.

Proposed changes to CGT deadlines

In its second Capital Gains Tax report, the Office of Tax Simplification (OTS) looked into the ways that CGT rules
apply to divorcing individuals, and made recommendations for deadline extensions.

The government responded to their suggestions in November 2021, agreeing that the ‘no loss, no gain’ asset transfer window should be extended for disposals occurring on or after 6th April 2023.

To put this into action, the Finance Bill 2022-23
should introduce legislation that will allow:

It should also introduce special rules for separated individuals who leave the couple’s residence but maintain a financial interest in their former family home, who will have the option to claim Private Residence Relief (PRR) if the property is later sold on to a third party.

Similarly, individuals who transferred their financial interests in the former matrimonial home to their ex-partner will be entitled to a percentage of the proceeds of an eventual sale. They would therefore be eligible to apply the same tax treatment to those proceeds that would have applied before they transferred their interests to their ex-spouse.

Getting help with CGT during a divorce

These measures are expected to have a positive impact on households and families where a couple seeks to legally end a marriage or civil partnership. Extending the time period for transferring assets reduces the CGT
burden on individuals transferring matrimonial assets, allowing separating couples to focus on other considerations, including adjusting to a healthy post-separation family lifestyle.

However, you should bear in mind that even if your separation takes place after 6th April 2023, if you finalise it under a divorce order earlier than the extended deadline window, this will bring the ‘no gain, no loss’ period to an automatic end. For more details about these proposals and how they could affect you, click to read through the ‘Capital Gains Tax: separation and divorce’ policy paper.

You can also read our previous blog on the tax implications of no-fault divorce under the Divorce, Dissolution and Separation Act (2020) for information on new divorce laws. If you or your family find yourselves in need of professional tax advice, feel free to contact GBAC, accountants in Barnsley, for a consultation.

Late June is usually the time of year when HMRC
issues its annual taxpayer statistics, releasing the most up-to-date numbers and projections for the current tax year.

The new data from HMRC now reveals that there are more than 6 million people paying higher rate tax or additional rate tax in the UK – more than ever before.

So, what are the reasons behind this record-breaking increase in higher-band taxpayers, and what does this mean for your personal finances?

Record numbers of higher rate and additional rate taxpayers in 2022

The latest data on UK taxpayers has received more attention than this type of release usually would for a few reasons. Here is a summary of the important points:

⦿ Firstly, the number of people paying income tax
jumped by 4% (1.3 million) for the 2022-2023 tax year, which is the biggest increase in 18 years (since 2004-2005).

⦿ Secondly, the number of higher rate taxpayers
saw an even larger increase of 16% (750,000), which is the highest increase ever in more than 30 years of HMRC collecting UK tax data.

⦿ Thirdly, the number of additional rate taxpayers grew by 12% (66,000), up to 1.75% of all taxpayers compared to the 0.75% when this tax rate was first introduced in 2010-2011.

When you add together all the higher rate taxpayers
and additional rate taxpayers in the UK, it totals over 6.1 million people. This means that more than 1 in 6 income tax payers are paying more than the basic income tax rate (20%) on their annual earnings.

These increases are partially a result of tax rate
and tax allowance freezes, plus the skyrocketing inflation rates
in the UK. The thresholds for the Personal Allowance, higher rate income tax, and additional rate income tax were frozen last year and will remain the same until 2025-2026.

Meanwhile, inflation rates are rapidly outpacing official predictions, pushing up the cost of living and causing workers to seek pay rises in order to keep up with the prices of necessities. If you’re one of the many people pushed into a higher tax band this year, you’re probably wondering what you can do to ease the effect on your personal finances.

Are you making the most of higher rate tax relief?

We’ve already reported on the rising number of higher rate taxpayers, with predictions suggesting that around 1 in 5 (19%)
of taxpayers likely to become part of the higher rate or additional rate tax bands by the 2024-2025 tax year, and looked at some recommendations for higher rate tax relief.

However, here’s another rundown on what you can do to help ease your income tax liabilities, and help yourself in the future. The following tax perks can benefit all kinds of working, retired, low-income, and middle-income families and individuals, so you shouldn’t overlook them.

⦿ Tax-free Childcare – if you are in employment and pay for childcare, you could receive up to £2,000 a year per child
to help with the costs of approved childcare services.

⦿ Marriage Allowance – partners in a married couple can share their tax-free Personal Allowance (£12,570) if one partner transfers £1,260
of their allowance to the other.

⦿ Pension Credit – people over State Pension
age who are on a low income could receive a top-up, bringing weekly income to £182.60 or £278.70
(for single individuals or joint partners respectively).

⦿ Cost of Living Payment – recipients of certain low-income benefits are eligible for a tax-free, non-repayable payment of £650 (in two lump sums of £326 and £324).

⦿ Pension Tax Relief – most people automatically receive ‘relief at source’ on private pension contributions, but if you don’t, you could claim additional pension tax relief through a Self-Assessment Tax Return (depending on your earnings and income tax band).

Looking for professional higher rate tax advice?

While the Treasury seems to be winning with increased tax revenue, it’s not the best news for people already being hit hard by the UK’s cost of living crisis. There’s even talk of new tax cuts being introduced through the Autumn Budget 2022, if not sooner.

In the meantime, anyone who has become a higher rate taxpayer or been pushed into the even higher additional rate tax band
this year should be doing as much as possible to maximise the income tax reliefs available to them.

If you’re struggling to stay on top of your taxes and balance your finances, you could benefit from the services of a professional tax consultant. With advice from trained accountants like our team at GBAC, you could get help accessing all the tax reliefs you’re entitled to.

Recent headlines have been bringing marginal tax rates back into the spotlight. The tapering of Personal Allowances combined with rapid inflation seems to create a higher tax rate of 60%.

However, the 60% tax rate isn’t really new – it’s been around in some form since the 2010-2011 tax year. It’s not a glitch in personal allowance legislation, as suggested by The Times. At the time, the legislation was designed specifically to raise more revenue while maintaining the £150,000 threshold for the newer 45% additional tax rate.

However, The Sunday Telegraph wasn’t wrong to suggest that at least a million people could find themselves paying 60% income tax
within the next few years. In this blog, we’ll go into detail about the 60% income tax rate, explaining who is affected and what you can do to avoid it.

What is the 60% income tax trap?

Every worker in the UK is entitled to a Personal Allowance of money that they can earn tax-free. Anything over this amount – which is £12,570 for the current tax year – is taxed at either the 20% basic rate, the 40% higher rate, or the 45% additional tax rate. The amount of income tax you pay depends on the amount you earn above the respective tax thresholds.

However, what many people may not be aware of is that there’s a tapering scale that chips away your Personal Allowance if your annual income exceeds £100,000. For every £2 you earn above this, you lose £1 of your tax-free allowance. This means that if your earnings reach £125,140, you’ll have lost the entire Personal Allowance left – which works out as a 60% tax rate.

Here’s an example of how the 60% income tax trap
could affect an employee in 2022-2023:

Of course, if Sandra received any bonuses totalling £25,140
or more (£12,570 multiplied by two), then she would lose all of her Personal Allowance. Though it doesn’t happen too often or to too many people, employees can be caught out by things like bonuses, company benefits, and earning additional income from other sources at the same time as their primary salary.

How to avoid the 60% income tax rate

While relatively few people previously fell into the 60% income tax sinkhole, this number is likely to increase over the next couple of years due to soaring inflation rates. If you would rather not pay more than the 40% higher rate on earnings between £100,000 and £125,140, there are some things you can do to reduce the risk of being pushed into this tax trap.

For example, if you’re due a bonus at work but the extra earnings would send you into the 60% tax territory, you could ask for a non-cash bonus instead. Many employers often run ‘salary sacrifice’ schemes that allow you to swap some of your salary for tax-free benefits – like a company car, private health insurance, or childcare payments.

Similarly, you could increase your pension contributions
either through a salary sacrifice scheme or by making additional personal contributions. This reduces your taxable earnings below the danger zone, whilst also having the benefit of increasing your retirement funds.

Currently, the maximum for annual pension contributions
that can still receive tax relief is £40,000. However, this only applies if you earn less than £150,000 a year – anything higher will have tapered contributions until £210,000, at which point you can only contribute £10,000 a year with tax relief.

Another way to reduce your income tax liability is to make charitable donations using Gift Aid. This obviously doesn’t have the same personal benefits as contributing to your own pension, but you’ll be giving something back to society and helping to make the world a slightly better place.

Get professional income tax advice

The newspaper articles we mentioned earlier highlighted the fact that since the £100,000 threshold for tapering the Personal Allowance hasn’t changed since 2010, but the Personal Allowance
itself has almost doubled in that time, there is now an income band where £25,140
could be caught out by a 60% tax charge.

The only good piece of news is that you might be able to claim the same rate of tax relief on pension contributions or Gift Aid donations if you are snared by the 60% income tax trap. Tax rules in the UK are updated frequently and are often confusing for many, but one way to make sure you mitigate or avoid tax sinkholes like this is to get professional advice.

Tax consultants like ourselves at GBAC, accountants in Barnsley, are always up to date with the latest tax legislation, and have the necessary expertise to help you evaluate your individual income circumstances and calculate the most efficient tax relief options for you. If you could benefit from our tax planning advice, or need help with a Self-Assessment tax return, be sure to get in touch with our team.

With strikes and cancellations affecting trains and planes across the UK and Europe this summer, employers need to be prepared in case an employee can’t travel to work or gets stuck overseas.

While the disruption is frustrating enough for holidaymakers, the knock-on effect on employers is also causing strain – from rescheduling annual leave to having to operate with absent employees.

If your business hasn’t experienced this type of scenario before, you might be unsure about your company policy regarding these situations. So, what are your options if staff can’t get to work?

This blog explains what you should know from the perspective of employment law.

Commuters affected by bus and rail strikes

As most people in the UK will know, rail workers participating in industrial action have reduced train services to just 1/5 of their normal capacity in recent weeks.

In some places, there are no trains running at all – and people might not even be able to turn to bus services, as bus companies are also going on strike this summer.

The ongoing strikes are a result of unions attempting to resolve disputes over inadequate pay and working conditions, with employees wanting more job security in the face of soaring inflation.

It’s not just limited to the UK, though – both British and international European airlines have also seen strikes affect their flights, while lengthy queues and delays have also been holding things up at the Dover port and the Eurotunnel as a result of staff shortages and post-Brexit regulations.

As inconvenient as they are, there’s usually enough notice given of an impending strike for people to make alternative plans. If you’re lucky enough to operate a hybrid working model, with employees able to work from home on some days and work in person on others, then it might be as simple as allowing affected employees to work from home on strike days (with advance notice).

If working in person is a requirement and it’s not possible for an affected employee to work from home, you can expect their journey to work to be longer and/or costlier than usual. If you don’t want to deal with lateness or absences from this, you may have to take further steps like rearranging shifts or finding out if employees working the same hours might be able to carpool, for example.

Holidaymakers stranded by flight cancellations

Flight disruptions have also been dominating the headlines for the last few months, as under-staffed and over-booked airlines struggle to recover from the pandemic. The aviation industry was one of the worst hit when COVID-19 shut everything down, and now that demand for international travel is returning, airlines are finding that they don’t have the staff to service all of the flights they’ve sold.

This has resulted in chaos involving dramatically long delays, a rise in lost luggage, and consistently last-minute cuts and cancellations. Many holidaymakers have spoken to publications about their struggles with sudden flight cancellations leaving them stranded abroad, missing work and school.

This is obviously trickier than an employee being unable to catch a bus or train, as there are other options in such a scenario. When it comes to an employee being stuck in another country until they can catch another flight home, it can be much harder for an employer to manage the situation.

What can employers do if workers are stranded abroad?

The first option is to ask the employee if they want to take the extra day (or days) out of their annual leave. This allows them to extend their holiday and still receive pay, even if you were expecting them back on the previously agreed date. It’s not ideal, and it depends on the employee having leftover annual leave
allowance, but it’s the easiest route.

If taking more annual leave isn’t possible, they might ask to take unpaid leave instead. They can then get on with making alternative arrangements to get home without having to worry so much about being absent from work. Employees don’t actually have a legal right to unpaid leave, so granting such a request is at the employer’s discretion.

On the off-chance that the employee’s job can be done remotely, and they have the equipment they need with them there, then the employee might prefer to work from wherever they are. However, most people don’t take their work laptop on holiday with them, and clocking in from a hotel room is probably the last thing on their mind when they’re busy stressing over booking another flight home.

Before you take any action, be sure to check your company’s policy thoroughly for any provisions relating to emergency situations – does your business allow time off in lieu, or does the employee’s contract allow flexible working so they can make up the lost hours later?

It’s best for employers to act as sympathetically as possible, as disciplinary action for out-of-control circumstances could turn working relationships sour – and an unfair dismissal could see your business facing an Employment Tribunal
case.

Employer obligations to staff with transport challenges

While a good employer always does their best to work with employees to resolve issues like this, some things come down to the employee’s contract and the overall company policy. For example, if flights get cancelled and a staff member wants to cancel and rearrange their annual leave, you don’t necessarily have to allow it. Similarly, you won’t technically be obligated to allow unpaid leave.

Of course, there are some exceptions where you would be obligated to pay the employee as normal. If they were travelling on a business trip on your company’s behalf when they got stuck abroad, it would be unfair to expect them to use annual leave or take unpaid leave. On the other hand, it’s likely they’ll have their work equipment with them, and be able to work remotely for the time being.

You can find the UK government’s guide to holiday entitlement here, explaining the legal obligations of employers and the rights of employees regarding time off work.

If you need any help with managing payroll, including holiday pay, or if you’d like to upgrade your cloud accounting services
to facilitate remote working, be sure to contact GBAC, accountants in Barnsley.

When you dispose of a private residence and make a profit from its sale, you won’t have to pay Capital Gains Tax (CGT) on it if the property was your main residence throughout the time you owned it – known as the ‘period of ownership’.

But what exactly qualifies? How do you know whether you’re liable to pay Capital Gains Tax or not, and how do you calculate such an exemption? Let’s look at some examples, and run through the basics of Private Residence Relief for CGT.

HMRC takes couple to First-Tier Tribunal

Recently, the First-Tier Tribunal came up with a favourable interpretation of the ‘period of ownership’. The case covered a married couple who purchased and rebuilt a house over 2.5 years, who then moved in, but sold the house on 1 year later for a profit of £500,000+ per spouse.

When this couple claimed Private Residence Relief on their total gains, HMRC argued that they weren’t eligible for the full exemption, since they hadn’t lived in the house from the time it was originally purchased. The case went to a First-Tier Tribunal to decide which party was in the right.

Though HMRC might appeal the decision, the Tribunal sided with the couple. This is because the natural reading of the law is that the ‘period of ownership’ applies to the house being sold – and since the original house had been demolished, it wasn’t possible for the couple to have lived in it from when they purchased the land 2.5 years before they moved into the new finished house.

Therefore, the couple’s gains from the sale of the house a year after moving in were fully exempt.

What is Private Residence Relief?

Normally, you must pay Capital Gains Tax (CGT) on any profits you make upon disposing of:

However, you could be entitled to a full CGT exemption if you meet the following conditions:

If you don’t meet the conditions for a full exemption, you may still be eligible for partial CGT relief., but you’ll have to complete the Capital Gains Tax summary part of your tax return. However, you won’t be entitled to any Private Residence Relief if you purposefully acquire a dwelling to make a profit on its disposal, or if you sell the garden/grounds separately to your disposal of the home.

What is the ‘period of ownership’?

For the purposes of Private Residence Relief (PRR), the ‘period of ownership’ begins when you acquire the dwelling and ends when you pass ownership of it to someone else. This period starts on the date of acquisition, or on 31st March 1982
if you acquired the dwelling before this date.

It can seem complicated, but if you sell a property that wasn’t always your main dwelling, you’ll have to split the gains to calculate the portion that’s eligible for CGT relief. This means multiplying the profit by a percentage equal to the total period of ownership (excluding the period of absence).

However, a ‘period of absence’ could still qualify for PRR under certain conditions. For example:

1) You buy a home in 1998, but due to refurbishment requirements, you cannot move in until a year later. This dwelling then remains your primary home until you decide to sell it in 2018. You’re then entitled to full Private Residence Relief.

2) You buy a home in 2000, but your employer requires you to work away from home for a few years, so you don’t return to live in it as your main residence until 2003. You remain in this primary dwelling until you sell up in 2020. You’re also entitled to full Private Residence Relief.

In any case, the absences must not last for more than 3 years in total, or your PRR eligibility will be affected. You’ll usually be allowed to count up to 24 months
of non-occupation after acquisition as actual occupation if you were unable to live in the house due to building work or other alterations.

Regardless of how a property is used in the final 9 months of ownership, it should still qualify for CGT relief, as long as it was your primary dwelling before that.

How does Private Residence Relief work?

Homeowners who dispose of their main dwelling receive Private Residence Relief, meaning they don’t have to pay Capital Gains Tax on any gains made when disposing of the residence.

If you sell a secondary home that isn’t your main residence, but you did live in full-time at some point, you may be eligible for partial relief instead of the full exemption.

People with an additional dwelling that might be eligible for PRR – such as a house or flat that you use as a holiday home or rent out during your absence – need to decide which residence they want to nominate as their main home that can then be fully exempt from CGT.

They’ll have 2 years to nominate the main home that they spend the most time living in, or else HMRC will decide for them, based on voter registration, vehicle registration, and similar factors.

If a property has been your only/main residence at any point, the last 9 months of ownership will not be liable for CGT
– so, if you move out of your house into a new one before selling the old one, you’ll have up to 9 months to sell the original home before it becomes liable for CGT.

Essentially, you don’t have to pay Capital Gains Tax
when selling a main dwelling for any time that you spent officially living in that residence. Whether you lived in the house or not during the last 9 months, or even rented it out, you can still receive Private Residence Relief for that time.

That said, if you sell a primary residence while letting out a part of it, you’ll only be eligible for PRR on the part of the home you actually occupied.

How to calculate Private Residence Relief

Depending on your situation, this is the main formula you should follow for calculating PRR:

Alternatively, you can multiply the total gain (£) by the percentage of ownership (%) – for example, if you only live in 70%
of the property, or you have a 50/50 split with a spouse.

Need help with Capital Gains Tax on private residence disposal?

While the case mentioned earlier in this article suggests that there’s some tax-planning scope allowed for anyone with a plot of land who can build a house on it and live there before selling up to claim Private Residence Relief, it’s important to remember that First-Tier Tribunal
decisions don’t set a legal precedent. You should still consult the PRR guidance provided by HMRC.

Or, if you still find the rules around periods of ownership for Private Residence Relief to be confusing, and need help calculating your Capital Gains Tax exemptions and submitting your CGT tax returns, why not hire a professional tax consultant? The experts at GBAC, Barnsley accountants, are on hand to take your call on 01226 298 298, or respond to email enquiries sent to info@gbac.co.uk.