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

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

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

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

What counts as a small company or micro-entity?

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

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

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

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

How are business disclosure rules changing?

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

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

• Requiring companies to maintain full records of shareholders (updated annually)
• Providing the names of any regulated markets the company is listed on
• Submitting fully labelled, machine-readable digital accounts to iXBRL (Inline Extensible Business Reporting Language)
  standard
• Removing the options for abridged or ‘filleted’ accounts to reduce fraud and genuine errors
• Enhancing validation checks on accounts and information to improve the register’s integrity
• Making verified Companies House accounts mandatory, with identity verification for all directors and persons with significant control (PSCs)

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

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

What does your business need to do?

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

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

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

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

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

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

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

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

Which foods are standard-rated for VAT?

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

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

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

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

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

How does VAT apply to baked goods?

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

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

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

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

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

What happens if HMRC disagrees with your VAT rating?

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

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

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

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

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

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

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

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

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

How can consumers manage spending?

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

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

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

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

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

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

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

How can small businesses handle inflation?

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

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

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

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

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

Where to get financial advice in 2022

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

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

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

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

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

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

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

What does this mean for UK taxpayers?

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

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

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

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

What are the options for higher rate tax relief?

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

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

• Check your PAYE code – make sure you’re being taxed correctly
• Claim full tax relief on pension contributions – this isn’t granted automatically
• Consider investing in an ISA – these are free from Income Tax and Capital Gains Tax
• Choose employee benefits carefully – some may be tax-efficient, but others won’t be
• Look into independent tax benefits and transferable marriage allowances (if you’re married)

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

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

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

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

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

What is a digital nomad?

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

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

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

• Developers and programmers
• Graphic designers, illustrators, and photographers
• Marketers and social media managers
• Journalists, copywriters, and bloggers
• Video producers and video editors
• Consultants, data analysts, and sales managers
• Virtual assistants and data entry processors
• Language teachers and translators

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

Can you get a digital nomad visa?

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

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

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

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

Where do digital nomads pay tax?

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

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

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

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

What are the implications for businesses hiring digital nomads?

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

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

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

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

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

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

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

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

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

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

What is the Child Benefit Charge?

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

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

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

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

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

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

Can you opt out of Child Benefit Tax?

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

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

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

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

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

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

While the Making Tax Digital (MTD) scheme has been in place since April 2019, there were some exclusions. The first phase was registering businesses with an annual turnover of £85,000, while those below the threshold could register voluntarily. As of April 2022, the next phase requires all VAT-registered businesses to sign up to Making Tax Digital, regardless of their annual turnover.

Every VAT-registered business must also register with MTD, keeping VAT records and submitting VAT returns
digitally through the MTD software. Some lower-turnover businesses may already be doing this after registering voluntarily, but for those who aren’t yet, it’s no longer possible to delay.

What is Making Tax Digital?

Most business owners probably dread tax paperwork the most. After replacing the old Government Gateway with HMRC Online Services,
the government is phasing in Making Tax Digital with the aim of simplifying the confusing tax system to make things easier for business owners and accountants.

This modernisation involves either using the MTD software
or connecting their existing software to the MTD portal to file digital VAT records. With an accurate and consistent flow of information, old-fashioned annual tax returns will soon become a thing of the past, replaced by quarterly updates.

Not only should this make it simple to file VAT returns
correctly and on time, but there are also other benefits to digitalising your tax records. The more efficient and scalable system makes financial positions much clearer, aiding in cash flow control, data forecasts, and growth strategies.

How can I sign my business up for Making Tax Digital?

From 1st April 2022 onwards, all VAT-registered businesses must enrol with MTD and use the system to submit all VAT returns this way. If your annual return isn’t due until the end of the accounting period in December 2022, you may not need to sign up for and use MTD
until the beginning of 2023.

It’s best not to wait too long, however, as you must allow time to set up the software and for HMRC to confirm your registration. This can take up to 72 hours, so don’t leave it to the last minute. Even brief delays of a few working days could make returns and payments late, incurring a tax penalty.

Requiring all business on the VAT register to comply with MTD, not just those with an annual turnover above £85k, is only the second phase. In April 2024, we’ll see the introduction of MTD for Income Tax, which will affect landlords and the self-employed with annual income over £10,000. From April 2025, individuals in partnerships will also have to enrol, with more updates to come.

Why should I use Making Tax Digital software?

Many businesses keep their VAT records in spreadsheets, with most using specialist accounting software
like Sage or Xero. If you don’t want to switch to MTD
completely, it’s possible to use compatible bridging software to connect your existing system with MTD, allowing you to submit information digitally in compliance with HMRC rules without having to scrap your current system.

Even if you prefer to stick with bridging software, your business will still benefit from switching to digital VAT submissions. Phasing out manual paperwork should help to reduce errors, keeping records safely in one place where you can access them easily as and when you need to check your data or calculations. As a time-saving solution, MTD should also increase employee productivity.

No more losing receipts or digging through cabinets for poorly organised documents. Stress-free VAT records and returns, instead of a last-minute panic before the annual deadline. What’s not to like? When it comes to software costs, there are plenty of options for businesses at all income levels, plus the Help to Grow: Digital scheme – and you can also claim expenses back under business tax relief.

How can Making Tax Digital help my business?

Small businesses may be wary of the changes that come with digitalisation, but this modern overhaul of the old tax system is long overdue. HMRC has been mailing letters to VAT-registered businesses who are now required to sign up for MTD, but even if you haven’t received these instructions yet, or your small business isn’t currently included, it never hurts to be prepared.

If you’re ready to register and make the most of digital VAT software, you can learn more about HMRC-recognised MTD software on the government website. Should you need help evaluating whether your business is required to enrol or qualifies for an MTD exemption, or need assistance with VAT accounting and relevant software, you can always contact GBAC for expert guidance.

Contact the GBAC team by email at info@gbac.co.uk or by phone on 01226 298 298 today.

The Department for Education (DfE) is introducing new rules for student loan repayments for students starting university from September 2023. This is part of a response to a 2019 review of the higher education system, and an attempt to tackle the problem of soaring national student debt.

With the nation’s student debt currently at £161 billion, and only around 25% of undergraduates starting courses in 2020-2021 expected to fully repay their student loans, the government believes that lowering thresholds and extending schedules will lead to more students repaying loans in full.

More students enter higher education every year, with many taking on debt for low-quality courses that don’t lead to long-term employment opportunities. This means the current loan system isn’t sustainable, but under the new system, an estimated 70% of students will be able to repay in full.

Current student loan repayment rules

The current rules for students in England and Wales give undergraduates a repayment schedule of 30 years. Monthly repayments won’t begin until the graduate earns more than £27,295 a year – if their annual income exceeds this amount, they will start repaying 9% of the excess every month.

Once you begin repaying a student loan under the current rules, any outstanding debt will be wiped after 30 years. With many graduates struggling to find high-paying jobs, even someone earning a good income may not be able to pay off their loans and the accumulated interest within this time.

For current and former students whose loans fall under these rules, there’s no need to stress about retrospective changes. The new rules won’t apply to student loans taken out for academic years prior to 2023-2024. However, the threshold for Plan 2 repayments – which applies for students who went to university in England or Wales from September 2012 – is frozen until 2025 at £27,295.

New student loan repayment rules

The major changes to student loan repayments that will take effect from September 2023 include:

• Freezing tuition fees at £9,250 a year until 2025
• Lowering the repayment threshold to £25,000
  per annum
• Extending the repayment term by a decade to 40 years
• Capping the interest rate according to the RPI
  (Retail Prices Index)

The most contentious change is that future students will have to continue making repayments for 40 years before any leftover debt is wiped. Additionally, they’ll have to begin repaying their loans sooner due to the reduced threshold. This means they’ll have to repay more over a longer period.

However, students starting university between 2023 and 2025 won’t have to worry about higher tuition fees, as they’re frozen at the current rate until then. There’s also the benefit of less interest, so these students may actually pay less over time than those under the current plan, who could be paying as much as RPI + 3% accrued on top of their actual tuition and maintenance loan balance.

Who will be affected by the student loan repayment changes?

As mentioned above, the most recent student loan changes will only affect new students who start a university course in September 2023 or later in that academic year. Undergraduates who plan to complete their course in the 2026-2027 academic year will be the first to experience these effects.

Theoretically, the new student loan repayment system should drastically increase the number of graduates who repay their loans in full before the expiration of the repayment term. In real life, some economists believe this will only have a positive impact on high earners, who could afford to repay their loans anyway, while low to middle earners will be saddled with higher repayments.

Due to the changes in interest rates, higher earners will accrue much less interest and repay faster, while lower earners will repay more over their lifetime. This is a bigger burden for such graduates who are trying to save for their future, limiting their ability to buy a house or invest in a pension.

However, the average graduate salary is still below the new threshold – though it may not seem like much of a plus side that most students won’t be earning more than £25,000 a year after graduating.

It’s worth noting that these changes affect domestic undergraduates only. They will not apply for international students, who can’t access government loans, or for postgraduate students, whose degrees will have different repayment plans. Nor will they apply to student loans in Scotland – where students start repaying at a £25,000 threshold, with a 30-year term and 1.5%
interest rate.

Is taking out a student loan in 2023 worth it?

If you, your child, or a family member plans to go to university in the near future, they might find it beneficial to start a course during the 2022-2023 academic year. After that, they’ll be subject to the new student loan repayment terms, meaning they’ll have to start repaying higher amounts sooner.

Similarly, sixth form college leavers who planned to take a gap year before going to university in 2023 might be better off scrapping those plans to stay within the current system’s repayment rules.

In any case, whenever the university course starts and however much you’ll owe in student loans, taking out tuition and maintenance loans from the Student Loans Company is still better than relying on commercial loans. You can learn more about this in our blog on student debt rules.

If you’d like more information on the changes explored in this article, click through to read the relevant report by the Institute for Fiscal Studies. For graduates already in employment, who may be in need of financial advice
to help manage student loan repayments and arrears, the team at GBAC
is always happy to offer expert guidance. You can get in touch with us whenever you’re ready.

Just as employees must build up National Insurance Contributions (NICs) throughout their working life in order to access state benefits, so must those in self-employment. However, employers usually set up the PAYE system to deduct Class 1 NICs automatically for their workers, while self-employed people must pay Class 2 and/or Class 4 contributions directly to HMRC after submitting a tax return.

Following an announcement last September, the government has introduced a 1.25% increase to NICs from April 2022 – known as the Health and Social Care Levy. Despite this increase, it seems that self-employed people with profits within a certain limit could actually pay less in NICs in 2022.

Let’s look into the latest changes for self-employed NICs
and what they’ll mean for you this year.

How do National Insurance Contributions work for self-employed people?

If you need a quick refresher on the basics of National Insurance Contributions, these are payments that people earning a sufficient amount must pay between 16 years old and state retirement age. You must make a minimum amount of NI contributions throughout your lifetime to access the State Pension, certain unemployment benefits, Maternity Allowance, or Bereavement Support payments.

As mentioned, employees on a payroll will have Class 1 contributions deducted from their wages, while their employers will also contribute Class 1A/Class 1B contributions. As those who are self-employed is unlikely to have a payroll system, they must pay a different class of NICs on their profits.

This means that anyone in self-employment is required to submit an annual self-assessment tax return, which HMRC uses to calculate how much the person owes in Income Tax and National Insurance Contributions for that year. When it comes to NICs, they may have to only pay the Class 2 flat rate, but they may also be liable for the Class 4 higher rate on profits above a particular amount.

Even if your self-employment earnings are below the threshold for Class 2 and Class 4 NICs, or you are eligible for reduced rate NI contributions, you can still choose to make NIC payments if you can afford to. These voluntary contributions are categorised as Class 3, and help you to fill gaps in your NIC record that could otherwise have a negative impact on your eligibility to claim state benefits.

How are Class 2 National Insurance Contributions changing?

Previously, the threshold for fixed-rate Class 2 NI contributions was £6,515, and was due to rise to £6,725 this tax year. After the Spring March Statement, the threshold is now set at £11,908
for the 2022-2023 tax year. It’s then due to align with the Personal Allowance of £12,570 for 2023-2024.

This means that you now won’t have to pay Class 2 NICs
on self-employment earnings above the small profits threshold of £6,725. You’ll only have to make Class 2 NIC payments for any earnings over the lower profits limit of £11,908. The Class 2 NIC rate for 2022-2023 is now £3.15 a week.

If you won’t be making enough profit to pay any National Insurance Contributions, you might have concerns about maintaining your NI record. There’s no need to worry, because anyone with annual self-employment profits between £6,725 and £11,908 can benefit from deemed NI contributions.

You’ll still be building up your NIC record, even though you technically won’t be paying for those contributions. This is especially important to get enough qualifying NICs for the State Pension.

What is happening to Class 4 National Insurance Contributions?

While the 1.25% levy doesn’t apply for Class 2 NICs, it does apply for Class 4. The Class 4 NIC rates
were therefore due to increase from 9% to 10.25% for self-employment profits over £9,880. Like the Class 2 threshold changes, the Class 4 threshold now set at £11,908 instead, and will also align with the Personal Allowance for 2023-2024 (£12,570). The higher rate threshold is frozen at £50,270.

So, if you earn annual profits between £11,908 and £50,270, you’ll be liable for NI contributions at a rate of 10.25%. For profits above £50,270, you’ll now pay a reduced NIC rate of 3.25%
(up from 2% the previous year due to the levy). The threshold boost means fewer people will be liable for both Class 2 and Class 4 contributions, allowing self-employed earners to keep more of their profits.

As a self-employed earner, you’ll no longer have to make Class 2 contributions from the date that you reach State Pension age, just like employees who pay Class 1 NICs. If you’re liable for them, you’ll continue paying Class 4 contributions until the start of the next tax year following this date.

How does this affect my NIC liabilities?

According to the government’s Spring Statement factsheet, the majority of people who pay NICs will pay less than they would have before the changes. Whether they work for an employer or are self-employed, lower earners can keep more of their money whilst still protecting their NIC record.

Here are some examples of the impact of these self-employed NIC changes at various profit levels:

If you’re still not sure about your NIC liabilities, or you need professional assistance with self-employment tax management, contact GBAC on 01226 298 298. Our accountants can provide a variety of financial services, from bookkeeping
to tax planning. When you call our team, or email us at info@gbac.co.uk, we can help you to make the most of the changing NIC thresholds in 2022.