A recent First-Tier Tribunal (FTT) ruling in favour of the taxpayer has challenged HMRC’s belief that renting out a room or piece of land alone is not exempt from VAT. In the case of HMRC vs Errol Willy Salons, the FTT dismissed HMRC’s VAT assessment in support of aggrieved salon owner Errol Willy.

The case started back in 2017, when the salon owner decided to let out two unused rooms. Each room was fairly plain and nondescript, though they both had a sink. The beauticians who rented the rooms provided all the tools of their trade by themselves, controlling their own hours and prices.

Though Errol Willy had little to no involvement in the work of the beauticians, other than collecting a percentage of their monthly takings as rent, HMRC issued a huge VAT bill of £18,649. According to HMRC, the salon supplied taxable rated services – but the owner disagreed, and now so has the FTT.

HMRC’s assessment of room rental VAT

Generally, the supply of a rented room should be exempt from UK VAT, with the exceptions of rooms hired for catering or sleeping accommodation. HMRC had yet to draw a line between what counts as VAT-exempt room hire and when it counts as a supply of services that’s liable for VAT.

In the case of Errol Willy’s salon in Cardiff, HMRC
argued that the room rentals were not exempt from the standard 20% VAT rate because they were part of a larger package of taxable services.

While the beauticians were self-employed and not registered for VAT, they were able to access the staff toilets and break areas, and made use of heating and lighting. They also had minimal use of the salon’s reception and advertising. HMRC judged all of this to be a service package inclusive of rent.

When Errol Willy received the unexpected VAT assessment, he of course decided to challenge it and appeal against HMRC’s decision at a tribunal. The salon owner was not charging the beauticians for use of these basic facilities, but HMRC believed that the situation was similar to a previous case.

In the Byrom case, HMRC successfully proved that self-employed masseuses hiring rooms at a massage parlour were also supplied with services such as a reception desk, a kitchen, showers, linen and towels, and a washing machine – so the standard VAT rate was applicable to the rental income.

However, as the FTT acknowledged, Errol Willy did not
provide such an extensive service package.

The First-Tier Tribunal’s decision on room hire VAT

Luckily for Errol Willy, the FTT did not agree with HMRC
that his case and Byrom’s were comparable.

While the masseuses in the Byrom case received a package of multiple services related to their purpose in hiring the rooms, the additional facilities in the salon that the beauticians had access to were either incidental or inessential to their business. The rooms they hired were more or less bare.

Therefore, the primary supply was simply room hire, and the salon owner was correct in treating these transactions as VAT exempt room hire. The court’s judgement was in the taxpayer’s favour, clarifying that supplying a room to rent is only liable for standard VAT rating if significant additional services are supplied as part of the hire – for example, if they had also supplied hairdressing chairs.

It’s evident that not every case of room hire which coincides with other minimal services qualifies as a supply package. Where the predominant supply is the letting of land, a VAT exemption is valid – so HMRC should judge these situations on a case-by-case basis, according to the specific circumstances.

What does this FTT ruling mean for my business?

You might be wondering how this individual taxpayer’s victory applies to you. If HMRC had won the case against Errol Willy Salons, other businesses letting out spare rooms could also find themselves liable for additional VAT charges at HMRC’s whim – even if any additional services were inessential.

The impact of this FTT ruling means that many small businesses, and even some large ones, have a precedent to refer to if they need to appeal against a VAT assessment like Errol Willy. However, HMRC
should now revise their room hire VAT exemption regulations to avoid a repeat of this issue.

If you would like to read more about the Byrom case and further examples of HMRC’s treatment of VAT liabilities, you can do so by clicking here. Following the Errol Willy Salons case, the government may pursue legislative changes to clarify the VAT rules. The best way to stay on top of these things and prevent similar VAT charges from HMRC is to make sure your account management is in order.

Do you need professional help with VAT returns? Or are you struggling with a tax investigation and need financial experts to handle the HMRC enquiry
on your behalf? In either case, our accountants in the North West would be happy to assist – simply contact GBAC to find out how we can help you.

Following an announcement in 2014 and a consultation in 2021, the government is drafting legislation that will increase the normal minimum pension age (NMPA). This means that the minimum age that most savers can access their pensions will rise from 55 to 57 in April 2028.

The government is changing the NMPA to align with the increase in the State Pension (SP) age, which will be rising to 67 in 2028. These changes are meant to encourage people to keep working and saving for longer before retirement – but what if you want to take your private pension earlier?

What is the normal minimum pension age (NMPA)?

While the State Pension is a type of tax-funded social benefit, many people also pay into private schemes throughout their working life to increase their pension pot on top of the State Pension.

Most private or personal pension schemes are registered with HMRC, with regular contributions collected through PAYE along with the employee’s National Insurance and Income Tax. There are many types of private pensions, but the most common are occupation-based or contract-based.

The normal minimum pension age (NMPA) is the minimum age that a person can access their pension without having to pay a tax charge of up to 55%, unless their early retirement is due to poor health. Claiming your personal pension early is considered an ‘unauthorised payment’ otherwise.

The NMPA was first introduced in 2006 and set at 50 years old. This rose to 55 in 2010, then in 2014 the government announced plans to increase the NMPA to 57 in 2028. When the State Pension age
increases from 67 to 68 years old, it’s likely that the UK government will also raise the NMPA to 58.

Will the new NMPA apply to everyone?

When the NMPA rose to 55 in 2010, the government introduced a protected pension age (PPA) for registered pension schemes – meaning eligible members could keep the existing NMPA and retire between 50 and 55 years old as they pleased. There is also an updated PPA
for the new NMPA.

This means that members of eligible pension schemes could keep a PPA of 55 rather than 57. To qualify for the new PPA, you must have become a member of the registered scheme before 4th November 2021, and the scheme’s rules must have permitted early retirement on or before 11th February 2021. The new PPA will not affect members who already have the previous PPA of 50.

Otherwise, the new NMPA will affect all registered pension schemes in the UK, including the Railways Pension Scheme. Aside from those with a PPA, the only exemptions are public service pension schemes (e.g. police, fire fighters, armed forces), and early retirement from ill health.

What if I don’t have a protected pension age (PPA)?

If you won’t be eligible for the new PPA, and you won’t be retiring until after 5th April 2028, then the new NMPA will prevent you from claiming your personal pension until you’re 57 years old. This will only be an issue if you intended to retire before then, or if you’re retiring earlier but you’ll have remaining benefits to claim after that date. Here’s a quick guide according to when you were born:

Of course, pension scheme administrators will also need to update their systems and records in line with these changes. If you do have a PPA, you should bear in mind that changing jobs, switching pension schemes, or transferring contributions could mean losing it in favour of the new NMPA.

Contact GBAC for business or personal financial advice

The new pension age regime provides opportunities for some and risks for others, so it’s crucial to get professional advice if you’re uncertain about your financial future. You can view HMRC’s paper on their new NMPA
policy online; HMRC does not allow or require individual applications for PPA.

If you believe you should have a protected pension age, or you aren’t sure how the new NMPA will affect your pension and retirement plans, it’s best to seek advice from a qualified financial expert.

Here at GBAC, accountants in Barnsley, our knowledgeable accountants can provide a range of payroll, bookkeeping, tax consultancy, and estate planning services to help you get your retirement savings in order. To discuss your accounting concerns with our team, please call us on 01226 298 298 or email us at info@gbac.co.uk. The experts at GBAC, as well as our accountants in Leeds and Sheffield, are here to help from 9am to 5.30pm, Monday to Friday.

Since the start of the COVID-19 pandemic, the UK government has been supporting small businesses through various loan schemes. Hundreds of billions of pounds were invested into economic support packages to keep employers and their employees afloat during a difficult time for many.

Unfortunately, a small percentage of fraudsters managed to claim some of this money under false pretences, effectively stealing billions of taxpayers’ money. In response, the government formed the Taxpayer Protection Taskforce (TPT) in 2021, which will continue investigating until 2023.

So, what exactly is the TPT doing to tackle COVID-19 fraudsters, and what does this mean for your business if you claimed COVID-19 relief during the pandemic?

What is the Taxpayer Protection Taskforce?

Since its formation and funding last year, the TPT
department of HMRC has been and continues to investigate businesses they suspect of fraudulently claiming COVID-19 relief. The 1200+ strong Taskforce
is aiming to recover at least £1.5 billion from around 30,000 ongoing investigations.

Additionally, the Coronavirus Job Retention Scheme is anticipated to have lost over £5 billion to fraudulent furlough claims, and the Bounce Back Loan Scheme has lost an estimated £18 million. To this end, the Taskforce will be scrutinising suspicious claims under schemes like the following:

While some of the losses will be written off, the Taxpayer Protection Taskforce will continue to investigate and prosecute anyone who has misused any of the pandemic support schemes.

How is the Taxpayer Protection Taskforce investigating businesses?

When the coronavirus support schemes were accepting applications, there were automated digital checks in place that helped the government to block over 100,000 incorrect claims between 2020 and 2021. However, thousands of fraudulent claims managed to slip through HMRC’s net.

To catch these criminals and reclaim the taxpayers’ money, the Taskforce’s ongoing activities include written communications and one-to-one enquiries. Data analysis is helping the team to identify discrepancies, which prompts HMRC to contact the business and request further evidence.

When making the claim, businesses should have been advised that they must keep certain records for up to 6 years in case of HMRC
investigations, so any honest claimant should have documented proof to support their claim. For example, the information HMRC asks for is likely to include:

If the Taskforce flags a claim with a small risk of fraud or an apparently unintentional mistake, they will simply write to the business and ask them to review their claim. This prompts honest claimants to voluntarily disclose overpayments if they discover an accidental error upon checking their claim.

Should they discover a case with complex risks, where they anticipate deliberate fraud, then the Taskforce will take bespoke measures to discuss the claim with the business one-on-one. Their main target is those who purposefully defrauded the schemes, so they won’t investigate every little error.

What if I made an honest mistake when claiming COVID-19 relief?

Of course, HMRC is aware that most businesses have been under a lot of pressure during the pandemic, and that circumstances often changed quickly as variants spread and case numbers rose and fell. This is why the Taskforce is making a proportionate response to each incorrect claim.

The Taskforce will be more lenient towards businesses that inadvertently made a genuine mistake – especially if the business voluntarily discloses the details. According to HMRC, penalties will be reasonable and they will mostly be supportive in such cases of truly accidental overpayments.

If you believe your business may have made an honest mistake and misrepresented your earnings, employee hours, or anything else in your claim, you can report this through the online
HMRC disclosure service. Even if you haven’t been contacted about a compliance check, it’s best to get ahead of things and make a voluntary disclosure. You may need an accountant
to assist you.

Does your business need help with reviewing a COVID-19 relief claim, complying with a HMRC or TPT investigation, or challenging the result of a HMRC enquiry? Our accountants in Barnsley, Leeds and Sheffield could help – just give GBAC a call on 01226 298 298 or email us at info@gbac.co.uk for expert guidance.

Previously called Entrepreneurs’ Relief, the type of CGT (Capital Gains Tax) relief now known as BADR (Business Asset Disposal Relief) is only available for trading companies and groups that carry out primarily trading activities.

Gains from the disposal of company shares may be eligible for a reduced CGT rate of 10%, but only if the activities of the trading company ‘do not include, to a substantial extent, activities other than trading’ – but what qualifies as ‘substantial’?

Those concerned about qualifying for Business Asset Disposal Relief and claiming CGT reductions will be interested to know that the definition of ‘substantial non-trading’ has recently changed.

Upper Tribunal overrules HMRC in Assem Allam case

For a long time, the government’s Capital Gains Manual
has held that the qualifying amount of ‘substantial non-trading’ is 20% of the company’s total activities. However, in the recent case Assem Allam vs. HMRC [2021] UKUT 0291, the Upper Tribunal (UT) did not agree with HMRC’s guidance.

The long-standing guidance took a quantitative view to the eligibility assessment, suggesting that the company’s income, asset value, and expenditure be taken into account. In the 2021 case mentioned, the Upper Tribunal found that HMRC offers no reliable test to produce a specific numeric answer.

According to the Upper Tribunal, which dictates the enforceability of legislation, without a legal 20% test to determine substantial non-trading activity, the existing tests are ‘holistic’ – e.g. they require consideration of the company and its activities as a whole, and HMRC’s list of factors isn’t exclusive.

HMRC updates guidance on non-trading activities

Following the Upper Tribunal’s decision on the Assem Allam case, HMRC has since updated the BADR guidance in the Capital Gains Manual. The suggestion of trading vs non-trading being 80% vs 20% of company activities as the threshold remains, but there is now less emphasis on proving this.

HMRC has made its definition of ‘substantial’ slightly vague, meaning that businesses now have more leeway when it comes to claiming BADR. The manual now suggests that it’s enough for HMRC
to look at non-trading income and non-trading asset values, and if the submitted accounts do not suggest non-trading activities over 20%, they can simply approve the relief without further enquiry.

Get professional advice on business CGT relief

You can find the latest guidance from HMRC in the online manual linked above. However, there are other factors that might be relevant but aren’t mentioned in HMRC’s guidance, even after the recent revision. If you plan to claim Business Asset Disposal Relief and aren’t sure whether your non-trading activities would be classed as ‘substantial’ or not, you may need to seek expert advice.

If you’re looking for accountants in Barnsley to provide business tax consultancy services, audits or business valuations, or manage HMRC enquiries, why not get in touch with us at GBAC? Call us on 01226 298 298 or email info@gbac.co.uk to discuss your company’s trading activities and taxes.

Our accountants in Barnsley are here to help. Our accountants in Leeds and accountants in Sheffield available at your request too.

As businesses continue to recover from the pandemic, the UK government has launched the Help to Grow: Digital scheme. This initiative supports small to medium-sized enterprises (SMEs) to digitalise their businesses, providing impartial advice and discounts on accounting and customer relationship management (CRM) software from approved providers.

Starting from January 2022, eligible businesses can apply for Help to Grow: Digital and its partner scheme Help to Grow: Management. Lack of knowledge and expense are some of the biggest barriers preventing businesses from growing through digitalisation, but these schemes should be a game-changer in accessibility and productivity.

So, how can Help to Grow: Digital boost your business in 2022? This blog explains everything you need to know about Help to Grow, from how it works to how to apply.

What is the Help to Grow: Digital scheme?

First announced ahead of the budget in March 2021, the new Help to Grow: Digital service opened on 20th January 2022. The UK-wide scheme is designed to help businesses manage their finances and boost sales through improved customer services – all thanks to proven digital technologies.

Help to Grow: Digital offers guidance to business owners unsure about which technology is the most suitable or how they would use it for their business. For those eligible, there is also a Help to Grow discount of 50% on one approved software package (up to a maximum of £5,000, excluding VAT).

This helps with the costs of incorporating the software over the first 12 months, giving businesses the tools they need to thrive in a digitally dependent market. In addition to customer and financial management services, further products should be available soon, including e-commerce software.

The scheme runs alongside the separate Help to Grow: Management course, which provides 12 weeks of training at leading business schools around the UK for just £750. This complementary initiative teaches staff new management skills and explores strategies for growing and innovating.

Who is eligible for the Help to Grow: Digital scheme?

All UK businesses can access the Help to Grow: Digital
website for free advice on adopting digital technologies. However, in order to successfully apply for the Help to Grow: Digital discount, your business must meet the following eligibility criteria:

Unfortunately, you cannot access the discount if you have already purchased the software yourself. Only the qualifying business can use the non-transferable discount, and it will not count towards VAT. After successfully applying, you’ll have 30 days to redeem the discount.

Software suppliers can also apply to offer their services to small businesses through Help to Grow: Digital. To qualify, you must be a GDPR-compliant business trading for at least 12 months, with demonstrably effective cyber security and an existing customer base in the UK.

How will Help to Grow: Digital actually help businesses?

Many businesses had to fall back on online services during the pandemic to comply with lockdown and social distancing rules. Those who were able to adapt didn’t just survive the shutdowns – they grew up to eight times faster than other businesses who didn’t have the appropriate digital tools.

The government believes that increasing SME productivity through technological investment will support hundreds of thousands of jobs and lead to billions in revenue and economic output. With the software available through Help to Grow: Digital, businesses can automate processes like:

Reducing time wasted on repetitive manual administration allows businesses to focus on their core operations instead. Fewer mistakes and more free time will allow you to develop and implement new strategies, making smarter and faster decisions to grow and thrive. Not only can you manage your accounts digitally, but you can make the most of selling online and building a customer base.

How to apply for the Help to Grow: Digital scheme

You don’t have to apply to access the business technology guidance – simply visit the Help to Grow: Digital website to explore software solutions for free.

If you believe that your business is eligible for the Help to Grow: Digital discount, you can apply online. Use the ‘compare software’ tool to identify the package you want, then complete the application by providing the required information.

This includes details about your chosen software, your business, and yourself as the applicant. You’ll need to verify your business email address and provide your Companies House or Financial Conduct Authority Mutuals Public Register number.

After passing eligibility and fraud checks, you’ll receive a link to the supplier’s website, where you can view a breakdown of costs and apply the discount to complete your purchase.

Here at gbac, we understand that cloud computing
doesn’t come easy to everyone. This is why our specialist cloud accounting
team is happy to help businesses who may be struggling to implement accounting software such as Sage or QuickBooks.

If you would prefer to outsource your financial management to the experts, we offer a range of bookkeeping
and payroll
services at gbac. To learn more about how we can help your business go digital, GBAC – accountants in Barnsley – are here to help. Please do not hesitate to get in touch on 01226 298 298 if you have any questions. Our accountants in Leeds and accountants in Sheffield are happy to help too.

We all know that documenting and filing taxes is a complex and often stressful process. Despite our best efforts, some of us may miss deadlines or misrepresent information on our tax returns – leading to HMRC issuing a tax penalty. Whether you’re self-employed or part of a small business, nobody wants the additional stress of paying tax penalties on top of the actual tax and interest.

However, if you can prove that you had a ‘reasonable excuse’ for the action that incurred the tax penalty, then HMRC might agree to amend or waive the fine. You’ll still have to pay any outstanding tax and interest, but a successful tax penalty appeal will reduce the penalty or remove it altogether.

So, what counts as a ‘reasonable excuse’ for late or incorrect tax returns, according to HMRC? How much will you have to pay if you get a tax penalty, and what can you do to avoid getting one?

What are HMRC tax penalties issued for?

There are plenty of common mistakes people make when filing their tax returns that can result in HMRC flagging a problem and issuing a fine. Here are some of the reasons for HMRC tax penalties:

Whether you deliberately misrepresent your situation or genuinely make a mistake by accident, HMRC can and will fine you for not complying with tax reporting and payment rules.

To avoid receiving a Penalty Explanation Letter laying out what you’ve done wrong, you should do your best to file and pay accurately and on time. If you become aware of an issue before receiving one, contact HMRC as soon as possible – this could result in a penalty of reduction.

How much is a HMRC tax penalty?

The penalty you might receive for the reasons above depends on the type of tax, the time period, and the particular fault. For example, if you filed your Self-Assessment Tax Return late by one day, you would receive a fine of £100 (though this doesn’t apply for returns due on 31st January 2022).

HMRC will add £10 per day for missing the deadline by up to 90 additional days. If you fail to pay for 6 months or more, HMRC will also charge £300 or 5% of the outstanding tax – whichever is higher. You’ll also be fined for missing the payment deadline and accrue interest for every passing day.

For Corporation Tax Returns, limited companies will be fined £100 for missing the deadline for filing or payment by one day, then another £100 for failure to pay within three months. If the company still hasn’t filed or paid in six months, HMRC will charge the estimated tax bill plus a 10% penalty.

In the case of undeclared income or inaccurate information, HMRC will calculate the penalty based on the reason and a percentage of the amount of tax due:

Penalties are lower for carelessness than what HMRC could perceive as attempted tax evasion. They may reduce the penalty if you disclose the error and help them to calculate the tax that’s overdue, either by providing documentation or allowing HMRC access to your records.

Bear in mind that HMRC is switching to a late submission points system as they move all taxes to a digital platform, so this could change in the coming years. The new system starts from April 2022 for VAT, but won’t be implemented until 2024-2025 for Self-Assessment Tax Returns.

What’s a reasonable excuse for filing taxes late?

If you receive a HMRC penalty letter, you’ll have the chance to appeal against it. Extenuating circumstances and unexpected life events can strike at any time, so HMRC is likely to be lenient if you have a valid reason for missing tax return deadlines. ‘Reasonable excuses’ might include:

HMRC considers appeals on an individual case-by-case basis, so just because an ‘excuse’ worked for one person doesn’t mean they’ll accept it for another. If you think your excuse is reasonable but don’t see it in the list above, don’t be put off from appealing, as the assessment is up to HMRC.

They still expect everyone to have taken ‘reasonable care’ to make sure everything was submitted accurately – even if you have a tax agent who manages tax returns on your behalf. This means keeping the appropriate records and running the proper software to complete your tax forms.

The important thing is to take steps to correct your mistake and fulfil your tax obligations as soon as possible. The more you co-operate with HMRC, the more likely you are to succeed in your appeal.

What isn’t a reasonable excuse for late filing?

There are many flimsy excuses for failing to comply with tax regulations that won’t hold up against HMRC’s judgement. For example, simply forgetting about the deadline or being generally unaware about tax rules isn’t a good enough reason.

You can’t make excuses like saying that you were too busy, you were waiting for a reminder from HMRC, or the forms were too complicated for you to complete. They expect you to stay on top of your obligations and seek the relevant assistance if you need it.

Similarly, HMRC won’t accept it if you say you couldn’t file or pay because you didn’t have the funds or were waiting on a third party. Their judgement will depend on the circumstances – for example, they might allow it if you couldn’t pay Capital Gains Tax until receiving the sale proceeds.

Illness (of yourself, a partner, close relative, or dependent) will only be considered a ‘reasonable excuse’ if it was unexpected and genuinely affected your ability to complete your tax return before the deadline. If it was a foreseen issue or a relatively mild illness, HMRC will expect you to have made other arrangements to get your submission and payment sorted in time.

Is COVID-19 a reasonable excuse for late tax returns?

As you may know already, HMRC has made adjustments to the late filing and late payment penalties for taxes due by 31st January 2022 due to the negative impact of the COVID-19 pandemic on many businesses and individuals in the UK. You can read more about this here.

However, coronavirus is not a blanket excuse for failing to file or pay correctly, and HMRC will still charge interest on late payments. If isolation, shielding, or contracting COVID-19 on or before the due date prevented you from completing your obligations, HMRC might consider this a ‘reasonable excuse’ – but only if you fulfil those obligations as soon as possible.

How to appeal against HMRC tax penalties

When you receive a HMRC tax penalty notice, you’ll usually have 30 days from the date on the letter to appeal against it. The notice should include an appeal form and instructions on how to lodge your appeal, including which supporting information you’ll need to provide.

You can either file an appeal through the Self-Assessment Tax online portal or download the SA370 form, fill it out, and send it to HMRC through the postal service. There are separate forms available for companies appealing for late VAT Returns or Corporation Tax Returns because of IT problems, though you should also have the ability to appeal through your online account.

When you make an appeal, a new impartial HMRC officer will review the penalty decision. If they decide that your excuse is reasonable, they may amend or cancel your tax penalty. You should be notified of HMRC’s decision in the same way you appealed – i.e. online or via post.

Do you need help with handling your tax returns or appealing against a tax penalty? Want to make sure that you don’t end up missing the deadlines and paying the penalty again? Get in touch via info@gbac.co.uk to discuss our tax consultancy services. You can also contact us, GBAC, accountants in Barnsley, on 01226 298298.

HMRC is reminding businesses with turnover below the £85,000 threshold of the steps they need to take regarding changed to Making Tax Digital (MTD) for VAT from 1st April 2022. Up to this point, only VAT registered businesses with turnover above £85,000 had to file returns through MTD.

For VAT return periods starting on or after 1st April 2022, VAT registered businesses need to keep digital records and file returns through approved software. Currently MTD is compulsory for business with annual turnover above the VAT registration threshold of £85,000, but the forthcoming change brings all VAT registered businesses into the MTD regime.

Under MTD, the records that must be maintained digitally include:

The above list is not exhaustive.

Affected businesses must sign up to Making Tax Digital at least five days after the deadline date of their last non-MTD VAT return, and a minimum of seven days before the first MTD VAT return deadline.

Exemption from MTD filing may be available in certain circumstances if it is not reasonable or practicable for them to use digital tools. Cost alone will not be an acceptable reason according to HMRC.

Failure to sign up for Making Tax Digital can result in a penalty being charged.

If you need further advice or assistance in making the change to MTD, including recommendations of appropriate software, we can help. Please contact us, GBAC, accountants in Barnsley, on 01226 298298.

Many small business owners like to keep things in the family, because working with family can be comfortable and fun. After all, you’re more likely to trust a family member than a stranger.

Another benefit of adding a family member to your payroll is the potential to reduce business taxes. Paying a salary to any employee – regardless of their relation to you – is a deductible expense.

This means that turning a family member into a salaried employee could help to reduce your declarable profits, and therefore the amount of tax due on your business income.

There are no rules against hiring family members to work for your privately owned business, but it’s important to pay attention to employment laws and taxes that still apply.

Let’s look into the tax implications of employing a family member and what your legal duties would be as their employer, so you don’t accidentally break the law.

Can you employ family members to reduce taxes?

Yes, you can. If you own a private small business, there are no laws against nepotism (hiring family and friends) – it’s not like it’s a significant public or governmental role.

Your family member doesn’t even have to apply through the usual channels – i.e. responding to a job listing, attending an interview, etc. You can simply create a role and hire them.

However, the job has to be a legitimate role that fulfils a necessary function. For example, employing your spouse as a receptionist, or hiring your teenage child to do some admin.

If your partner is otherwise unemployed or isn’t earning enough to pay Income Tax, this is a good way of using their annual tax-free Personal Allowance (£12,570).

This tax-free income will then join your household income pool to support your family, whereas you wouldn’t benefit from hiring an external employee.

Everything needs to be above board, so any relatives you employ must be registered on your payroll so HMRC can tax their salary appropriately through PAYE.

There should be no special treatment regarding pay or working conditions, and you must still make National Insurance and pension contributions as necessary.

Don’t forget that you’ll also need to have employer’s liability insurance that covers your family employees, and follow all health and safety and employment regulations.

If your business is a limited company, you also have the option of employing an adult relative as a director or shareholder to receive further benefits, such as less-taxed dividends.

Can a family business employ children?

Yes, the owner of a small business is free to employ their child or multiple young family members if they wish – in compliance with the UK’s child labour laws, of course.

Whether you pay them for ad hoc services as a freelancer or take them on board as a part-time or full-time employee, you must pay them an appropriate wage for the work they’re doing.

You can hire a child as young as 13, or an ‘adult worker’ who is 18 years old or above. If the child is at least 16 years old and living outside the family home, they’ll be eligible for earning the National Minimum Wage and may have to start paying National Insurance contributions.

The minimum wage depends on their age, as it rises at 18, 21, and 23. There’s also a separate minimum wage for apprentices under 19 years old or for those in the first year of their apprenticeship.

Children between these ages may be less likely to use all of their Personal Allowance, especially if they’re primarily a part-time or full-time student. Just remember that different rules around wages and working hours apply for ‘young workers’ (under 18) and ‘adult workers’ (18 or over).

How much should a business pay family employees?

Regardless of your relationship to any of your employees, you should be paying each of them the appropriate wages for their role, and paying workers equally for performing the same role.

To benefit from reduced taxes, you must enroll related employees through PAYE. Trying to sneak ‘cash in hand’ payments could be considered tax evasion by HMRC, and you could be fined.

HMRC has no reason to disallow valid deductions, such as paying the ‘going rate’ for genuine work that your family member has done for the business – what HMRC calls ‘equal pay for equal value’.

This obviously depends on the job and the individual’s skill set, but it must add value to the way the business functions – such as billable hours of cleaning, maintenance, bookkeeping, or marketing.

You’ll need to pay their wages into their bank accounts through your payroll system and keep records of these payments, as well as any commission or bonus payments.

If the pay for a family member is unrealistically high for the job in question, such as £100 an hour for answering the telephones, HMRC would consider this to contribute to your personal income as the business owner, which would reduce your deductible expenses and affect your own tax liabilities.

In such a case, you also wouldn’t be able to claim National Insurance contributions relief. If you’re paying a family member a fair wage to work for your business and they earn above the Employment Allowance threshold (currently £120 per week or £560 per calendar month), you could claim back up to £4,000 of National Insurance liability and reduce your business taxes even further that way.

Where to find advice on employing family members?

In summary, creating a job within your private business and employing a family member to fulfil the role can be a tax-efficient way of keeping more cash in the family’s coffers – but only if you do it right and stay on the good side of the law. You can find more information about HMRC’s salary rules for close relatives and dependents here.

This kind of salary arrangement will be more beneficial if you put it in motion at the start of a tax year, so it’s a good time to consider hiring a family member for April 2022–2023. If you need help with setting up payroll services or account management, or you’d simply like some tax advice, please contact the experts at GBAC today.

Give our team call on 01226 298 298 to discuss how we can help you, or send your enquiry by email to info@gbac.co.uk and we’ll be in touch as soon as possible. We’re happy to provide guidance on employing family members and tax deductions as part of our comprehensive services as accountants in Barnsley.

The UK ended 2021 with consumer prices rising by 5.4%, which then hit a 30-year high of 5.5% in January 2022 – the highest inflation rate
since 1992.

For contrast, the previous rate was a mere 0.6% in December 2020, but the Consumer Price Index (CPI) charted a rapid increase over the following 12 to 13 months.

With inflation shooting past 4.8% in the winter of 2021, which hasn’t happened since the global financial crisis in 2008, there’s a lot of talk about a new ‘cost of living crisis’ for Britons.

But why is inflation continuing to increase, and what does it mean for you? Is it all bad news? GBAC – accountants in Barnsley – take a look at the state of inflation in 2022 and how you can expect things to change.

What is inflation?

Inflation is an economic measurement tracking the prices of goods and services for consumers. The inflation rate is recorded once a month, but people often compare it to previous annual rates to gauge changes in their ‘spending power’.

Since inflation rates have previously been low and slow, many of us don’t notice prices creeping up each month. However, prices have been rising so quickly in 2021 and 2022 that consumer wages simply can’t keep up with the increased cost of living.

The Office for National Statistics gathers and publishes data on inflation in the UK every month using the Consumer Price Index (CPI) and Retail Price Index (RPI). It notes the prices of hundreds of common goods, like bread and milk, to track price increases.

As an example, if inflation was 1% and a loaf of bread previously cost £1, it would now cost £1.01. When inflation jumps above 5%, as it did in January 2022, that same loaf would suddenly cost £1.06. This may not seem like much at first, but small increases across the board can soon add up.

Recently, you may have seen or heard campaigner Jack Monroe on social media, TV, or radio talking about the current effects of inflation
on the cost of basic supermarket goods, and how it hits lower income groups the hardest.

Unfortunately, this isn’t limited to just the UK. Over in the US, inflation rates have already soared above 7% – the highest since the 1980s – and inflation in the Eurozone also saw a record-breaking peak of 5.1% as of January 2022.

Why is inflation rising?

As most people are aware, the COVID-19 pandemic has caused a lot of damage to the economy, putting an increasing strain on businesses and consumers alike. The higher demand for goods and shipping disruptions combined to cause shortages that drove prices up, with Brexit contributing to supply chain problems between Europe and the UK.

Both the pandemic and Brexit have also resulted in widespread staff shortages. In order to attract more workers by paying higher wages, some employers ended up raising the prices for their products and services. This led to higher costs for everything from food and drink to furniture.

January is usually the best month for bargains due to post-Christmas sales, but 2022 saw the lowest discounts for clothes and footwear since 1990. Eating out and travelling have also become more expensive, with transport costs relating to cars, flights, and fuel contributing to inflation the most.

Unfortunately, staying at home isn’t likely to save you money, as the ‘home sector’ is the second largest contributor to rising inflation. This includes the costs of housing, electricity, water, and other fuels, with energy bills practically doubling for millions of people with variable contracts.

Here are the main components of inflation in 2022, in order from largest to smallest:

As the prices of essentials continue to surge, analysts are predicting that the UK inflation rate will surpass 7% this spring – the highest since 1991, when inflation hit 8.5%. The energy price hike and tax increases due in April are likely to squeeze budgets even further.

How will rising inflation affect me?

Inflation isn’t necessarily a bad thing, as it can encourage the production and purchase of more commodities. However, when inflation is vastly outpacing wage growth, as it is now, overall spending power is drastically reduced – meaning the average person can afford less than before.

The way inflation rates in 2022 will affect your finances depends on your individual circumstances, but it definitely means fewer luxuries for most. For low income earners already struggling to make ends meet, the impact could be severe. Here are some of the ways inflation may affect living costs:

With all this doom and gloom, you might wonder if there’s actually any good news relating to UK inflation. Well, there are some – the price of petrol has fallen after surging in autumn 2021, and the National Living Wage is increasing by 6.6% in April 2022 for the lowest-paid workers.

Due to labour shortages in many industries, such as lorry drivers, wages in these sectors are rising more than others, so it’s possible to find a job that reduces the inflation gap in some cases.

Some economists are hopeful that the inflation spike
will be short-lived, even with the expected escalation at the start of the new tax year in April. The Bank of England believes that inflation will settle down and decrease to their target level of 2% in the next 2 years.

How can I protect my finances against inflation?

While the UK government considers monetary policy changes that might help to reduce inflation if it persists, it’s up to individuals to take stock of their own financial situation, including living costs and spending habits. Many will have to cut back on leisure and luxury purchases.

For those making investments, including pensions, bonds, dividends, and stocks, rising inflation may decrease the value of your savings and holdings. Real estate and mortgage costs are also likely to increase, affecting new buyers and certain existing homeowners.

Things like this are why financial planning, including tax-year-end planning, should always take inflation into account. If you would like help reviewing your spending, taxes, and savings, why not consult the experienced accountants at GBAC?

You can get in touch with us by calling 01226 298 298 or emailing info@gbac.co.uk
to discuss our services and find out how we can help you protect your finances in the face of inflation.