You may have already heard that the Chancellor, Jeremy Hunt, has announced an end to the preferential tax treatment that non-domiciled individuals (non-doms) currently receive.

At the moment, a non-dom – someone living in the UK but domiciled in another country – has two options when it comes to taxation.

They can opt to be taxed on the remittance basis, where they only pay UK taxes on foreign income and gains that are brought into (remitted to) the UK.

They do not need to pay UK tax on their foreign income and gains that are kept outside the UK.

However, once an individual has been resident in the UK for seven out of the previous nine years, they must pay a Remittance Basis Charge (RBC) of £30,000.

If they have been resident for 12 of the previous 14 years, they must pay an RBC of £60,000.

Alternatively, non-doms can choose to be taxed on the arising basis, where they are taxed on their worldwide income and gains, regardless of whether the money is brought into the UK.

They might choose this option if their overall tax payments would be less than having to pay the respective RBCs.

However, the new rules for non-doms change everything.

The Spring Budget 2024 specifically targeted non-doms

The Chancellor targeted non-doms in his Spring Budget speech on 6 March, saying: “We will abolish the current tax system for non-doms, get rid of the dated concept of non-doms and we will replace the non-dom regime with a modern, simpler system from April 2025 based on residency.”

The Government plans to effectively end the current non-dom system in favour of a new residence-based regime.

New residents of the UK will remain as non-doms for the first four years of their residency, after which they will become domiciled and be required to pay UK taxes on their worldwide income.

Before, an individual could remain non-domiciled for 15 years – with careful planning.

This four-year rule only applies if the individual can demonstrate a consecutive period of 10 years as a non-resident of the UK before their arrival.

Crossing over to the next regime

For those individuals currently deemed as non-doms, there will be a transition period to the new scheme.

Non-doms who do not qualify for the new regime will only be required to pay tax on 50 per cent of their foreign income for that year, though this does not extend to profits from the sale of foreign assets.

Additionally, those owning foreign assets will have the option to adjust the base value of these assets to their market value as of April 5, 2019, for any sales occurring after April 6, 2025, meaning tax will only be due on any increase in value from that date.

To encourage the movement of overseas wealth into the UK, a temporary repatriation facility will allow current non-doms to bring pre-April 2025 foreign income and gains into the UK at a reduced tax rate of 12 per cent for the years 2025/26 and 2026/27.

A quick note on changes to Overseas Workday Relief (OWR)

The OWR currently provides a tax advantage for non-doms working in the UK, as it allows them to claim relief on income tax for earnings related to their duties performed overseas.

Starting in April 2025, the Overseas Workday Relief (OWR) framework will also see significant simplification, introducing an accessible four-year scheme for those who qualify.

This development aims to make the UK more attractive to international talent by offering more straightforward tax relief opportunities.

While full details are still pending, it has been confirmed that eligible individuals will benefit from income tax relief on the portion of their salary related to duties performed abroad during the first three years of UK residency.

Moreover, the existing barriers to repatriating these earnings to the UK will be eliminated, further enhancing the appeal of the OWR scheme to overseas professionals.

What should you do now?

If you are currently classified as a UK-based non-dom when it comes to your global taxes, you’ll need to reconsider your strategies.

If you wish to remain in the UK, you will need to work out whether you are eligible for any of the transitionary schemes available and if you will be required to pay full UK taxes once the legislation comes into effect.

You might have to adjust the way you structure your current finances and plan for future liabilities in the years to come.

You will also need to:

• Review and possibly restructure your investments: Analyse your investment portfolio to identify opportunities for tax-efficient structuring under the new rules.
• Explore gifting and Inheritance Tax planning: To mitigate potential tax liabilities, review your gifting strategies and inheritance planning. Transferring wealth to non-domiciled partners or heirs under the current rules might offer tax advantages.
• Reinvestment in UK-based assets: The changes might provide an impetus to reassess your investment focus. Reinvesting in UK-based assets or your business could not only align with the new tax regime but also potentially benefit from certain tax reliefs and incentives for UK investment. Incidentally, the Chancellor announced the addition of the British ISA during his Spring Budget speech, which might allow you to make £5,000 of tax-free investments in British companies.
• Diversify your income sources: Diversifying your income sources, especially by increasing the proportion derived from UK sources or tax-exempt investments, could reduce your overall tax burden under the new regime.
• Re-evaluate your residency status: For some, it might be worth reconsidering your residency status in the UK and moving elsewhere if necessary. This is a complex decision with far-reaching implications, not just for taxes but also for your personal and professional life.

In any case, you should always discuss your tax liabilities with a qualified and experienced tax adviser.

We can help you mitigate your taxes, reduce your liabilities, and save money.

Please do not hesitate to get in touch with one of our team for more information or tailored guidance. 

Following changes to the Working Time Regulations 1998 in January 2024, further amendments are set to come into force on 1 April 2024 relating to leave entitlement for workers on irregular hours.

Upcoming changes will apply to workers on zero-hours or irregular hours contracts, as well as those who are on ‘part-year’ contracts, such as those who work seasonally.

By definition, these are workers whose hours:

• Are laid out in their contract as variable for each pay period
• Only require them to work for part of the year.

For example, a worker on a zero-hours contract is not guaranteed a certain number of hours each pay period, so they come under the scope of the new regulations.

Alternatively, a student worker who is only contracted to work during term time also meets the definition of irregular hours.

What will these changes look like?

These new regulations aim to reduce confusion around the holiday entitlement for workers on irregular hours.

They are also designed to avoid workers accidentally being assigned more or less holiday than allowed by their entitlement.

Irregular hours workers will accrue holiday based on 12.07 per cent of the hours worked within a particular pay period.

This means that entitlement will be calculated in hours instead of days.

Permitted methods of holiday pay

Updates to the Working Time Regulations also provide for two ways of paying holiday pay to workers.

Employers can either:

• Pay for holidays in the pay period in which they are taken
• Use the ‘rolled up’ method, which adds a percentage of total holiday pay onto each pay period

Although not previously allowed, rolling up holiday pay will be permitted from 1 April – but it must follow certain rules.

If the ‘rolled up’ method is used, you must make it clear on a worker’s payslip what proportion of their pay comes from holiday pay. You must also pay it in the period in which the holiday accrues and calculate it based on total earnings during a pay period.

When do these rules apply?

New regulations will come into force on 1 April 2024 – but it is more complex than this.

Workers will be entitled to their new holiday entitlement starting from the next holiday year after 1 April.

For example, if your holiday year runs from 1 April to 31 March, the new regulations will apply straight away.

However, if your holiday year runs from 1 January to 31 December, then new holiday allowances will apply only from 1 January 2025 and for every holiday year following that.

For more payroll advice and support with planning for staff costs, please get in touch with us.

If you are a business owner and work or run your business from home, then you may be entitled to reclaim VAT on certain costs.

In practice, this means that you can reduce the amount of VAT you have to pay on business income against the amount of VAT you have had to pay on services rendered to your business.

What can I claim?

Legislation around VAT claims for business owners recognises that you may incur a range of different costs in the course of running your business.

You can claim some of the cost of working from home as a business owner on plant and machinery and other assets needed for your home office, including:

• A proportional percentage of your utility costs
• Office furniture such as a desk or desk chair
• Certain redecoration costs
• Security costs for sensitive documents
• Office cleaning costs.

You will need to report any home working expenses that you choose to reclaim VAT on through your VAT return.

Is there anything I can’t claim for?

In general, you can claim VAT costs on anything that you use for running your business from home.

However, some costs are more obviously business-related than others. Costs, such as office furnishings, are related to your operations, but what about something like a phone bill?

This is simple if you have a separate work phone. You can claim 100 per cent of this cost. But if you use the same phone for business and leisure, you will need to work out what proportion of usage is business-related.

For example, if your bill is £40 per month and half of the calls and messages you send are for business purposes, you may be able to reclaim VAT on £20 of the total bill.

Remember to keep a record, including VAT receipts or invoices, of how much you have had to pay in relevant VAT costs as you may need to defend your decision to claim for certain items.

You should also consider whether a claim can be considered ‘fair and reasonable’.

For example, you should only claim for a reasonable proportion of costs such as heating or electricity.

One way of working this out could be the percentage of time in the day you spend in your home office, or the percentage of the floor plan it occupies.

With working from home becoming more common, there are likely to be further debates over what constitutes reasonable costs for VAT claims.

We advise that business owners keep an eye on regulations relating to reclaiming VAT and make sure that they keep accurate records in case any claims are challenged.

Contact us for further information or advice.

The initial provisions of the Economic Crime and Corporate Transparency Act 2023 came into effect on 4 March 2024.

These updates mandate that from 5 March 2024, every company must, when submitting their next Confirmation Statement (form CS01):

1. Provide a registered email address for communications – Companies House will utilise this email for correspondence with the company, though it won’t appear on the public record; and
2. Verify that the company’s planned future operations are lawful.

If we are already managing your Confirmation Statement submissions, you can be confident that we will submit your forthcoming statement adhering to these updates.

Should you handle your Confirmation Statement filings independently, note that you will need to include a registered email address and confirm the company’s commitment to lawful activities before you can finalise your submission.

Further measures effective from 4 March 2024 include:

• A ban on using PO Box addresses as a company’s Registered Office address;
• Enhanced authority for querying information submitted to Companies House and demanding supporting evidence;
• More rigorous checks on company names before the registration of new companies;
• A requirement for all companies to affirm their lawful purpose upon formation and to verify that their intended future operations will be lawful with each subsequent Confirmation Statement;
• The option to mark the register when details seem ambiguous or misleading;
• Initiatives to cleanse the register, employing data matching to identify and eliminate incorrect data; and
• The sharing of data with other Government departments and law enforcement bodies.

Companies House changes beyond 4 March

Additional features of the Economic Crime and Corporate Transparency Act 2023, will be introduced in the coming months and beyond, including:

Companies House fee adjustments

You must also brace for a rise in fees from 1 May 2024. Companies House plans to revise its fee structure to accommodate new expenses and ensure the coverage of existing costs.

Identity verification

A key change will be the requirement for individuals involved in setting up, running, owning, or controlling a company to undergo identity verification.

To facilitate this, Companies House will introduce a service allowing you to verify your identity directly with them or through an authorised agent.

Changes to Accounts Filing

In line with the trend towards digitisation, Companies House is moving towards mandatory electronic filing of accounts, highlighting the push towards software usage.

This transition to online filing will occur over two to three years, though the exact timeline remains to be confirmed. Changes to filing options for small company accounts are also planned.

Limited Partnership Reforms

If you operate a limited partnership, prepare for procedural adjustments. Enhancements aimed at boosting transparency and accountability will require limited partnerships to submit information through authorised agents and provide additional details to Companies House.

Enhancing company ownership transparency

To further transparency efforts, you will need to supply additional information about shareholders in registers.

This includes the full names of individuals or corporate entities and their companies and a one-time comprehensive list of shareholders

Additionally, there will be new restrictions on the use of corporate directors, with specific details provided.

We will keep you updated on each new development. However, if you have any enquiries, do not hesitate to contact us.

In a significant development for the hospitality industry, the Employment (Allocation of Tips) Act 2023 (the Act), which received Royal Assent on May 2, 2023, is set to revolutionize tipping payment practices across the UK.

Due to come into force on 1 July 2024, and affecting approximately two million workers in the sector, this new Act presents substantial implications for employers’ cash flow and payroll processes.

Understanding the Act

The Act helps to delineate tips or gratuities as voluntary payments made by customers, distinguishing them from service charges, which are typically added to the bill by default.

Under the new legislation, employers are mandated to distribute all qualifying tips to workers fairly and without undue deductions, save for necessary tax withholdings.

Ahead of the change in legislation, the Government has published a draft Code of Practice to complement the Act (the Code).

Whilst still under consultation, this Code aims to clarify the criteria for achieving a distribution of tips that is both fair and transparent, as mandated by the Act, ensuring that workers fully understand their entitlements:

• Scope: This section clarifies the Act’s coverage, including the definition of “tips” and the acceptable methods of payment.
• Fairness: At the heart of the Act lies the principle of fairness. This part of the Code offers guidance on factors employers might consider when allocating tips, such as the performance of individual employees and the intentions of customers.
• Transparency: It mandates that employers must maintain and make accessible to their employees a documented policy on the distribution of tips. This policy should detail the allocation and distribution process for tips, alongside the measures the employer will adopt to adhere to the Act.
• Addressing Problems: This ensures that employers establish equitable procedures for resolving disputes related to tip distribution. These procedures should apply not just to direct employees but to agency workers as well.
• Glossary of Terms: To aid understanding, this section provides clear definitions for essential terms used throughout the Code, including “agency worker” and “basic pay.”

Historically, the legal regime around tips and service charges has varied, with different rules applying to cash tips, tips paid into a communal staff box, and those paid by card.

The introduction of the Act necessitates a more uniform approach, ensuring tips are distributed fairly among workers, managed transparently through a tronc system under an independent troncmaster, and reported accurately to HM Revenue & Customs (HMRC).

The implications for the hospitality industry

This legislative shift aims to rectify longstanding controversies around the retention of tips by employers, spotlighted by media scrutiny and public outcry.

The Act is intended to deliver fairness in the distribution of tips, especially in light of the financial strains imposed by the pandemic and the evolving cashless economy, where the majority of tips now transact via card payments.

The Act introduces several key requirements:

• All tips must be passed on to employees, barring a few specific exceptions.
• Companies must disclose their tipping policies to their employees.
• Employers are obligated to maintain accurate records of how tips are distributed among staff.

Under the Act, employees will gain the right to request a copy of their tip distribution records. This provision is designed to empower workers to assert their rights through employment tribunals, if necessary.

For hospitality sector employers, adapting to these changes requires a strategic rethink of how tips and service charges are handled, including the potential creation of a compliant tronc scheme.

Businesses also need to consider the immediate cash flow consequences of these changes.

The Act’s introduction at a time of economic uncertainty poses additional challenges, necessitating adjustments in operational practices to ensure compliance while maintaining financial viability.

Employers must now develop written policies outlining the fair and transparent distribution of tips, keep detailed records for three years, and adapt to the inclusion of agency workers under the Act’s provisions.

Non-compliance carries the risk of claims in Employment Tribunals, with potential financial penalties.

As businesses navigate these changes, the support and expertise of knowledgeable professional advisors become essential. If you require guidance, please speak to us.

The introduction of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is going to create some upheaval within the SME sector.

No doubt, some of you are already using MTD-compliant software to file your taxes or your accountant is doing it for you.

However, if you are yet to make this change, you should be aware that this will soon become the standard for ITSA.

It is best, therefore, to make the necessary changes to your processes now, rather than having to scramble to remain compliant when MTD for ITSA comes in.

What is MTD for ITSA?

Commencing April 2026, MTD for ITSA will mandate landlords and self-employed individuals, including partnerships, with annual business or property income over £50,000 to submit quarterly updates to HM Revenue & Customs (HMRC).

This threshold will extend to those with income over £30,000 from April 2027.

The initiative is part of the Government’s broader strategy to digitise the tax system, aiming to make tax administration more efficient, effective, and easier for taxpayers to get their tax payments right.

Impact on unincorporated businesses

Limited companies are already familiar with digital reporting through the Corporation Tax digitalisation and the Making Tax Digital for VAT regimes but unincorporated businesses, like sole traders and partnerships, will need to readjust the way they file taxes.

Traditionally reliant on annual Self-Assessment tax returns, these businesses must now transition to a digital-first approach, maintaining digital records and submitting income and expense updates to HMRC every quarter.

This move necessitates a re-evaluation of current bookkeeping practices and possibly an investment in new software or training to meet the MTD requirements.

You may need to look into your:

• Software compatibility: One of the first steps is to ensure that your business’s accounting software is MTD-compatible. This software will be crucial in compiling the necessary financial information and facilitating direct communication with HMRC’s systems. Alternatively, you could outsource this to a qualified accountancy professional to avoid the stress and hassle of doing it yourself.
• Record-keeping: Digital record-keeping becomes mandatory under MTD for ITSA. Businesses must ensure that their financial transactions are recorded digitally, providing a real-time, accurate reflection of their financial position.
• Advisory support: Engaging with an accountant or bookkeeper who is well-versed in MTD regulations can provide invaluable guidance. They can assist in software selection, setup, and ensuring that your quarterly updates are accurate and timely.
• Financial planning: With the introduction of quarterly updates, businesses will have a clearer, ongoing view of their tax liabilities. This information can be instrumental in financial planning, helping businesses manage cash flow more effectively and plan for tax payments.

In short, while the impact on unincorporated businesses is likely to be significant, we believe that with proper planning and a proactive approach, this could be beneficial to you and your business.

How to prepare for the transition

Preparation is key to a seamless transition to MTD for ITSA.

You should start by assessing your current systems and processes and identifying any gaps in digital record-keeping and reporting capabilities.

The next step involves selecting suitable MTD-compatible software, considering factors such as functionality, ease of use, and integration with existing systems.

Finally, businesses should consider undertaking training for staff to ensure they are comfortable with the new processes and software.

Alternatively, you could outsource these processes to ensure that your financial information is correct and that you remain compliant with the new legislation.

Again, an accountant can be an invaluable asset when it comes to MTD for ITSA, and we can give you the advice and guidance your business needs to grow and thrive.

For more information, please get in touch with us.

The latest Budget was an important speech for the Chancellor, Jeremy Hunt, and his Government, as he laid out key measures likely to affect his party’s success at the ballot box later this year.

Although a date for the next general election is still yet to be set, this is likely to be the last time that Mr. Hunt will have a chance to introduce significant changes to taxation and funding and so he didn’t hold back.

Before his announcement, it was unclear exactly what direction the Government would take, following caution from several think tanks about the dangers of significant tax cuts.

While the speech began by outlining the ongoing challenges of the cost-of-living crisis and its main driver, inflation, it soon turned to measures that would boost the economy and personal finances – both in the short and longer term.

The raucous noise from both benches only sought to highlight the importance of the measures announced by the Chancellor.

Mr. Hunt went on to declare that this would be a “Budget for long-term growth” and began outlining measures in the following areas:

• Growth outlook and inflation
• Tax relief for businesses
• Funding for enterprise and key projects
• Property tax
• Personal tax
• Closing thoughts

Growth outlook and inflation

Inflation has been a double-edged sword for the Chancellor, both feeding the rising costs experienced by businesses and the general public, while also filling up The Treasury’s coffers through fiscal drag.

When he stepped into the role, the nation was experiencing one of its highest inflation rates in recent history – at more than 11 per cent – the Chancellor was pleased to announce in his speech that things were back on track.

Measures taken by the Bank of England and the Government, as well as improving global economic conditions, mean that the nation is now on target to hit the all-important two per cent in ‘months’, according to Jeremy Hunt.

The growth statistics produced by the Office for Budget Responsibility (OBR) were also more positive than expected following the Autumn Statement.

According to the OBR’s latest report, GDP growth is expected to reach 0.8 per cent – up from 0.7 per cent growth expected in November 2023.

Similarly, forecasts for 2025 and 2026 show growth will increase to 1.9 per cent and 2.2 per cent respectively. These rates are both higher than previous estimates from the Autumn Statement.

While this will be looked at as a step in the right direction, the reality remains that the UK’s long-term growth outlook remains relatively weak.

Tax relief for businesses

Previous Budgets and Statements have seen the introduction of new reliefs and reforms to existing allowances and thresholds for SMEs.

However, this latest speech seemed far more subdued. The headline increase to the VAT registration threshold to £90,000 will help some smaller businesses, but it comes after a seven-year freeze.

This means that this increase, while useful, will be largely wiped out by the impact of inflation during this period.

The newly permanent Full Expensing capital allowance will also be amended to include expenditure on leased assets, “when fiscal conditions allow”. This will create additional opportunities for businesses to reduce their Corporation Tax liabilities in future.

No further changes were announced to the R&D tax relief scheme, but businesses are already preparing for the previously announced merger of the SME and R&D expenditure credit (RDEC) scheme from 1 April this year.

The Chancellor also singled out the UK’s creative industries with a series of new tax reliefs worth £1 billion.

Eligible film studios in England will receive a 40 per cent relief from business rates for the next 10 years.

Additionally, the introduction of a new UK Independent Film Tax Credit is set to take place, alongside an increase in the tax credit rate by five per cent and the elimination of the 80 per cent cap on visual effects costs under the Audio-Visual Expenditure Credit.

Funding for enterprise and key projects

The Chancellor also unveiled a plan to bolster investment in UK firms with the introduction of a new 'British ISA', allowing individuals to invest an additional £5,000 annually in UK equities, beyond the existing ISA limits.

This initiative aims to foster a new generation of retail investors and position the UK as a global innovation hub akin to Silicon Valley.

Hunt also proposes changes to pension fund regulations, requiring disclosures of UK equity investments to promote domestic investment.

Furthermore, the Government will explore ways to simplify the process for individuals to transfer their pension funds when switching jobs.

This strategy includes compelling local authorities and defined contribution pension funds to reveal their investments in UK stocks, highlighting that currently, only four per cent of pension fund assets are invested in UK shares.

Initially outlined in the Advanced Manufacturing Plan in November 2023, the Government pledged to make the UK the premier global location for starting, expanding, and investing in a manufacturing business.

This commitment is being actualised, with the Budget detailing the next stages of implementing the £4.5 billion funding package for these sectors. This funding includes over £2 billion for the automotive industry and £975 million for aerospace, available for five years from 2025.

Property tax

It quickly became apparent during his speech that the Chancellor wanted to tackle key property issues in the UK.

He first announced that the current Furnished Holiday Lettings (FHL) tax regime would be abolished from April 2025 to encourage holiday homeowners to dispose of their properties and discourage future purchases of homes in areas of high demand.

He then went on to confirm plans to adjust Capital Gains Tax (CGT) for second and additional home sales for higher and additional rate taxpayers to bolster the housing market by reducing their CGT rate from 28 per cent to 24 per cent.

The lower rate will continue at 18 per cent for gains within an individual's basic rate band. This move aims to motivate landlords and owners of second homes to sell their properties, thereby increasing availability for various buyers, including first-time homebuyers and is expected to generate additional revenue throughout the forecast period.

Starting 1 June 2024, the Government will eliminate the Multiple Dwellings Relief, which currently provides a discount for bulk purchases under the Stamp Duty Land Tax system.

Personal tax

The individual taxpayer was very much the focus of Mr. Hunt’s speech, and he dedicated a substantial amount of his time to outlining new tax measures that would focus on putting more money into the hands of working families.

However, to fund this, the Chancellor announced that those with broader shoulders would have to bear the expense.

With this preface, he announced that the current non-dom tax rules would be replaced with a new residence-based regime.

The new regime will be implemented from 6 April 2025 and will introduce a transitional process for existing non-doms to move them on to the new system. The Government also plans to shift towards a residence-based system for Inheritance Tax (IHT).

This, and the cushion provided by higher Treasury revenues due to fiscal drag, meant that the Chancellor could once again cut National Insurance Contributions for employees and self-employed workers.

From 6 April 2024, the Government will reduce the primary rate of Class 1 employee National Insurance Contributions (NICs) from 10 per cent to eight per cent.

Additionally, it will implement an extra 2p reduction in the main rate for self-employed National Insurance, adding to the 1p reduction announced in the Autumn Statement.

Consequently, starting from 6 April 2024, the primary rate of Class 4 NICs for self-employed individuals will decrease from nine per cent to six per cent.

Reforms to the High Income Child Benefit Charge will also see the thresholds based on total household income, rather than the highest earner.

Meanwhile, the current £50,000 threshold will increase to £60,000 from April 2024 as taxpayers transition to the new system. The rate of the charge will also be halved so that Child Benefit is not repaid in full until you earn £80,000.

Closing thoughts

The Spring Budget was packed with measures that were focused more on the individual. While the Autumn Statement that preceded it offered more for businesses.

Together, they provide a framework for the upcoming election. While many may accuse the Government of trying to buy votes, many of the measures will help taxpayers with the cost-of-living crisis and support further economic growth.

This also includes further measures to extend the household support fund, freeze alcohol and fuel duty and a one-off adjustment to rates of Air Passenger Duty (APD) on non-economy passengers.

If you take the politics out of the equation (if you can) and look at the measure presented there are plenty of opportunities for businesses and individuals alike to reduce their tax bills and seek out new opportunities.

The next question on most people’s lips will be when the general election shall be called and what will the opposition’s economic measures look like.

For now, however, there are plenty of actions to take away from this Budget in the coming weeks and months.

Link: Spring Budget 2024

Are you a sole trader or a member of a partnership? Here is what you need to know about the upcoming tax basis period reforms.

HM Revenue & Customs (HMRC) is introducing changes to how it assesses and collects business taxes relating to the basis period.

At the end of the 2023/24 financial year, these changes will come into effect – altering the way that sole traders, partnerships and other unincorporated businesses pay tax.

Basis period reform – What you need to know

If you are a business owner or self-employed worker, you will use or have used a traditional basis period.

This is a specific period used to calculate taxable profits for a particular tax year, meaning the basis period is typically the corresponding accounting period to the financial year.

Under current regulations, established businesses and sole traders pay tax on qualifying profits in the 12-month accounting period which ends in that tax year – regardless of whether it corresponds to the financial year.

For example, if your accounting period starts on 1 January and ends on 31 December, the financial year would end the following April. This means that your tax return for this period would be due in January two years afterwards.

Under new regulations, from 2024/25, all unincorporated businesses will be taxed on profits from each financial year – 6 April to 5 April the following year.

This will apply regardless of an individual business’ accounting period.

For the example above where the accounting period ends on 31 December, this change means that the business will have to assign profits from two accounting periods to fit into the 6 April to 5 April timeline.

If the accounts are not completed by the tax return submission deadline, it will be necessary to use estimated profits in their place for the three months to 5 April.

At the end of the 2023/24 financial year, the transitional year for the basis period ends.

Businesses will then be taxed on this longer tax period ending in April 2024 to bring their tax years in line with the financial year.

HMRC has introduced regulations to allow tax liabilities accrued during this period to be paid over a period of five years to reduce the burden of additional tax payments.

Navigating your opening year

The rules are slightly different if this is your first year trading as a business. Instead of paying tax on a full year of earnings, your business will be taxed on qualifying profits earned between the date you began trading and 5 April (the end of that financial year).

This means that you’ll have ‘overlap profits’ for your first one to two years of trading. Your profits earned between the end of the financial year and the end of your accounting period will be counted in two tax returns.

These new rules will also apply to new unincorporated businesses.

Preparing for 5 April

As explained, the new regulations mean that businesses with an accounting period that is different from the financial year will need to divide profits between two different tax payments, where their accounting period doesn’t already align with tax year-end.

This could increase the room for error in your tax calculations, resulting in penalties or a heavy tax burden at a later date.

Aligning your accounting period with the financial year could help you streamline your finances and stay on top of your tax calculations in future.

You can shorten your company’s financial year to achieve this, by a minimum of one day and as many times as you like.

Staying on top of your accounts and financial records can help you stay in good fiscal health and maintain tax compliance.

We can help you to understand your tax obligations and make your accounting period work for you.

Need help understanding the changes to the basis period? Contact us today.

Businesses may be able to reclaim significant amounts of National Insurance Contributions (NICs) and plan for future savings because of a recent Tribunal ruling on how car allowances are taxed.

Brought by Wilmott Dixon and Laing O’Rourke in their capacity as employers, the Tribunal upheld the firms’ argument that car allowance payments should qualify for Class 1 National Insurance relief.

HM Revenue & Customs (HMRC) subsequently repaid approximately £146,000 to these businesses as a result of the Tribunal.

It has further stated that it will not appeal the decision – an announcement which carries significant implications for other employers that provide a car allowance.

What is the car allowance?

A car allowance is a type of benefit that may be provided to employees in place of a company car.

It is typically a monetary benefit on top of an employee’s salary to allow them to lease or buy a car for work purposes or to maintain the one they own owing to additional, work-related use.

An employer can provide a car allowance to any employee, but most are given to those who spend a lot of time travelling, such as sales staff or managers who oversee more than one site.

It may also be given as an attraction and retention benefit.

Is the car allowance taxed?

Because they are paid as part of an employee’s salary, car allowance payments are normally subject to tax and NICs – for both the employer and employee.

However, work-related travel is also subject to a fuel or mileage allowance.

This is a reimbursement which is not subject to tax if paid at or below the ‘approved amount’ – 45p per mile for the first 10,000 miles and 25p after that.

What decisions have been made?

The Tribunal ruled that a car allowance should be defined as ‘relevant motoring expenditure’ (RME) and can, therefore, be used to offset below-standard mileage reimbursement.

For example, if your company car policy states that employees will be reimbursed at 20p per mile and an employee drives 500 miles, this leaves a difference of 25p per mile – totalling £125.

When you come to pay the car allowance for this person, the first £125 will be taxable as part of the employee’s salary but will not be subject to National Insurance.

This could represent a significant saving for employers that provide a car allowance in place of a company car.

How will this affect me?

If you offer mileage reimbursement and a car allowance to your employees, you could stand to save a substantial amount on your employer NI contributions.

It could also open the door for business owners to reclaim overpaid NICs under this latest clarification.

The Tribunal also accepted that, if your business policies state that a certain number of miles are not reimbursable, then these miles must also be offset against other RMEs.

Benefits all round

The Tribunal’s ruling could make car allowances an attractive benefit to both employers and employees over, for example, a company car.

Tax regulations regarding benefits and NICs can be complex and are likely to change further as these new precedents take effect.

To stay compliant, it is important to remain updated on your tax obligations and work with your accountant to ensure you are paying the correct amount of National Insurance.

For tailored advice on benefits, company cars, travel allowances and tax, please contact us today.

HM Revenue & Customs (HMRC) has made a significant change to the way that some taxpayers access its alternative dispute resolution (ADR) scheme.

Where applicants for ADR could previously speak with a call handler, they will now be asked to leave a voicemail on the new 24-hour service.

Available to anyone seeking to settle a dispute via ADR, the voicemail service will require claimants to leave their name and phone number.

A mediator will then contact the claimant within 30 days to discuss their application.

The ADR scheme explained

ADR is a crucial part of navigating tax disputes with HMRC. It is often a useful option for businesses and individuals who seek to meet their tax obligations without overpayment or early or late payment.

You can apply for ADR when you have an ongoing dispute with HMRC, where it has opened an investigation into your tax affairs.

ADR covers a wide range of scenarios but is typically used when:

• Both parties are unable to reach an agreement
• A compliance check is taking place
• There are disputes over the facts of a case
• Communications have broken down
• There may have been a misunderstanding
• HMRC has made a decision you don’t agree with or understand

HMRC will let you know within 30 days of submitting your application if ADR is right for you and how your claim is being progressed.

Will this change impact me?

Many individuals and companies, particularly those with a tax adviser or accountant, will use the existing online form to submit their application.

However, if you cannot access this form due to, for example, poor internet connection, you are likely to be affected by this change.

Both ways of applying carry a 30-day time limit, so it is unlikely to disadvantage phone applicants over online applicants.

The most significant impact is likely to be the difficulty in speaking to an adviser if you have a question regarding your application.

Additionally, you may struggle with the inability to track a phone application as opposed to an online submission.

The best way to avoid the frustrations of a telephone submission is to seek support to submit an online application to the ADR.

We can provide advice and apply on your behalf should you be subject to an HMRC investigation.

Contact us for further guidance on tax disputes with HMRC and the ADR scheme.