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Ways to pay your VAT bill

Make sure your payment will reach HMRC’s bank account by the payment deadline. You may have to pay a surcharge if you do not pay on time. If you are not sure of the actual payment deadline you can use the VAT payment deadline calculator to work out how much time to allow.

To make payments on the same or next day

  • online or telephone banking (Faster Payments)
  • through your online bank account
  • CHAPS

To make payments within three working days

  • Direct Debit
  • Bacs
  • standing order (only for businesses using the Annual Accounting Scheme or Payments on Account)
  • online by debit or corporate credit card
  • at your bank or building society

If the deadline falls on a weekend or bank holiday, your payment must arrive in HMRC’s bank account on the last working day before (unless you pay by Faster Payments).

Buy-to-let loan interest trap

Although finance costs, predominantly loan interest, are now disallowed as an expense that can be utilised to reduce taxable rental income, these charges do qualify for a tax credit limited to 20% basic rate Income Tax. For example, if your loan/mortgage interest amounts to £10,000 this cannot be used to reduce your rental income. It will simply reduce your Income Tax bill by £2,000 (£10,000 x 20%).

However, there are three hoops that these claims need to jump through. The tax deduction is worked out as the lower of:

  • 20% of any finance costs – costs not deducted from rental income in the tax year plus any unrelieved finance costs brought forward, in the above example £2,000;
  • 20% of property business profits – the profits of the property business in the tax year (after using any brought forward losses); and
  • 20% of adjusted total income – the income (after losses and reliefs and excluding savings and dividends income) that exceeds your personal allowance.

It is the final condition that can catch taxpayers out and deny relief. For example, if the majority of earnings are dividend income, and other earnings in total are lower than the annual personal tax allowance, currently £12,570, then no relief for finance charges can be claimed.

This could impact director shareholders of smaller companies with personal property income and finance costs, who many have adopted the high-dividend low-salary approach to taking remuneration from their company

This is a further justification for ongoing tax planning to ensure that all options are considered and reviewed to minimise overall tax payments.

Mini-Budget 23 September 2022

This so-called mini-budget actually morphed into a series of major announcements by the new Chancellor Kwasi Kwarteng.
The expected reversal of the 1.25% increase in National Insurance contributions in the current tax year was confirmed and will apply from 6 November 2022.
A summary of the main tax changes that will impact the liability of individuals and business owners from April 2023 are:
• A reduction in the Income Tax basic rate from 20% to 19%.
• The cancellation of the proposed increase in Corporation Tax. The rate will now remain at 19%.
• The withdrawal of the Health and Social Care Levy of 1.25%.
• The tax rates on dividend income for 2022-23 were increased to mirror the increases in NIC rates (1.25 percentage points). In line with the withdrawal of the Health and Social Care Levy from April 2023, the rates of dividend tax from April 2023 will be:
a) The first £2,000 of dividends will remain tax-free.
b) Dividends that form part of the basic rate Income Tax Band will taxed at 7.5%
c) Dividends that form part of the higher rate Income Tax Band will be taxed at 32.5%.
d) Dividends that form part of the additional rate Income Tax Band will be taxed at 38.1%.
• The Chancellor announced a permanent increase in the SDLT nil rate band to £250,000 (from £125,000) with immediate effect from the date of his announcement, 23 September 2022.
• Prior to the announcement, no SDLT was payable for first-time buyers making a purchase of up to £300,000. This limit has now been increased by £125,000 with immediate effect to £425,000. The first-time buyer’s relief also increases the nil-rate threshold to £425,000 (£300,000 prior to 23 September 2022) for first-time buyers of properties costing up to £625,000 (£500,000 prior to 23 September 2022). There is no relief available for first-time buyers spending more than £625,000 on a property. There are a number of requirements that must be met in order to qualify for the relief.
• The present Annual Investment Allowance that provides a 100% tax deduction for qualifying capital investments is now permanently capped at expenditure of £1m. This cap was due to reduce to £200,000 from 31 March 2023.

Tax Diary September/October 2022

1 September 2022 – Due date for Corporation Tax due for the year ended 30 November 2021.

19 September 2022 – PAYE and NIC deductions due for month ended 5 September 2022. (If you pay your tax electronically the due date is 22 September 2022)

19 September 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2022.

19 September 2022 – CIS tax deducted for the month ended 5 September 2022 is payable by today.

1 October 2022 – Due date for Corporation Tax due for the year ended 31 December 2021.

19 October 2022 – PAYE and NIC deductions due for month ended 5 October 2022. (If you pay your tax electronically the due date is 22 October 2022.)

19 October 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2022.

19 October 2022 – CIS tax deducted for the month ended 5 October 2022 is payable by today.

31 October 2022 – Latest date you can file a paper version of your 2021-22 self-assessment tax return.

Rent-a-room Relief

The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else.

You can let out as much of your home as you want.

The tax exemption is automatic if you earn less than £7,500. This means you do not need to do anything.

If you earn more than this, you must complete a tax return. You can then opt into the scheme and claim your tax-free allowance. You do this on your tax return.

You can choose not to opt into the scheme and instead record your income and expenses on the property pages of your tax return.

You may need to calculate the tax effects of both options if your gross rental income from letting a room or rooms at home is more than £7,500.

Inflation

To keep your earnings in sync with increases in prices is becoming progressively difficult. Most individuals – whether employed or self-employed – would find it unrealistic to secure pay rises (if employed) or price increases (if in business) unless the demand for their goods or services was high.

If most taxpayers cannot match price increases by keeping earnings in sync with these increases, then their purchasing power will gradually reduce.

This autumn, cost pressures are likely to continue, particularly utility costs. And will force many of us re-examine our budgets and try to figure out how to balance our books without meeting excess expenditure by maxing-out credit cards or entering into expensive loans.

One solution may be to investigate creating additional income streams. For example:

  • Turn a hobby into a part-time business.
  • Rent out your driveway as a day-time parking area.
  • Rent a spare room in your house.

There are tax concessions that may make these activities tax-free. See the “£2,000 tax-free income” and “Rent-a-room” articles in this newsletter.

You could also search for ideas and assistance online. HM Government Money and Pensions Service has launched a Money Helper website at https://moneyhelper.org.uk.

£2,000 tax-free income

There is no tax to pay on trading income or earnings from land and property as long as the income from each source does not exceed £1,000.

Trading allowance

The trading allowance is a tax exemption of up to £1,000 a year for individuals with trading income from:

  • self-employment.
  • casual services, for example, babysitting or gardening.
  • hiring personal equipment, for example, power tools.

This allowance does not apply to trading income from a partnership.

Property allowance

The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property.

If you own a property jointly with others, you are each eligible for the £1,000 allowance against your share of the gross rental income.

If you have two businesses and claim the property allowance in one business, you may not claim actual expenses in respect of the other business.

You cannot use this allowance on income from letting a room in your own home under the Rent a Room Scheme.

Change to capital gains on separation or divorce

Under present legislation any transfer of assets between couples who are separating, or divorcing are free of any Capital Gains Tax (CGT) liability as long as the assets are transferred during the year of separation/divorce.

This places undue pressure on couples to complete these transfers in time to qualify for the CGT exemption. Based on recommendations from the Office for Tax Simplification, the Finance Bill 2022-23 aims to correct this by enacting the following changes:

  • separating spouses or civil partners be given up to three years after the year they cease to live together in which to make no gain or no loss transfers.
  • no gain or no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement.
  • a spouse or civil partner who retains an interest in the former matrimonial home to be given an option to claim Private Residence Relief (PRR) when it is sold.
  • individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner.

If these changes are confirmed, they will apply to disposals that occur on or after 6 April 2023.

Tax Diary August/September 2022

1 August 2022 – Due date for corporation tax due for the year ended 31 October 2021.

19 August 2022 – PAYE and NIC deductions due for month ended 5 August 2022. (If you pay your tax electronically the due date is 22 August 2022)

19 August 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2022.

19 August 2022 – CIS tax deducted for the month ended 5 August 2022 is payable by today.

1 September 2022 – Due date for corporation tax due for the year ended 30 November 2021.

19 September 2022 – PAYE and NIC deductions due for month ended 5 September 2022. (If you pay your tax electronically the due date is 22 September 2022)

19 September 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2022.

19 September 2022 – CIS tax deducted for the month ended 5 September 2022 is payable by today.

Individual Voluntary Arrangements (IVA)

If you are locked into an IVA and are concerned that recent increases in the cost of living are creating severe financial pressures, you can ask your IVA supervisor to review your income and expenses to see if you are eligible for a reduction in payments or a payment break.

You will be required to provide evidence of your income and expenditure to support a change to your contributions. This could include providing payslips, statement of benefits or utility bills.

Any amendments to your contributions into your IVAs would need to be agreed with your creditors.

Your supervisor has been provided with the latest guidance on adjustments to payments, via the IVA Standing Committee, and they will also be aware of alternative solutions to help you resolve your debt issues and can help you find further information where appropriate.
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