The new rules take effect from 2024/25, with 2023/24 being a transitional year.

This will affect you if you run an unincorporated business (generally, if you are self-employed) and you currently prepare your accounts to a date other than one between 31 March and 5 April inclusive.

This change could create additional tax liabilities in the tax year that this realignment takes place. HMRC have agreed that these additional liabilities can be spread over five years.

Planning note: There is nothing in the legislation to stop self-employed traders considering this change and moving to an actual basis before the transitional year 2023/24. We recommend that a planning exercise be carried out to clarify the timing of the best-fit option to keep any tax increases to a minimum.

“HMRC is warning customers not to share sensitive personal information online to avoid their identities being used to commit tax fraud.

“HMRC is aware that criminals are attempting to obtain customers’ Government Gateway logins and other personal details, enabling them to register for Income Tax Self-Assessment and submit bogus tax refund claims before pocketing the repayment.

“Individuals, ranging from teenagers to pensioners, are being targeted on social media platforms by fraudsters seeking to ‘borrow’ their identities. In return, the individual is promised a cut of the tax refund ‘risk-free’.

“Handing over sensitive personal information to criminals like this, even inadvertently, risks individuals involving themselves in tax fraud, and having to pay back the full value of the fraudulent claim.

“Customers should therefore only deal with HMRC directly or through their tax advisor in relation to their Self-Assessment tax refunds.”

From 1 April 2023, this flat rate will cease to apply and will be replaced by variable rates ranging from 19% to 25%.

A small profits rate of 19% will apply to companies whose profits are equal to or less than £50,000.

The main Corporation Tax rate is increased to 25% and will apply to companies with profits in excess of £250,000.

Companies with profits between £50,000 and £250,000 will pay tax at the main rate of 25% reduced by marginal relief. The marginal relief acts to adjust the rate of tax paid gradually increasing liability from 19% to 25%.

Planning note: Unfortunately, these bands – the £50,000 and £250,000 limits – are reduced if a company has associated companies or an accounting period of less than 12-months.

An associated company is loosely defined as a company in common ownership.

For example, if you have one company with taxable profits of £40,000 and one company with taxable profits of £5,000, the company with the taxable profits of £40,000 will not benefit from the small profits rate as the profits are above the lower limit of £25,000 that applies to a company with one associate. Merging the companies will mean that there is only one company and the combined profits of £45,000 will be charged at the small profits rate of 19%.

Readers with a number of associated company businesses could benefit from a review prior to April 2023 to see if overall tax liabilities can be reduced by restructuring.

On the morning of the Spring Statement, the Office for National Statistics (ONS) announced that the rate of Consumer Price Index inflation increased to 6.2% in February putting further pressure on the Chancellor to act. The Office for Budget Responsibility (OBR) also expects average inflation to rise to 7.4% this year.

We have highlighted below the main tax measures that were announced:

National Insurance contributions (NICs)

The Chancellor did not remove the 1.25% increase in NICs due to come into effect from this April to help fund the NHS and Social Care. However, he did try to soften the blow by announcing a significant increase in the National Insurance Threshold from £9,880 to £12,570. This increase will see the alignment of the Primary Threshold (PT) for Class 1 NICs and Lower Profits Limit (LPL) for Class 4 NICs with the personal allowance of £12,570 from 6 July 2022. It has also been confirmed that the thresholds will remain aligned going forward. According to government figures this means that around 70% of employees will pay less NICs, even accounting for the introduction of the Health and Social Care Levy.

The PT and LPL will be £9,880 (as previously announced) from 6 April 2022 – 5 July 2022. It is unusual for tax rates to change during a tax year, but the Chancellor was facing pressure to make changes and the short period before the new tax year starts left him with no choice but to delay the increase for 3 months. July is the earliest date that will allow all payroll software developers and employers to update their systems and implement the necessary changes. This means the LPL will be £11,908 for the 2022-23 tax year which is equivalent to 13 weeks of the threshold at £9,880 and 39 weeks at £12,570.

Reducing Class 2 NICs payments for low earners

From April 2022, the self-employed will see Class 2 NICs liabilities reduced to nil on profits between the Small Profits Threshold (SPT) and LPL. This will ensure that no one earning between the SPT and LPL will pay any Class 2 NICs, while allowing individuals to be able to continue to build up National Insurance credits. This change represents a tax cut for around 500,000 self-employed people worth up to £165 per year.

Employment Allowance

In his speech, the Chancellor confirmed that the government would increase the Employment Allowance by £1,000 to £5,000 from April 2022. This represents a tax boost for around 495,000 small businesses who can claim an increased reduction in their NIC liabilities or even reduce their bills to zero.

In total, this means that from April 2022, 670,000 businesses will not pay NICs and the Health and Social Care Levy due to the Employment Allowance. The Employment Allowance is only available to employers with employer NIC liabilities of under £100,000 in the previous tax year. Connected employers or those with multiple PAYE schemes will have their contributions aggregated to assess eligibility for the allowance.

Fuel duty cut

The Chancellor announced a temporary UK-wide 5p per litre cut in fuel duty on petrol and diesel from 6pm on 23 March 2022 for 12 months. This is a saving worth around £100 for the average car driver, £200 for the average van driver, and £1500 for the average haulier in the coming year. This represents total savings for households and businesses worth around £2.4 billion in 2022-23 and is only the second cut in fuel duty over the last 20 years.

VAT

The government will expand the scope of VAT relief available for energy saving materials (ESMs) by reducing VAT from 5% to 0% from 1 April 2022 until 31 March 2027. This will ensure that households having energy saving materials installed like solar panels, heat pumps, or insulation will pay no VAT.

The government will also include additional technologies and remove the complex eligibility conditions, reversing a Court of Justice of the European Union ruling that unnecessarily restricted the application of the relief. A typical family having roof top solar panels installed will save more than £1,000 in total on installation, and then £300 annually on their energy bills.

The VAT rate cannot immediately be reduced to 0% in Northern Ireland due to the Northern Ireland Protocol. However, the Northern Ireland Executive will receive a Barnett share of the value of the relief until it can be introduced UK-wide.

Household Support Fund

The government launched a £500 million package of support for vulnerable households in October 2021. The Household Support Fund is used to help support millions of vulnerable households in England and monies is distributed by councils. This means that local councils can use the funding to provide discretionary support to vulnerable households. This could include using small grants to meet daily needs such as food, clothing, and utilities.

The Chancellor announced as part of his Spring Statement measures that the government will provide an additional £500 million for the Household Support Fund from April 2022. The Barnett formula will apply in the usual way to additional funding for the devolved administrations.

R&D tax relief reform

It has been confirmed that from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief. This change will boost sectors where the UK is a world-leader, including AI, robotics, manufacturing, and design. Further changes to the relief may also be announced as part of the Budget later this year.

Income Tax basic rate

Whilst no immediate changes were announced, the Chancellor confirmed that the government will reduce the basic rate of Income Tax to 19% from April 2024.

This will apply to the basic rate of non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland and to the savings basic rate which applies to savings income for taxpayers across the UK.

The reduction in the basic rate for non-savings-non-dividend income will not apply for Scottish taxpayers because the power to set these rates is devolved to the Scottish Government. However, the Scottish government will receive additional funding which they can use as they see fit, including on reducing Income Tax or other taxes, or increased spending.

2 March 2022 – Normally Self-Assessment tax for 2020-21 would need to be paid by 2 March or a 5% surcharge would be incurred. This year HMRC is giving taxpayers more time to pay and no surcharge will be incurred if liabilities are cleared by 1 April 2022, or an agreement has been reached with HMRC under their time to pay facility by the same date.

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

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

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

1 April 2022 – Due date for corporation tax due for the year ended 30 June 2021.

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

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

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

30 April 2022 – 2020-21 tax returns filed after this date may be subject to an additional £10 per day late filing penalty for a maximum of 90 days.

Marriage Allowance allows married couples or those in civil partnerships to share their personal tax allowances if one partner earns an income under their Personal Allowance threshold of £12,570, and the other is a basic rate taxpayer.

Eligible couples can transfer 10% of their tax-free allowance to their partner, which is £1,260 in the 2021-22 tax year. It means couples can reduce the tax they pay by up to £252 a year. Couples can apply any time, backdate their claims for any of the 4 previous tax years and receive a payment of up to £1,220 at a time when they need it most.

Married couples may have experienced a change in their circumstances which could now mean they are eligible for Marriage Allowance, including:

• a recent marriage or civil partnership
• one partner has retired and the other remains working
• a change in employment due to COVID-19
• a reduction in working hours which means their earnings fall below their Personal Allowance
• unpaid leave or a career break, or
• one partner is studying or in education and not earning above their Personal Allowance

If a spouse or civil partner has died since 5 April 2017, the surviving person can still claim by contacting the Income Tax helpline.

Marriage Allowance claims are automatically renewed every year.

If the company can pay its bills (it is ‘solvent’)

You can either:

• apply to get the company struck off the Register of Companies
• start a members’ voluntary liquidation

Striking off the company is usually the cheapest way to close it.

The company can’t pay its bills (it is ‘insolvent’)

When your company is insolvent, the interests of the people your company owes money to (its creditors) legally come before those of the directors or shareholders.

You must arrange the liquidation of your company.

Your company might be forced into compulsory liquidation if you don’t pay creditors.

You may be able to avoid liquidation by applying for a Company Voluntary Arrangement.

If the company doesn’t have a director

You must appoint a new director if your company doesn’t have one, for example if a sole director has died.

Companies House will eventually strike off a company that doesn’t have a director, but this can make it more difficult to manage any company assets.

Shareholders must agree to appoint a new director and may need to vote on it.
If a sole director has died and there aren’t any shareholders the executor of the estate can appoint a new director, as long as the company’s articles allow it.

The new director can close the company.

Your company still needs to pay corporation tax and file a tax return even if there’s no director.

Let the company become dormant

You don’t have to close your company if it’s no longer trading. You can let it become ‘dormant’ for tax as long as it’s not:

• carrying on business activity
• trading
• receiving income

Your company will still be registered at Companies House. You must still send your annual accounts and confirmation statement (previously annual return) to Companies House.

You can keep a limited company dormant for as long as you want.

If you have assets, shares for example, that you are thinking of selling, you may want to realise enough to produce gains up to the £12,300 limit.

Transfers of assets between married couples or civil partners can be made free of Capital Gains Tax (CGT). In which case, if you have used your £12,300 allowance and still have assets that you want to sell, then transfer enough of these remaining assets to your spouse or civil partner for them to sell and utilise their separate CGT tax-free allowance.

Please note that you may have to pay CGT if you sell a personal possession for £6,000 or more. For example, a sale of:

• jewellery
• paintings
• antiques
• coins and stamps, or
• sets of things, e.g., matching vases or chessmen

You will not have to pay CGT if you dispose of your private car or any personal possession with a limited lifespan, e.g., clocks. The only exception is if a car or other limited lifespan asset was used in a business. Disposals of business assets may create a tax charge.

Whilst this may seem to be a welcome prospect, business owners badly affected by this disruption will have two issues holding them back:

• A depleted balance sheet – reserves used to survive extended periods of shut-down or reduced trading.
• The repayment of loans taken out to fund overheads and other fixed costs during lockdown.

Both of these issues will inhibit a sudden rush of activity unless sales are made on a cash basis.

To minimise any downside risks we recommend pausing to create a realistic business plan for at least the next twelve months. This will identify any dips in cash resources and reveal the level of profitability that can be achieved.

Please, pick up the phone if you would like to discuss the best way to build a plan for your business.

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

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

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

1 March 2022 – Due date for Corporation Tax due for the year ended 31 May 2021.

2 March 2022 – Self-Assessment tax for 2020-21 paid after this date will incur a 5% surcharge unless liabilities are cleared by 1 April 2022, or an agreement has been reached with HMRC under their time to pay facility by the same date.

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

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

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