Articles

The Bank of England (BoE) has increased interest rates to 1.75%, the first rise of half a per cent in over 20 years.

The latest increase is the fifth rise since December 2021, with the BoE arguing that rate rises are needed to tackle soaring inflation.

Inflation as measured by the consumer price index (CPI) is expected to rise more than previously predicted, from 9.4% in June to just over 13% in Q4 2022. The Bank still hopes CPI will fall to its 2% target in 2024.

The Bank’s monetary policy council (MPC) voted eight to one in favour of the rise. Andrew Bailey, governor of the BoE, said:

“The real risk we’re responding to is that inflation becomes embedded, and it doesn’t come down in the way that we would otherwise expect.

“We’ve had a domestic shock. We’ve had shrinkage in the labour force over the last two years or so.”

Chairman of the Federation of Small Businesses, Martin McTague, said:

“Many commercial, personal and professional loans that small businesses and sole traders hold are not protected by fixed rates and will move in line with the increase.”

The BoE’s deputy governor, Dave Ramsden, said the Bank will decide whether rates will be increased as the year progresses.

Get in touch to discuss your business.

The Government has announced plans to relax capital gains tax (CGT) rules in divorce settlements, giving spouses and civil partners more time to transfer assets without incurring CGT charges.

If the new rules are approved, they will come into effect from 6 April 2023.

Newly separated couples are currently given until the end of the tax year to transfer assets without incurring CGT, a period known as ‘no gains, no loss’.

However, if the transfer takes place in the tax year after their separation, but before they are legally divorced, the assets are transferred at deemed market value, and CGT could be due.

The main issue with CGT during divorce proceedings is that it incurs another charge when money is already being spent on the divorce itself, so cash may be low for each individual.

If approved, the changes will mean that separating spouses or civil partners will be given up to three years after the year they cease to live together to make a no gain, no loss transfer

Otherwise, they will have until the decree absolute is granted, provided the transfer is made in accordance with a formal divorce agreement or court order.

Any person who holds an interest in the former matrimonial home will be given a chance to claim private residence relief up to the point of sale. Even if this is many years into the future.

However, the property must be empty because of the divorce for this to apply.

This is also true where partners have transferred their interest in the former matrimonial home to their ex-spouse or partner but retain the right to a share of any future proceeds.

Any changes will not affect the CGT on sold assets as part of the divorce proceedings, and people will still have to pay CGT within 60 days of the sale if it relates to property which is not their primary residence.

Ask us about your CGT obligations.

Choosing the right scheme for you.

Just about everyone has heard of VAT (value-added tax). We’re used to paying it on many of the goods and services we purchase as we go about our everyday lives.

But when you have your own business, you’ll learn a whole new world of VAT exists as you work out how to apply it to your own trade. That’s because there are numerous VAT accounting schemes that HMRC offers, and which one is right for you will depend on the nature of your business.

To get you up to speed, we’ll take a look at each of the main VAT accounting schemes, explaining how they work and who they might suit.

How does VAT work?

Once you reach a turnover in excess of £85,000 over the last 12 months you must register for VAT. If you are below that threshold, you have a choice as to whether to do so.

By voluntarily registering for VAT while below the threshold, you can create a more professional image of your company with financial documents and reclaim VAT on qualifying expenditure.

You’ll probably end up having to raise your prices to reflect VAT, however (although any VAT-registered customers can normally reclaim this element), and have to file VAT returns.

Knowing whether you should voluntarily register for VAT is no simple matter and should only be done with the advice of an accountant or financial adviser.

VAT is chargeable at a rate of 20%, although select items have lower rates of 5% or 0%. Normally, you charge VAT on your goods and services and reclaim it on your expenses.

Whether you register for VAT voluntarily or are required to, you’ll have a suite of schemes to choose from.

The standard VAT accounting scheme

Most businesses opt for this scheme. Under it, you will be required to keep a thorough record of purchases and sales and submit a quarterly VAT return to HMRC, with the VAT due to be paid one month and seven days after the end of the quarter.

Under the standard scheme, the VAT liability is calculated based on the dates of your paperwork (invoices and receipts), rather than the actual dates of cash in and cash out. This may cause cashflow problems if you have tardy customers, which is where the VAT cash accounting scheme (see overleaf) may prove useful.

VAT annual accounting scheme

The annual VAT accounting scheme is good for businesses that prioritise keeping paperwork to a minimum. You’ll still have to maintain the same records but, as the name suggests, you only have to file a return once a year instead of quarterly.

You won’t get away with just making an annual payment, however. You must make monthly or quarterly interim payments based on an estimate of what you will owe. This is then corrected to an accurate figure with either a top-up payment or refund at the end of the year.

Only businesses with a turnover of less than £1.35 million are eligible for this annual scheme.

VAT cash accounting scheme

Another option available to businesses with a turnover of less than £1.35 million is the VAT cash accounting scheme.

As we suggested earlier, this can be useful if you have customers who take a long time to pay invoices. This is because instead of your VAT liability being calculated by the date of the invoices you issue, it is based on the date and value of payments received.

However, by the same measure, you can only reclaim VAT based on actual cash spent, not the paperwork associated with a purchase. So, if you use a lot of credit, this may be a cashflow disadvantage for you.

VAT flat rate scheme

The VAT flat rate scheme could be an excellent option for certain smaller businesses.

Instead of passing on the VAT you collect from your customers (less the VAT you are reclaiming yourself) to HMRC, you pay a fixed rate. This is determined by the industry you are in and typically ranges from between 14.5% for professions like accountancy and law to just 4% for food retailers. The trade-off is that you cannot reclaim VAT on your expenditure.

While there’s an underlying simplicity to the concept, there are a number of rules that add some complexity.

First, it is only available to businesses with a turnover of £150,000 or less, which will rule it out for a lot of VAT-registered businesses. There are other potential obstacles to joining too. For instance, if your business is “closely associated with another business” or you have committed a VAT offence in the last 12 months, you cannot join.

Second, if you are classed as a ‘limited cost’ business, the percentage you pay to HMRC rockets to 16.5%, which may prove poor value compared to some of the lower rates. A limited cost business is one whose goods cost less than either 2% of turnover or £1,000 a year (if your costs are more than 2%).

Unfortunately, many vatable costs that a small business might incur cannot be put towards the £1,000 threshold, including rent, phone bills and vehicle costs – it catches out more businesses than you might first imagine.

VAT retail schemes

If you are a retailer, there are three specialist schemes open to you that are designed to make it less burdensome to calculate your VAT liability. With all three, you calculate what you owe just once when completing the VAT return.

Depending on your retail activities, you can choose from the point of sale scheme, with which you identify and record the VAT when you make a sale; the apportionment scheme, which is best if you buy goods for resale; and the direct calculation scheme, which is appropriate when a few of your sales are made at one VAT rate and the remainder at another.

Each of these can be used in conjunction with the annual accounting scheme or cash accounting scheme – but not the flat rate scheme. If your turnover (excluding VAT) ever grows to £130 million whilst you are using a VAT retail scheme you will have to agree a bespoke retail scheme with HMRC.

VAT margin scheme

The VAT margin scheme can be chosen when you are trading items for which you did not pay VAT on the purchase. This could be second-hand goods, works of art, antiques and collectors’ items.

It allows you to calculate the VAT based upon the value you add between purchase and sale and prescribes a rate of 16.67% on this amount.

As well as items on which you were charged VAT being excluded, so also are precious metals, investment gold and precious stones.

Making tax digital (MTD)

It would be remiss not to mention that, as of April this year, all VAT returns must be filed in compliance with HMRC’s Making Tax Digital (MTD) initiative. The simplest way of doing this is by using accounting software like Xero or QuickBooks.

While the change to a new way of doing things digitally may seem daunting, it should actually make things simpler and more efficient for you in the long run.

Contact us to talk about VAT accounting schemes.

How to leave your business in good hands.

A business exit strategy is a plan for what will happen when you want to leave your business.

A lot of people think of an exit strategy as a plan to guard against disaster or something that has to be carried out right away after its conception.

But this usually isn’t the case. Instead, it’s a plan you put in place to work out how you’re going to enter the new chapter of your life without hindrance. It’s your way of ensuring that the future of the business is guaranteed even without you, if that’s what you want.

While a lot of exit planning is to do with how you will leave the business, you’ll also want to consider other factors that are involved in the process.

For instance, you need to think about whether you want to profit from your exit by making some money. If you do, is this enough of a reason to go for one strategy over another?

You also need to consider what will happen to the business after you leave, whether a family member keeps your legacy alive or another business acquires yours.

Then there’s the length of time your exit will take. People usually like to have transition periods, but you need to think about that carefully.

Remember, though, that there is no right or wrong way to leave your business. There are only options that may work better or worse for you than others, depending on your particular situation.

Continuing the family legacy

Keeping the business in the family is an attractive idea for a lot of entrepreneurs, as it allows them to prepare their potential successor over time and gives them the exciting prospect of carrying on their legacy.

Although keeping the business in the family may be one of the best ways to preserve your name in the business, you need to be practical about who is really the best person for running things – rather than assuming a family member will want to take up the mantle. Nothing will complicate your plan more than your successor changing their mind at the last moment, so you need to plan for that unfortunate eventuality.

You will also need to make sure your potential successor is up to the job if, as is safe to assume, you want the business to endure and thrive. You need to be objective in your assessment of your successor, even if they’re a close family member. Again, have a backup plan, whether that’s another family member or someone from outside the business.

Such an occurrence will be difficult to navigate without flaring emotions too much, as will choosing between two family members who equally want the opportunity to lead the business. Therefore, having clear communication and starting the process as soon as possible is imperative.

With this in mind, you’ll be able to make it clear to your preferred successor what it will take for them to get the job, create a workable system if multiple family members want to get involved and sort out how conflicts will be resolved without spilling into your private lives.

Furthermore, the earlier you start planning, the more likely you’re going to be able to set up a transitional period where you aren’t completely separate from the business, but acting in an advisory capacity.

Mergers and acquisitions

Through a merger or acquisition exit strategy, your business is either purchased by or merges with a company that ideally has similar or aligned goals to your business.

Some buyers will be looking to make a financial merger or acquisition in the sense they are looking for a business that can generate a large amount of cash in a short period of time on its own after an external cash injection. Ultimately, these buyers are looking for a quick return on investment.

Other buyers are more strategic in their acquisition, targeting a business that is their competitor, supplier or customer to improve their standing in the market. It’s not uncommon, however, for buyers to merge with firms unrelated to their primary business activity if they want to diversify their revenue streams and strengthen the value of the business to their shareholders.

Perhaps the best thing about this exit strategy is the ability to negotiate the price, whereas selling to the public through an initial public offering would fix the value of your business to whichever industry you’re in.

The sale can take a long time, however, if it happens at all. The Office for National Statistics only keeps a tally of mergers and acquisitions worth £1 million or more, but with its data, we can see there were 371 transactions in the first quarter of 2022, down from 570 in Q4 2021 and 610 in Q1 2021. So, if you want your business to merge with another or get acquired, you might want to have a backup plan just in case.

Selling your stake to a partner or investor

If you aren’t the sole proprietor of your business, it’s possible to sell off just your stake to a business partner or other investor. This can be a relatively ‘business-as-usual’ exit strategy, depending on the buyer, meaning your exit should be hassle-free.

Your legacy will remain intact and for the most part, your business should continue to function as usual, ensuring its survival without you in the short term. You’ll be able to exit the business fully and earn a profit on the sale of your share.

If you’re dealing with a buyer you already know and work with, the process should also be an easier and more comfortable process than something like a merger or acquisition.

Of course, you need to work hard to find and convince an investor or buyer to purchase your share, which could make the situation between the two of you contentious – leading to a range of potential problems.

Management or employee buyout

An employee or management buyout sees a business owner sell their business to people who already work for them and are excited about becoming business owners themselves.

It’s a great exit strategy for people who want to pass their business into capable hands while turning a profit from the sale of a business.

Moreover, because these individuals are already part of your business, they’ll probably know you well and may allow for flexibility in terms of your involvement – perhaps they’ll even want you to stay on as a mentor or adviser.

This approach takes considerable planning, however, given the fact that management changes are difficult to implement and may have a negative impact on your existing clients.

You should also get started as soon as possible, given the fact that you might not be able to find an employee or manager who is willing to buy the business from you, meaning you have to take up a different strategy.

Business liquidation

As exit strategy plans go, liquidation should be the most final. If you liquidate your business you’ll be closing the entire operation and selling its assets. It’ll no longer exist and a chapter of your professional life will essentially end for good.

If you decide this is the best way forward, you’ll need to use the cash you earn through the process to pay off any debts and pay out any shareholders. Liquidation affects your employees, as well as the clients and customers who rely on your service.

Compared to other strategies, it’s one of the most efficient methods, but you’re unlikely to get the biggest return on investment.

Get in touch to discuss your exit strategy.

Self-employed individuals are having difficulties completing their self-assessment tax return, according to a new report commissioned by HMRC.

A lot of people have trouble with their tax reporting duties because of “confusing terminology, ambiguity around allowable business expenses and uncertainty transferring figures to HMRC’s system,” according to the report.

Undertaken by Kantar on behalf of HMRC, the data and insights company uncovered a consensus among the self-employed that the first year of business was the most challenging in terms of tax duties.

Many talked about the stress of finding out what they needed to do at the start of their business journey, which was compounded by the fear of making costly mistakes.

The ambiguity of business expenses and the difficulty calculating the amount that can be claimed was also raised as a “common issue”, even among those with “strong knowledge of the tax system”.

A lot of business owners said they were unsure about what is classed as a business expense for tax purposes, especially when the item in question can be used both for business and personal purposes.

Even those who consequently sought advice online or from an accountant to gain clarity nevertheless had “ongoing uncertainty”.

Whether someone found managing their tax affairs difficult primarily came down to their personal capability, Kantar said.

Personal capability included financial organisation, computer skills, fears of getting things wrong and access to support.

However, income complexity also influences the experience of the self-employed with their taxes, according to Kantar – in particular the number of jobs they have and the number or length of contracts.

Although many low earners below the tax threshold said they were unconcerned about their taxes, some still said they would get help from an agent for reassurance if they could afford one.

They said that an agent or accountant could “help them understand confusing terminology and ensure boxes are ticked and figures are input correctly.”

Get in touch to talk about your tax affairs.

Smaller businesses don’t believe that Making Tax Digital (MTD) applies to them, according to a study carried out by Yonder Consulting for HMRC.

While businesses indicated they were aware of MTD for VAT, many still do not understand the process of the scheme and whether their business needs to comply with the rules.

In a second survey, 26% of businesses said they had not yet linked their MTD-compatible software with HMRC’s systems, misunderstanding a fundamental part of the Government’s flagship policy for tax digitisation.

Although all businesses polled are required to use MTD-compatible software, the results vary:

• 36% said MTD would affect their business
• 29% said they were compliant
• 28% believed MTD would not affect their business
• 7% did not know whether they would be affected or not.

A high number of businesses were found to not have invested in software yet. When asked about their preparations:

• 48% had discussed the changes with their accountant
• 17% had purchased a software package
• 54% of firms said they have researched MTD software
• 48% had started keeping digital records.

On the specific requirements for MTD, only 51% of businesses were able to remember a single one, while 12% answered incorrectly and 37% could not think of any requirements.

Contact us to learn more about MTD.

More than half of cryptocurrency investors have limited or no understanding of capital gains tax (CGT) and the associated tax liability on crypto transactions.

Understanding of CGT was mixed, with 34% of owners stating they had a good understanding, compared to 37% who knew little or nothing and 22% who were not familiar with it at all, according to research commissioned by HMRC.

Over two fifths (42%) of cryptocurrency owners were aware that they might be liable to pay when they bought goods and services with crypto, but only 45% thought CGT might be payable and 40% said VAT, according to HMRC.

Cryptocurrency is a decentralised form of finance, which many people purchase for investment purposes, so they are generally in scope of CGT.

Therefore, HMRC has published guidance and advice on the taxation of cryptoassets.

Only three in ten owners (28%) had seen this guidance, however, although the majority (87%) agreed the advice was clear and that it helped them to understand their responsibilities (81%).

Just over half (56%) said they had received information on the tax treatment of cryptoassets from at least one source.

Perhaps surprisingly, respondents noted high levels of contact with HMRC, with 53% of owners saying they had contacted HMRC at least once in the last year, although not necessarily about cryptoassets.

How to reduce penalties for accounting errors.

HMRC recently announced new powers to investigate companies they suspect of evading taxes, so as a business owner, you might be worrying about what happens if your company comes under scrutiny.

Even if you’ve played entirely by the rules, the stress of an investigation can be a lot to deal with, especially after the last few difficult years. However, you needn’t worry – understanding the process will help you and your company deal with the situation and we’ll be on hand to support you throughout.

If, for whatever reason, you come under investigation, here’s what you need to know.

Why are you being investigated?

Just because your business is being investigated, it doesn’t mean you’ve done anything wrong. Some investigations are called entirely at random.

Otherwise, it might be that the sector you work in is facing a lot of scrutiny, as is currently happening with companies selling electronic sale suppression systems.

Alternatively it may be that you filed your tax return late, or that it contained accidental inconsistencies.

Knowing exactly why you’re being investigated by HMRC is a great way to understand the severity of the investigation and how you can best prepare.

Once their investigation begins, HMRC can look into every aspect of your tax affairs. This could mean the tax you’ve paid, your self assessment and business tax returns, PAYE or VAT records and your business accounts.

Preparing such information is highly advised, as we’ll see in more detail later on.

What are the types of inquiry?

HMRC conducts three main types of inquiry. First, there are random checks. As the name suggests, these inquiries can open into the affairs of any business at any time. As long as you’ve kept your accounts up to date and comprehensive, there’s no need for you to worry.

Second, there are aspect inquiries. These inquiries look into one part of your accounts in which HMRC suspect an error may have been made. This could very easily be down to a mistake at the accounting stage, rather than a deliberate attempt to break the rules. A common error is forgetting to include savings income on your tax return.

Lastly, there are full inquiries, which happen if HMRC thinks there is a strong chance your company has made a large scale accountancy error or series of errors. In this case, they could take a look at all accounts, both business and personal, to get to the bottom of the issue.

It’s worth noting that the first two inquiries can turn into full inquiries if HMRC finds major inconsistencies or issues with your company’s accounts.

How does the process work?

If your company is going to be investigated, HMRC will contact you through your accountant, or they might contact you directly by a letter or by telephone.

If you realise there and then that you’ve made a mistake in your tax returns, it’s important you admit it as soon as possible. HMRC will take your honesty into account during their investigations, and trying to cover up errors could end in more serious consequences for you and your firm.

Once the investigation is up and running, investigators might want to visit your company or even your home. Under these circumstances, we strongly advise that you have us present, perhaps suggesting a meeting at our offices instead. The situation can feel quite high pressure, so having the experience and perspective of an accountant can be of great help.

The length of an investigation varies. It may be that HMRC finds everything they need fairly swiftly and are able to promptly draw their conclusions. The length of an investigation can be determined by its range and the speed with which they are given information.

Most investigations that are over quickly have simple explanations. For example, if your income shrank over one month, suspicions can easily be allayed by evidence of illness or injury. But if your case is less easily solvable, the investigation will probably take longer. It will help if you get the ball rolling by replying promptly to any requests for information – you will generally be given 30 days to do so.

It’s important not to feel like you are in grave trouble. Most tax investigations simply end with HMRC informing you if you have paid too much or too little tax, letting you know if there are any penalties.

How far back will the investigation go?

This very much depends on what is being investigated and the extent of their inquiries. If HMRC believes the errors to be innocently made, they can look back at records going back four years. If they decide mistakes are the result of careless behaviour, this can be extended to six years –  with the exception of VAT which is still four years.

If HMRC believes there has been deliberate tax evasion, they can request records going back twenty years.

What are the penalties?

You may find yourself facing a penalty if your tax returns or other documents give the wrong amount of tax owed or if you didn’t notify HMRC they were taxing you at too low a level.

There are several factors that determine the level of penalty you could face:

• if HMRC believe you deliberately evaded tax
• if you notified HMRC about any errors made
• how much time has passed.

HMRC’s penalties come under different categories, depending on their seriousness and how the errors came about.

First, it will apply a penalty based on whether you practised reasonable care in your tax affairs or not. If you’re found to have been negligent in your duties, you can face a penalty of up to 30% of the extra tax due. This is arguably the least serious judgement.

Next, HMRC will determine whether your mistake was a deliberate error. If you made no effort to conceal your fraudulence, the penalty can range from 20 to 70% of the tax owed. If you tried to hide the deliberate error, your penalty can range from 30% to 100%.

If you feel you’re heading for a penalty, it’s possible to reduce it by being cooperative and helpful. Make sure you tell HMRC about any errors you are aware of, let them know how much you think you owe and give them swift and full access to any information they seek.

Deliberately unpaid tax

While we hope this won’t be the case, it might be that HMRC decides you have committed tax fraud. If this is the case, you should ask about their contractual disclosure facility. This gives you the chance to give a full disclosure of any unpaid tax, in return for immunity from prosecution. This only applies to individuals rather than companies.

If you have made genuine errors and want to disclose them, the contractual disclosure facility won’t be the right path to take. Instead, cooperate with HMRC and you’ll probably just be hit with a small financial penalty.

If HMRC ever investigates your business, we’ll be by your side. We’ll give you the best advice and guidance to straighten the situation out. If there’s anything else you need to know about facing a tax investigation, just get in touch.

Talk to us about HMRC investigations.

Spring Statement changes come into effect.

As you may have heard, there are changes happening to National Insurance contributions (NICs).

From 6 July, the new thresholds will come into effect. But what does that mean for you?

As a self-employed worker, you will already pay your National Insurance differently to that of an employee. But now your threshold is changing, you’ll need to know how much by and when.

This article will explain all the changes and what this means for you and your business.

How does National Insurance work?

Before we go into detail about how the new NICs thresholds will affect you, let’s start with an overview of the National Insurance system.

There are different classes of NICs which will vary depending on your employment status and whether you choose to voluntarily pay contributions.

Class 1 NICs are paid by employers and employees. Employees pay Class 1 NICs if they are under the state pension age and earn more than the primary threshold, in the majority of cases. These are automatically deducted by employers.

Class 1A and 1B NICs are paid directly by employers on their employees’ expenses or benefits.

Class 2 NICs are paid by self-employed people earning more than the small profits threshold. If you earn less than this, you can choose to pay voluntary contributions to fill in the gaps in your National Insurance record.

Class 3 NICs are voluntary contributions paid to fill gaps in your National Insurance record. You might need to do this if you are unemployed or earn below certain thresholds.

Class 4 is for self-employed people earning profits above the lower profits limit.

Most self-employed people pay class 2 and class 4 NICs through self-assessment tax returns.

As well as different classes, there are a number of different thresholds based on earnings. For the purposes of this article, though, we’ll focus on the main thresholds at which employed and self-employed individuals start paying NI: the primary threshold for class 1 NICs, the small profits threshold for class 2, and the lower profits limit for class 4.

What’s changing?

As announced in the Spring Statement, both the primary threshold and the lower profits limit are rising from £9,880 to £12,570 as of 6 July 2022, bringing them in line with the income tax personal allowance.

Going forward, the NICs and income tax thresholds will remain aligned.

Aligning these thresholds has been an ambition of the Government’s for a number of years, but the announcement also came ahead of the new health and social care levy, which was introduced in April 2022.

This saw all National Insurance rates, as well as dividend tax rates, increase by 1.25 percentage points. The change is expected to raise £36bn over the next three years to help pay for reforms to health and social care – but it was a controversial decision, increasing taxes for workers when many were already feeling the pressures of rising costs.

In his Spring Statement speech, Chancellor Rishi Sunak insisted “it is right that the health and care levy stays … But a long-term funding solution for the NHS and social care is not incompatible with reducing taxes on working families”.

The £2,700 threshold rise will save employees an average of £330 in National Insurance each year compared to the previous threshold.

The new thresholds for the self-employed

While employees’ National Insurance is deducted by their employer throughout the year, being self-employed means you pay NICs on an annual basis at the end of the tax year.

This means things aren’t as straightforward as implementing a new threshold from July. Instead, the lower profits limit for  class 4 NICs will rise to an apportioned threshold of £11,908 in 2022/23 – allowing for 13 weeks under the previous threshold and 39 weeks at the new threshold.

Taken together with the rate increases, this means self-employed profits between £11,908 and £50,270 will be charged at 10.25% in 2022/23, and anything over £50,270 will be charged at 3.25%.

From April 2023 onwards, the self-employed will be able to earn £12,570 before paying any NICs.

Meanwhile, class 2 NICs liabilities have been reduced to nil on profits between the small profits threshold and the lower profits limit, which will allow individuals to continue to build up National Insurance credits.

To receive the credits, you’ll have to submit a tax return – but if you have no other income that year you won’t have to pay any tax.

How will you be affected?

The main change you can expect to see is a difference in your take home pay.

A higher threshold means you’ll be able to earn more before having to pay National Insurance. From July, the Government says around 70% of NICs payers will be paying less, even with the introduction of the health and social care levy.

The change to class 2 NICs will provide a tax cut for 500,000 self-employed people and is worth up to £165 per year.

That said, actual gains for individuals will be different depending on their circumstances.

For example, if you had annual profits of £20,000 over the 2021/22 tax year, you would be expected to pay £1,097.48 in Class 2 and 4 NICs. With the threshold increase that would go down to £994.31, representing a saving of £103.17.

If you would like to know more about the NICs threshold changes, talking to us for advice is the best next step.

Get in touch about your NICs.

People are unprepared and unenthusiastic for Making Tax Digital (MTD), according to a survey commissioned by HMRC.

Global market research group Ipsos recently released data suggesting “awareness of MTD in general, and MTD for income tax self-assessment (ITSA) specifically was low”.

MTD ITSA will require people with annual business or property income above £10,000 to keep their records and file their returns with specialist software from April 2024.

HMRC claims MTD ITSA will make it easier for people to file their taxes without making mistakes that cost the Treasury billions in lost tax revenue.

But only 38% of respondents agreed that using MTD-compatible software would be easy, compared to 35% who disagreed.

Under half (43%) said MTD would make submitting quarterly returns easy, while almost four in ten (39%) said it would be more difficult.

Similarly, just 34% said a quarterly summary would ease the end of year burden, compared to 42% who said it would become more difficult with MTD.

Ipsos randomly selected 2,200 individuals eligible for MTD for ITSA and weighted the final data to be representative of the MTD for ITSA population.

Andrew Jackson, representing both the Association of Taxation Technicians and Chartered Institute of Taxation, said:

“The survey results suggest the lack of understanding among affected people of what the changes mean in practice.

“The survey results show an alarming lack of readiness and enthusiasm for MTD, fuelled largely by a lack of awareness that MTD for ITSA begins in less than two years’ time.

“The survey adds to our concerns about the lack of available and affordable Making Tax Digital software and the low numbers of businesspeople and landlords signing up to take part in the Making Tax Digital for Income Tax pilot.

“This taxpayer scepticism and overall lack of readiness is combined with a lack of certainty and continuing questions from agents on practical matters.”

He added that HMRC should publish more detailed guidance about MTD to improve awareness about the scheme.

Talk to us about MTD.