December Tax Tips & News

Welcome to the Benedicts Tax Tips & News monthly newsletter, bringing you the latest news to keep you one step ahead of the taxman.

If you need further assistance just let us know or send us a question for our Question and Answer Section.

We’re committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

Please contact us for advice on your own specific circumstances. We’re here to help!

Newsletter issue - December 2023

We're reaching that familiar point of the year again when the deadline for Self-Employment Tax Returns begins to loom.

The best advice we can always offer to our clients is to collect all the relevant information and documents and share these with us as soon as possible. Of course, the key date everyone focuses on each year is January 31 - the HMRC deadline for submissions.

However, it's wise to provide your tax return information to us before the new year to ensure there are no last-minute rushes and to escape unnecessary stress. And crucially, of course, so that the deadline can be met successfully.

The 31 January is also the deadline to pay your tax. Therefore, another key point here is that by waiting until the end of January, you could find yourself in a situation where you've had an unexpectedly large tax bill. And you would be required to pay that sum immediately. By submitting your return forms earlier than January, it means you'll more breathing space to prepare to for the tax you owe HMRC. Or, on a more positive note, you may even be eligible for receiving a refund early.

Newsletter issue - December 2023

Many of you will have watched the Chancellor Jeremy Hunt delivering his Autumn Statement a few weeks ago. You may have watched the whole speech or just seen clips on news programmes later in the day. As always, many announcements were made and there was plenty to digest.

The actual statement is the bit most people are familiar with, but what happens next? What's the process? Which announcements are set to become reality and how soon?

Whenever a government announces new taxation in a Budget or Spring or Autumn Statement, these plans require statutory (or legislative) authority.

In line with this, The Autumn Finance Bill has now been published to enshrine the announced tax changes into law.

The Bill received its first reading in Parliament on Monday 27 November 2023. It will now follow the normal passage through Parliament. The majority of tax changes in the Bill will take effect from April 2024.

Recap - the biggest changes set to come

In case you need a reminder of what came out of the Autumn Statement 2023, here's a high-level recap of some of the most important changes that were delivered on the day:

The Chancellor's critical announcements:

• Reduction in employees' National Insurance (NI) by two percentage points from 12% to 10% (for Primary Class 1 contributions) - a change affecting an estimated 27 million people
• Class 4 NI will be reduced from 9% to 8% in April 2024
• Class 2 NI will be effectively abolished
• A proposal for a new system of 'one pension pot for life'
• State pension payments to increase by 8.5% from the next tax year
• National Living Wage to rise by about 10% to £11.44 from April 2024

Newsletter issue - December 2023

As with many new measures when they are first announced by HMRC or the Treasury, it takes some time for these to trickle through to come into effect. The government announced at Spring Budget 2023 that it would consult on expanding the cash basis. A formal consultation on proposals was launched on 15 March this year and ran until 7 June. And now the measure has taken the next step, having been announced in the Autumn Statement.

HMRC stated: 'This measure changes how the cash basis operates for trading income. Current rules set the accruals basis as the default method of calculation, and restrict which businesses are able to use the cash basis through turnover-based entry and exit thresholds. The current rules also set specific restrictions on deductions against profits for interest costs and set specific restrictions on the use of loss relief for losses generated under the cash basis.'

HMRC says the change 'removes restrictions on the use of the cash basis, reducing the complexity of tax returns and making tax simpler for small businesses.'

Up until now, businesses have only been able to join the cash basis if their cash basis turnover is less than £150,000. They are forced to leave in certain circumstances where turnover goes beyond £300,000.

'This measure removes this turnover restriction entirely,' HMRC says.

HMRC added: 'This measure sets the cash basis as the default method of calculating trading profits for eligible businesses, with an opt-out for accruals. It also removes the entry and exit thresholds based on turnover, and removes restrictions specific to the cash basis on interest deductions and loss relief.'

The changes will take effect from 6 April 2024.

Newsletter issue - December 2023

As a business owner or as a self-employed person, you may have costs from time to time for training. It may be for yourself or for an employee. Some businesses may have found it hard to understand the current guidance on which training costs are tax-deductible. So, you may be pleased to know further guidance is set to come in this area. HMRC has said it will be coming forward with clarifications.

HMRC says the new guidance will help businesses to be 'confident that updating existing skills or maintaining pace with technological advances or changes in industry practices, are allowable costs when calculating the taxable profits of a business.'

However, we're not sure yet on timings for this. It will not feature in the Autumn Finance Bill but will come later in secondary legislation or a future finance bill, HMRC has stated. A case of watch this space.

Newsletter issue - December 2023

Q: Hi. My wife is full-time employed and has been for all her working life. Therefore, she has had no need to think about Self-Assessment Tax Returns until recently. However, she's begun to take on a small amount of freelance work in addition to her day job in the last year. Are there different rules or options for people in her position in terms of submitting a tax return and paying the tax she owes on that freelance work?

A: There are many people in your wife's shoes who are working for an employer whilst also earning money carrying out another job as a freelancer or sole trader. Whilst anyone in this situation still needs to declare their income and do a tax return, there is another way to go about paying HMRC for those who are both self-employed and employed.

The same applies for those who are employed but have income from rental properties that needs to be declared on a Self-Assessment Tax Return. For those who have a tax liability up to £3,000, you can get it collected through your tax code. That means the amount you owe will get deducted on a monthly basis through your salary, via your employer's PAYE process, rather than having to pay one large lump sum to the tax man.

However, to get that benefit of spreading out the payments you must act quickly. To be eligible, you have to submit your online tax return by 30 December.

Q: I'm self-employed and I earn around £52,000 - £55,000 per year. My record keeping is partly traditional and paper-based. I've been reading recently about the upcoming requirements for digital record keeping. What should I be doing about this now as we move into 2024?

A: You're correct to say that there is a shift underway, driven by HMRC, to require all businesses, and self-employed people to keep digital records. It's called Making Tax Digital. This initiative has been running for some years now, but it's been gradually phased in, step by step. The Government has pushed back the date that someone such as yourself would need to comply. Self-employed individuals (and also landlords) with an income of more than £50,000 will be required from April 2026 to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software.

So, you've got some time yet. But, having said that, there are a number of benefits of moving to be fully digital sooner. By keeping digital records (including invoices, expenses, receipts and other information) you get an up-to-date picture about how your business is doing - how much is coming in and out right now, rather than doing it historically.

In fact, going digital can help unlock the full potential of your business, empowering your decisions, helping your business grow and become more efficient too. Digital financial records can become a catalyst for informed decision-making, propelling your profits and efficiency. So, it's well worth considering making the move to digital before it's compulsory.

Q: I'm preparing to start up a new small business venture in the new year. Initially, it will just be myself, so I'll be a sole trader. How should I go about paying myself?

A: The first thing to say here is that how you take pay from your new venture (and also how you're taxed on it) depends on the business structure. But, as you say, you'll be a sole trader for the foreseeable future.

There is a phrase here that's important. It's called a 'drawing'. When you are a sole trader, it means you're not separated financially from your business. At any time during the year, you can just pay yourself money that comes from the profits your business is making. That's what a 'drawing' is.

It's important to say here that you should be keeping an accurate, up-to-date record of each 'drawing' to ensure you have a precise picture of your profits and the tax you'll need to pay when it comes to completing your Self-Assessment Tax Return. It's also wise to be putting some of your earnings to one side in a separate pot (the best option is a dedicated business bank account) for the purpose of paying your tax.

There is of course also the question of how much you pay yourself. That's entirely your choice, but you do need to strike a balance between what you and your household needs and what your business needs. Plus, you need to be able to cover any money owed through your business activity, debts or obligations to any suppliers you might use.

Newsletter issue - December 2023

19^th

• For employers operating PAYE, this is the deadline to send an Employer Payment Summary (EPS) to claim any reduction on what you'll owe HMRC

22^nd

• Deadline for employers operating PAYE to pay HMRC. For those paying by post, the deadline is 19 December.

30^th

• Deadline for submitting online Self-Assessment Tax Returns to HMRC - for those who are both self-employed and employed and want to spread their payments throughout the year via their PAYE tax code, rather than paying one lump sum

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