Recent developments in the Self-Assessment tax return criteria have brought significant changes that everyone who files an Income Tax Self-Assessment (ITSA) should be aware of.

Announced in the Autumn Statement 2023 and through various updates and consultations throughout the year, these changes reflect HM Revenue and Customs’ (HMRC) ongoing efforts to simplify and modernise Income Tax services.

Below, we go over some of the key changes to the tax return system and how you should react to them.

Key changes in 2023

There have been three major announcements regarding the Self-Assessment criteria in 2023:

• Raising the income threshold: The income threshold for filing a Self-Assessment tax return, assuming no other criteria are met, was increased from £100,000 to £150,000. This adjustment applies from the 2023/24 tax year.
• Simplifying high income child benefit charge: A written ministerial statement in July outlined plans to streamline the process for taxpayers liable for the high income child benefit charge. The Government proposed a system allowing employed taxpayers to pay this charge through their tax code, eliminating the need to register for Self-Assessment. However, further details on this proposal are still pending.
• Removal of the £150,000 threshold: The Autumn Statement 2023 revealed that the £150,000 income threshold would be completely removed from the 2024/25 tax year onwards.

Unchanged criteria

Despite these updates, several criteria for Self-Assessment remain unchanged:

• Self-employment income over £1,000.
• Other untaxed income of £2,500 or more.
• Claims for tax relief on employment expenses exceeding £2,500.
• Income from savings or investments over £10,000 (tax on amounts below this level may be collected through a PAYE coding adjustment).

If you are confused as to whether you need to file a tax return for Income Tax Self-Assessment because of the new thresholds, visit the Government website to check your eligibility.

Alternatively, please get in touch with one of our team to discuss your tax liabilities and filing process.

The bigger picture

While these changes aim to simplify tax compliance many accountants have raised concerns about the piecemeal nature of these amendments being potentially confusing.

HMRC has confirmed that other criteria are unchanged but continue to be under review.

Having said this, it is important to discuss the changes with your accountant as soon as possible.

Looking forward

The importance of HMRC’s ongoing developments cannot be overstated, such as the single customer account programme, in enhancing how taxpayers outside of Self-Assessment finalise their income tax liabilities.

As HMRC plans further changes in its digital services and operational processes, the landscape of Self-Assessment is poised for more transformation.

For more detailed information on Self-Assessment criteria, taxpayers are advised to refer to HMRC’s Self-Assessment manual and use their online tool to ascertain if they need to submit a tax return.

Understanding these changes is crucial for taxpayers to remain compliant and navigate the evolving tax landscape effectively so please keep an eye on further updates from HMRC and stay informed and prepared by communicating with your accountant.

If you are concerned about any of the issues raised by changes to the Self-Assessment criteria, please do not hesitate to get in touch with one of our team.

Inheritance Tax (IHT) planning is a critical aspect of financial management, especially for those looking to pass on assets to their loved ones without incurring the cost of significant taxation.

One method to potentially reduce your IHT burden is through strategic gifting. However, it is important to consider the significance of gifting in the context of IHT and the importance of meticulous record-keeping for such gifts.

The strategic role of gifting in IHT planning

Gifting can play a pivotal role in reducing the Inheritance Tax liability on an estate. In the UK, IHT is levied on the value of an individual’s estate upon their death.

However, certain gifts made during a person’s lifetime can either be exempt from IHT or potentially become exempt, depending on the circumstances and timing of the gift.

• Exempt gifts: Some gifts are immediately outside of IHT, regardless of when the donor passes away. These include annual allowances (up to a certain amount per year), small gifts per recipient per year, wedding gifts within specified limits, and gifts to charities or political parties.
• Potentially exempt transfers (PETs): Gifts that don’t fall under the exempt categories are typically considered PETs. These gifts can become exempt from IHT if the donor survives for seven years after making the gift. If the donor dies within this period, the PET may become chargeable at a tapered rate, where the tax liability can decrease on a sliding scale depending on the date of their passing.

The necessity of record-keeping for gifts

Keeping detailed records of all gifts made for IHT purposes is essential.

Accurate record-keeping not only ensures compliance with tax laws but also helps in accurately determining the potential IHT liability.

• What records to keep: For each gift, record the date of the gift, the value at the time of the gift, the recipient’s details, and the nature of the gift (whether it is cash, property, or other assets). It is also prudent to note whether the gift falls under any exempt category or is a PET.
• Why keep records: Detailed records are invaluable in case of an HM Revenue and Customs (HMRC) inquiry. They provide clarity on which gifts are exempt, which are PETs, and whether the seven-year rule applies. In the event of the donor’s death, these records assist executors in accurately reporting the estate’s value and determining any IHT liability.

Final thoughts

Effective gifting can be a key strategy in reducing IHT liability, but it requires careful planning and meticulous record-keeping.

It is important to understand the nuances of distinct types of gifts and their implications for IHT.

Keeping comprehensive records of all gifts is not just a matter of compliance – it is a crucial step in ensuring that your estate is managed and taxed according to your intentions.

Considering the complexities of IHT and the strategic significance of gifting, consulting a professional accountant can be highly beneficial.

An accountant can provide tailored advice, help you navigate the intricacies of IHT planning, and ensure your record-keeping is comprehensive and compliant.

Effective planning and record-keeping today can make a significant difference to the financial legacy you leave for your loved ones.

For tailored advice on gifting and IHT planning, please consult one of our accountants.

As the 31 January 2024 deadline for filing and paying your Self-Assessment tax return fast approaches, it is crucial to be aware of various claims and deductions that can potentially reduce your tax liabilities.

Below are some tax reduction strategies, to help you to navigate the Self-Assessment process more effectively.

Understand your allowances and reliefs

The first step to completing a successful tax return and reducing your liabilities is to understand the allowances and reliefs you are entitled to.

• Personal allowance: The most fundamental relief is your Personal Allowance – the amount of income you do not have to pay tax on. For the 2023/24 tax year, this is £12,570 but it is important to check for any changes or if your income exceeds the threshold, causing a reduction in this allowance.
• Savings allowance: If your income from savings is below £1,000 (if you are a basic rate taxpayer), or £500 (if you are an additional rate taxpayer) you are entitled to the Savings Allowance. For those in the additional rate band, you are not entitled to a savings allowance.
• Dividend allowance: For those with dividend income, the Dividend Allowance allows for £1,000 of dividend payments tax-free. However, this will be changing to £500 from April 2024, so it is important to plan your investment strategy wisely.

Claiming deductions

There are several deductions that individuals can claim on their Self-Assessment tax returns:

• Work-related expenses: If you’re employed, you can claim tax relief on certain job expenses that haven’t been reimbursed by your employer, such as professional subscriptions, tools or uniforms.
• Home office expenses: With more people working from home, claiming home office expenses is increasingly relevant. This includes a proportion of heating, electricity, Council Tax, mortgage interest or rent, and internet and telephone use.
• Charitable donations: Donations to charity under Gift Aid can reduce your tax bill. Higher rate taxpayers can claim the difference between the rate they pay and the basic rate on their donation.

Pension contributions

Contributions to your employees and your own pension can significantly reduce your tax liability.

For higher earners, this is an effective way of reducing their taxable income while saving for retirement.

The current pension allowance per year is £60,000 and the lifetime allowance is just over £1 million.

Capital Gains Tax allowances

If you’ve sold assets like property or shares, you may be liable for Capital Gains Tax.

The tax rates depend on your Income Tax bracket. as well as the type of asset you have sold.

For basic rate taxpayers, the rate is 10 per cent for non-property assets (18 per cent for residential property gains).

For higher and additional rate taxpayers the Capital Gains Tax rate is 20 per cent (28 per cent for residential property).

Each taxpayer has an allowance, known as the Annual Exemption. For the 2023/24 tax year, the Capital Gains Tax allowance has been significantly reduced, halving from the previous year’s threshold of £12,300 to £6,000.

As a result, individuals who realise gains exceeding £6,000 on assets within a year will now need to pay Capital Gains Tax on the amount above this threshold, according to their marginal tax rate.

Be aware that this threshold will fall again from April 2024 to just £3,000, so it is important to consider any sales, disposals or transfers of any assets subject to CGT.

Investment schemes

Investing in certain schemes can offer tax relief:

• Enterprise Investment Scheme (EIS): Offers income tax relief on investments made in qualifying companies.
• Seed Enterprise Investment Scheme (SEIS): Similar to EIS but for smaller, early-stage companies, offering even greater tax relief.
• Venture Capital Trusts (VCTs): Investments in these can offer income tax relief, albeit with certain risks.

Rent-a-Room relief

If you rent out a furnished room in your house to a lodger, the Rent-a-Room scheme allows you to earn a certain amount tax-free on this rent.

The annual Rent-a-Room limit is £7,500., but this is reduced to £3,750 if someone else receives income from letting accommodation in the same property, such as a joint owner.

The scheme is available to both homeowners and tenants, provided the property is your main residence and you have the permission to rent out the room (tenants should check their lease agreements).

It is important to note that the scheme only applies to residential properties and not to rooms let as an office or for other business purposes.

Reporting and paying your tax

It is vital to accurately report all your income and claim only the reliefs and allowances you are entitled to.

Remember, the deadline for online tax returns and paying any tax owed is 31 January 2024.

Late filing or payment can result in penalties, so it’s wise to start preparing well in advance.

In addition, tax affairs can be complex, and seeking advice from a tax professional is often a prudent step, especially if your situation is complicated.

Understanding and utilising these allowances and reliefs can make a significant difference in your tax bill.

As you prepare your Self-Assessment tax return, remember these tips to not only comply with the legal requirements but also to manage your tax liabilities effectively.

Stay informed and consider seeking professional guidance to navigate the intricacies of tax laws and regulations.

If you want to discuss your upcoming tax return with an accountant, please get in touch.

HM Revenue & Customs (HMRC) has recently been granted new powers by the Government, aimed specifically at addressing unpaid taxes from e-traders and side hustlers.

This move places greater scrutiny on individuals selling items on platforms like eBay, Vinted, or Depop.

These sellers must now be more vigilant about their sales and the income generated from them, as these platforms are required to monitor and report seller earnings from 1 January 2024. Non-compliance by platform operators could result in substantial fines.

Online selling, a common method for earning additional income, affects a large number of people who could find themselves impacted by these new regulations, especially if their earnings exceed certain thresholds.

The £1,000 tax-free allowance

There’s a £1,000 tax-free allowance for UK residents who have a primary job but also earn additional income from casual or irregular sources.

This might include activities like freelance writing, crafting, pet or house-sitting, or tutoring.

Many individuals, especially when starting such activities, may not consider the tax implications of these earnings, as they often fall under the tax-free threshold.

However, once your additional income exceeds £1,000, it’s necessary to register as self-employed and file a Self-Assessment tax return. This process is required to report your additional income and work out your tax dues.

Completing a Self-Assessment tax return

Self-Assessment is HMRC’s method for collecting income tax from individuals not covered by the PAYE (Pay-As-You-Earn) system.

Tax returns must be submitted by the end of the tax year (5 April) to which they apply, and the tax due must be paid by 31 January of the following calendar year.

Missing the deadline for submitting a return can result in a minimum fine of £100, increasing for delays beyond three months.

Implications of the new rules

For many, these changes won’t affect their earnings if they remain below the £1,000 threshold.

Those regularly exceeding this amount are likely already familiar with and compliant with Self-Assessment requirements.

However, it’s the middle bracket of earners, those close to the threshold, who need to be particularly mindful of their earnings.

A common oversight is not recognising that sales on e-trading sites count as taxable income.

With HMRC now automatically informed of such earnings, failing to report them could lead to accusations of unpaid taxes.

Therefore, it’s crucial for all e-traders and ‘side hustlers’ to meticulously record their sales and earnings to understand their tax obligations.

For further information or clarification on these tax rules, please contact our expert team for guidance.

The National Insurance (NI) system plays a pivotal role in determining an individual’s eligibility for certain state benefits, including the State Pension.

However, there are instances where individuals, particularly those who take time off work for caregiving responsibilities, might find gaps in their NI records.

This is where Home Responsibilities Protection (HRP) comes into play.

What is Home Responsibilities Protection (HRP)?

Introduced in 1978 and since replaced by National Insurance credits in 2010, the HRP was designed to protect the State Pension entitlement of individuals who were not working and therefore not making NI contributions because they were taking care of children under 16 or disabled individuals.

It ensured that these caregiving years were not counted as ‘gaps’ in their NI record, which could potentially reduce their State Pension amount.

How does HRP affect the State Pension?

The State Pension amount an individual receives is based on their NI record. To qualify for the full State Pension, one needs a certain number of qualifying years on their NI record.

HRP helps by reducing the number of years required. So, if you took time off work for caregiving responsibilities, HRP ensures that these years do not negatively impact your State Pension entitlement.

Checking your NI record

It is crucial to regularly check your NI record to ensure all your contributions and credits are correctly recorded.

The easiest way to check your NI record is through the online service provided by the Government. Once you log in, you can view your NI contributions and any gaps in your record. This can also be done by post or by phone.

Correcting missing years

If you discover gaps in your NI record, it’s essential to address them promptly. You might be able to pay voluntary contributions to fill these gaps, or if you were not working because of caregiving responsibilities during a particular year, ensure that you received HRP credits for that year. If not, you can apply for them.

If there are discrepancies in your record, contact HM Revenue and Customs (HMRC).

In June 2023, the Government announced that taxpayers now have until 5 April 2025 to fill gaps in their National Insurance record from April 2006 that may increase their State Pension – an extension of nearly two years.

Regularly checking your NI record and addressing any gaps ensures that you receive the State Pension amount you’re entitled to.

Whether you’re approaching retirement age or just starting your career, it’s never too early or too late to understand and manage your NI contributions. Contact us today for advice.

Divorce is a challenging and emotional process, and the financial implications can be complex. Among these number of considerations, understanding the tax implications is crucial.

Capital Gains Tax

When a couple divorces, the transfer of assets between them usually doesn’t incur Capital Gains Tax (CGT) if the transfers occur in the tax year of separation.

However, if the asset transfer happens in a subsequent tax year, CGT may be charged. This means if you’re transferring the family home or shares in a business to your ex-spouse after the tax year you separated, you might have to pay CGT on any increase in value.

Income Tax

Your marital status affects your Income Tax. Once you’re separated and living apart, you can’t claim the Married Couple’s Allowance.

However, if you’re receiving maintenance payments from your ex-spouse, these are not taxable.

On the other hand, if you’re the one making the payments, you can’t deduct them from your taxable income.

Inheritance Tax

Gifts between spouses or civil partners are usually exempt from Inheritance Tax (IHT). However, once you’re divorced, this exemption no longer applies.

If you make a gift to your ex-spouse and then die within seven years, the gift might be subject to IHT.

Pensions

Pensions can be a significant asset in a divorce. They can be split in several ways:

• Pension sharing – You get a percentage of your ex-spouse’s pension. This is transferred into a pension in your name.
• Pension offsetting – The value of the pension is offset against other assets. For example, one spouse might keep the pension, while the other gets the family home.
• Pension earmarking – Some of the pension income is paid to the ex-spouse when the pension starts being drawn upon.

The tax treatment of pensions depends on how they’re split.

Property and the family home

The family home is often the most significant asset in a divorce. If you sell the home and split the proceeds, there’s usually no CGT to pay if it’s been your main residence.

However, if one spouse moves out and the home is sold later, they might have to pay CGT on their share of the increase in value since they moved out.

Child benefits

Only one parent can claim Child Benefit, even if you share custody. If both parents claim, HM Revenue & Customs (HMRC) will decide who gets the benefit.

It is worth noting that if the parent receiving the Child Benefit has an income over £50,000, they might have to pay the High Income Child Benefit Charge (HICBC).

The tax implications of divorce can be tricky to navigate, and everyone’s situation is unique. If you’d like further advice on the tax implications of a divorce, please get in touch.

Capital Gains Tax (CGT) is a tax on the profit or gain you make when you sell or dispose of an asset that has increased in value. It is the gain you make that’s taxed, not the amount of money you receive.

Understanding when you’re subject to CGT and what you need to pay is crucial for financial planning.

When are you subject to Capital Gains Tax?

The most common scenario where CGT comes into play is when you sell an asset for more than you paid for it. This includes selling property, shares, or personal possessions worth £6,000 or more, apart from your car.

If you give away assets to someone other than your spouse or civil partner, you might be subject to CGT. The amount of tax is based on the asset’s market value at the time of the gift.

If you inherit an asset and later sell or dispose of it, you may need to pay CGT on the gain since the time you took ownership.

Transferring assets to a business can also trigger CGT, and if you receive compensation for an asset, like an insurance payout for a damaged item, CGT might be applicable.

What do you need to pay?

To calculate the CGT, you first need to determine your taxable gain. This is the difference between the selling price (or market value in case of gifts) and the purchase price (or the value when you inherited it). From this gain, you can deduct costs like broker fees or solicitor fees.

Every individual in the UK has an annual tax-free allowance, known as the Annual Exempt Amount. For the 2023/2024 tax year, this is £6,000. This means you only pay CGT on gains above this threshold.

The rate at which you pay CGT depends on your taxable income and the type of asset. For individuals, the rate is:

• 10 per cent for basic rate taxpayers
• 20 per cent for higher or additional rate taxpayers

For residential property, the rates are:

• 18 per cent for basic rate taxpayers
• 28 per cent for higher or additional rate taxpayers

There are reliefs and allowances, apart from the Annual Exempt Amount, that can reduce your CGT. Some of these include:

• Business Asset Disposal Relief
• Private Residence Relief
• Letting Relief
• Gift Hold-Over Relief

Reporting and paying CGT

If you have CGT to pay, you can either report and pay it straight away using the Capital Gains Tax service, or you can report it in a Self-Assessment tax return.

If you’re using the latter, ensure you send your return by 31 January after the tax year when you had the gains.

CGT can seem daunting, but with a clear understanding of when it applies and what you need to pay, you can manage it smoothly and effectively. We are on hand to provide assistance on any CGT-related matters, contact us today for more information.

Charitable giving not only benefits the recipient but can also offer tax advantages to the donor.

The Gift Aid scheme allows charities to claim back 25p every time an individual donates £1 at no extra cost to the donor.

If you are a higher-rate taxpayer, you can claim additional tax relief on your donations.

What is Gift Aid?

Gift Aid is a tax incentive that allows charities and community amateur sports clubs (CASCs) to claim back the basic rate tax already paid on donations by the donor. This means that if you’re a taxpayer and you make a donation under Gift Aid, the charity can claim an extra 25 per cent from the government.

How does higher rate tax relief work?

If you pay tax above the basic rate, you can claim the difference between the rate you pay and the basic rate on your donation. Here’s a breakdown:

If you pay tax at the higher rate of 40 per cent, you can claim back 20 per cent on your gross donation (the donation amount plus Gift Aid).

If you pay tax at the additional rate of 45 per cent you can claim back 25 per cent on your gross donation.

Recording charitable donations

Whenever you make a donation under Gift Aid, ensure you keep a record of the amount, the charity’s name, and the date of the donation. This can be in the form of bank statements, chequebook stubs, or written confirmations from the charity.

For a charity to claim Gift Aid on your donation, you must complete a Gift Aid declaration. This confirms that you’re a UK taxpayer and have paid enough tax to cover the Gift Aid claim by the charity.

If you are a higher or additional rate taxpayer, keep a note of the total amount of Gift Aid donations you’ve made during the tax year. This will be crucial when claiming your additional tax relief.

Claiming higher rate tax relief

If you complete a self-assessment tax return, you can use it to claim back the additional tax relief. Include your total Gift Aid donations on the form and the tax relief will be calculated for you.

If you don’t complete a tax return, you can contact HM Revenue & Customs (HMRC) and ask for an adjustment to your tax code. This will allow you to receive tax relief directly through your wages or pension.

If you’ve failed to claim tax relief from previous years, you can do so by writing to HMRC. Provide details of your donations and ensure you make the claim within four years of the end of the tax year in which you made the donation.

The Gift Aid scheme offers a win-win situation for both charities and donors. Charities receive an additional 25 per cent on donations, and higher-rate taxpayers can claim significant tax relief.

If you’d like more advice and information about claiming higher rate tax relief through Gift Aid, then contact us today.

Taxpayers who use QR codes to make payments on their mobile devices have been warned by HMRC to beware of scammers.

HMRC includes QR codes on a welcome letter it posts to taxpayers who are newly registered for Self-Assessment, which takes them to the authority’s advice pages.

The QR code is only displayed when the taxpayers first log into their HMRC online account through the Government Gateway, on a desktop browser.

Once that has been completed, taxpayers can scan the code with a mobile device, which allows them to make a payment.

Online account

HMRC says taxpayers should only use a QR code that is presented to them while logged into their HMRC account, via the Government Gateway.

Payment details displayed on their mobile banking platform should match those shown in their HMRC online account. 

HMRC says if a taxpayer receives a QR code via email or another electronic message, it is a scam and taxpayers are encouraged to report it.

Helpline advice

HMRC added that from January this year, it may send a text message if taxpayers call one of their helplines from a mobile phone.

The caller will be told to expect a text message immediately or shortly after the call, which may send a link to the relevant GOV.UK information or a webchat.

HMRC says it will never ask for personal or financial information when sending text messages. It warns not to open any links or reply to a text message claiming to be from HMRC that offers you a tax refund in exchange for personal or financial details.

Reporting suspicious activity

Scammers often pretend to be HMRC by texting or emailing a link that will take customers to a false web page, where their bank details and money will be stolen. Fraudsters are also known to threaten victims with arrest or imprisonment if a bogus tax bill is not paid immediately.

People can report suspicious phone calls using a form on GOV.UK; customers can also forward suspicious emails claiming to be from HMRC to phishing@hmrc.gov.uk and texts to 60599.

Anyone who is in doubt about whether a website is genuine should visit GOV.UK for more information about Self-Assessment and use the free signposted tax return forms.

Having problems with Self-Assessment and related tax matters? Contact us today.

As the values of some cryptocurrencies like Bitcoin have soared, it has allowed many people to make substantial financial gains.

This inevitably brings HM Revenue & Customs (HMRC) into the picture, with its compliance officers using data-gathering powers to identify potential tax avoidance offenders.

Taxing cryptoassets

Tax liabilities depend upon the way the profit was gained and the circumstances of the business or individual which means that buying or selling using cryptocurrency – or acquiring cryptocurrency as an investment – could result in a liability to Income Tax, Capital Gains Tax (CGT), or Inheritance Tax (IHT).

How to remain compliant

If you have achieved cryptoasset gains that are liable to CGT, you will need to report this on a tax return and pay the arising tax by 31 January following the end of the tax year in which they arise.

If you do not usually complete tax returns it is necessary to register with HMRC within six months of the end of the tax year.

When calculating CGT payable on cryptoassets, the standard CGT tax exemption is available, entitling every taxpayer to annual gains of £12,300  before any tax is payable. Anything above that figure is subject to taxation.

Gifting cryptoassets

Just like other assets, cryptoassets can be given away as part of a lifetime gifting strategy.

They are considered to be property for the purposes of IHT and will form part of an individual’s estate. However, because of the volatile nature of the market, any gifting should be done with caution after taking expert advice. Gifts between spouses are always tax-free, as with other types of assets.

Income Tax 

If HMRC decides that you are trading, rather than just investing, it may tax your profits as income instead of gains. This typically occurs where an individual is:

·        Actively mining cryptocurrency

·        Is considered a dealer due to the volume of trade they complete

·        Validating transactions

·        Staking and yield farming.

In all of these cases, a person is likely to be remunerated through the receipt of fees and/or further cryptoassets in return for their services. On this basis, these rewards may be subject to income tax.

Some employers are also choosing to pay staff via cryptoassets. If an employer awards cryptoassets, they are taxable as employment benefits.

Need advice on the taxation of cryptocurrencies and other taxation matters? Contact us today.