Personal Tax Update – August 2022

Aug 2, 2022 | Blog

Our August issue of Personal Tax Update can be found below.

The following personal tax update content is accurate as of 28.6.2022:

Childcare accounts can subsidise summer camp costs

If you have children under 12 who attend a nursery, after school club, play scheme, childminder or you are considering sending them to a summer camp, you should think about setting up a tax-free childcare account. The government adds 25% to the amounts that you save in the account, contributing up to £2,000 for each child each year (a higher amount applies for disabled children). For example, if you save £8,000, this is topped up to £10,000.

The account is then used to pay approved childcare providers. It is worth noting that it doesn’t need to be the child’s parents paying into the account. Uncles, aunts, grandparents and others can also make payments, The government have noticed that many families who are eligible for this scheme are yet to set up their accounts.

Various factors affect eligibility but those with annual net income in excess of £100,000 are notably excluded.

The tax-free childcare account scheme will gradually replace childcare vouchers which many employers continue to provide to employees.

Childcare vouchers are free from tax and national insurance (within specified limits) and can be used to pay for childcare until the child is 16. Childcare voucher schemes can no longer be set up but employees already eligible can continue to benefit.

Penalties for overclaimed SEISS grants

HMRC are reminding sole traders and partners who have received Self-Employed Income Support Scheme (SEISS) grants that there are potential penalties of up to 100% of amounts overclaimed in certain circumstances.

HMRC may apply the penalty where they believe that the trader knew that they were not entitled to the grant and did not tell HMRC within a 90-day notification period. The law treats the failure as ‘deliberate and concealed’. This means HMRC may charge a penalty of up to 100% of the amount of the SEISS grant that the trader was not entitled to receive or keep.

Traders are required to notify HMRC if there is an amendment to any of their tax returns on or after 3 March 2021 which either:

  • lowers the amount of the fourth or fifth grant they are eligible for
  • causes the trader to no longer be eligible for the fourth or fifth grant

If the tax return was amended before claiming the fourth or fifth grant, traders had to tell HMRC within 90 days of receiving the grant. If the tax return has been amended after receiving the fourth or fifth grant, traders must tell HMRC within 90 days of the amendment. Further details can be found on HMRC’s website.

Reporting SEISS grants on 2021/22 tax returns

Where applicable, the fourth and fifth SEISS grants that a trader was entitled to need to be reported on the trader’s 2021/22 self-assessment tax return, with any overclaimed amounts separately disclosed. The fifth grant claim was particularly complicated as it was dependant on the reduction in business turnover.

If you have any concerns, we can check that the amounts reported are correct and minimise any potential penalties.

The following Personal Tax Update content is accurate as of 27.7.22

Prime Minister candidates and possible tax cuts

With the departure of Boris Johnson, the contenders as leader of the Conservative Party and Prime Minister (PM) have now been whittled down to the last two – Rishi Sunak and Liz Truss.

Whoever wins will need to appoint a new chancellor and we await their tax policies with interest.

In the event of Liz Truss becoming PM, we are expecting her Chancellor to call an emergency Budget, with a flurry of tax reductions being announced.

In her campaign to win support from Tory members, Liz Truss has suggested that she would reverse the 1.25% Health and Social Care Levy. She would also cancel or reduce the scheduled rise in corporation tax to 25% from 1 April 2023 where company profits are in excess of £250,000 a year.

We are not currently expecting an emergency Budget under former chancellor Rishi Sunak. Sunak continues to promise tax cuts in the future, but only when inflation has been brought under control.

Making Tax Digital – update

Making Tax Digital (MTD) for VAT has been with us since April 2019, with the extension to all VAT registered businesses from April 2022.

The next roll-out will be the introduction of MTD for income tax which is scheduled to start in April 2024.

The obligation to keep records in a digital format and report information quarterly will apply to unincorporated businesses and property landlords with gross income from all business activities in excess of £10,000 a year.

Businesses operating MTD for VAT may already have ‘functional compatible software’ for income tax purposes but will need to get into a new routine for income tax reporting.

The changes will be more significant for property landlord businesses, most of whom are not VAT registered and so have not already been through MTD for VAT.

If you believe you need a new digital accounting system for your business, there are a number of MTD compliant accounting software packages on offer and we can advise you on the one that is most appropriate for your business. There are even relatively low-cost software packages specifically designed for property rental businesses.

More details of MTD for income tax reporting

HMRC are currently consulting on the precise details of what needs to be reported each quarter. As expected, it seems the accounting software will need to record and report income and expenditure in the same categories currently used for self-assessment.

The main categories are:

  • Turnover/gross rents
  • Costs of goods sold
  • Materials
  • Wages and salaries of employees
  • Sub-contractor costs
  • Rent, rates, power and insurance
  • Repairs and renewals
  • Professional fees
  • Telephone and other office costs
  • Interest on bank and other loans
  • Motor and travel expenses

HMRC also propose that those businesses with turnover below the £85,000 VAT threshold will only need to report the totals of income and expenditure each quarter which will be a welcome simplification for small businesses.

Personal Tax Update questions?

If you have any questions relating to the above personal tax update, don’t hesitate to get in touch. You can contact us here.

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