Heads up on some potential tax changes that could affect you! (Plus, our usual COVID-19 support updates)

Friday, July 30th, 2021

As a pro-active accountancy practice, at Copia Wealth & Tax in Wolverhampton, we like to keep our clients and contacts informed well ahead of implementation, so it gives plenty of time to plan and thus avoid future tax headaches.

This month, we focus on the possible impact of the next Finance Bill and a COVID update. 

With that in mind, the Treasury and HMRC recently issued several policy papers and consultations which hinted at the possibility of future tax changes together with draft legislation relating to the next Finance Bill.

Abolishing basis periods for income tax 

A proposal has been put forward to a) abolish basis periods for income taxed as trading profits for the tax year 2023/24 and beyond, and b) layout transitional rules for the tax year 2022/23. These measures were justified as a “simplification” measure to facilitate the introduction of making tax digital (MTD) for income tax which commences 6 April 2023. These proposals would affect sole traders, partnerships, property landlords, together with any trusts where trading or property rental activities are in evidence.

The plans propose the apportionment of profits or losses of periods of account to tax years, where the period of account does not coincide with the tax year. Apportionment would be carried out by reference to the number of days in each period. 

Potential Changes to Rules for Property Businesses

There are also potential changes to the apportionment rules for property businesses, to allow those with property businesses whose accounting year-end falls between 31 March and 4 April to treat any profits between the end of their accounts and the end of the tax year as falling in the following tax year. Additionally, those with property businesses commencing after 31 March would be able to treat their business as commencing in the next tax year. This means that apportioning small proportions of profits between tax years would no longer take place.

Large Tax Bills Ahead for Sole Traders and Partnerships?

For some sole traders and partnerships, and particularly for those with an existing 30 April year end, the proposed transitional rules for the 2022/23 tax year could result in large tax bills, (which many have as it pushes tax on trading profits forward by a year). The profits of the year ended 30 April 2021 would be taxed in 2021/22 under current rules, with 2023/24 taxing profits arising between 6 April 2023 and 5 April 2024 using the new rules.

The profits taxed in 2022/23 would be those for the year ended 30 April 2022 plus the period 1 May 2022 to 5 April 2023 – meaning that a business will be taxed on 23 months of profits! 

That said, there would however be a deduction for 11 months “overlap relief” (which typically arises when profits were taxed twice at the start of the business) – but as those will often be much lower than the 11 months being taxed in 2022/23, the overall tax bill could be much higher.

To soften the blow, transitional provisions allow the taxpayer to elect to spread any excess profits over the next 5 tax years to smooth out what would otherwise be an excessive tax bill.

Personal Pension age to increase from 55 to 57 as from April 2028?

Currently registered pension schemes must not normally pay any benefits to members until they reach the National Minimum Pension Age (“NMPA”); since 6 April 2010, NMPA has been age 55 (before then it was 50). 55 is currently the minimum age at which most people with private pensions (unless they are retiring due to ill-health, in which case it can be sooner) can access them without incurring an unauthorised payments tax charge.

Draft legislation has been published indicating an increase in the normal minimum pension age (NMPA) from 55 to 57 in 2028 which will impact on anyone with a personal pension who is currently 48 or younger.

New Right to Work checks from 1 July 2021

Now that the deadline for applications to the EU Settlement Scheme has passed, the process for completing right-to-work checks on EU, EEA, and Swiss citizens has now been changed.  

Employers can no longer accept EU passports or ID cards as valid proof of right-to-work, (except for Irish citizens). Now you will be required to check a job applicant’s right to work online using a share code and their date of birth. No retrospective checks are required in relation to the status of any EU, EEA, or Swiss citizens employed before 1 July 2021.  

COVID-19 Government support schemes update

Coronavirus Job Retention Scheme (CJRS)

CJRS claims covering July 2021 can now be made but they must be completed by Monday‌‌ 16‌‌ August.

Employers can claim 70% of furloughed employees’ usual wages for the hours not worked, up to a cap of £2,187.50 per month. You will however need to pay a top-up, so that you continue to pay furloughed employees at least 80% of their usual wages in total for the hours they do not work, up to the cap of £2,500 a month.

Employers can still choose to top up employees’ wages above the 80% level or cap for each month if they wish, at their own expense.

From 1 August 2021, government support will reduce to 60% of wages up to a maximum cap of £1,875 for the hours the employee is on furlough.

This 60% support will continue until the end of September when CJRS is coming to an end.

Self-Employment Income Support Scheme (SEISS) update

Claims for the fifth SEISS grant will open from late July; note any submissions made before an individual’s personal claim date will not be processed. This means that shortly, HMRC will be contacting every self-employed individual who may be eligible for the fifth grant, to tell them their personal claim date. Customers can then submit a claim up from that date up until the claims service closes on 30‌‌ September‌‌ 2021. 

To be eligible you must intend to keep trading in 2021/22 and believe that due to COVID there will be a significant reduction in trading profits between 1 May 2021 and 30 September 2021.

To make a claim for the fifth SEISS grant, most taxpayers will be required to provide turnover figures. The turnover figures will be used to compare the turnover during the ‘pandemic year’ to a ‘reference period’. You will be entitled to a higher grant if your turnover has been reduced by more than 30% – if less, the grant entitlement is reduced.

Detailed instructions on where to find turnover for the ‘reference period’ and calculating turnover for the 12-month period starting on any date from 1 to 6 April 2020 (the ‘pandemic year’), and, can be found on the Government website:  Claim a grant through the Self-Employment Income Support Scheme – GOV.UK (www.gov.uk)

Copia Wealth & Tax, your Wolverhampton tax advisers

Our Tax team here at Copia Wealth & Tax, Wolverhampton is always here to provide guidance and advice, so if any of this potential legislation or changes to the COVID-19 support scheme concerns you, and/or perhaps need help with the calculations, we are here to help.

If you would like to have a confidential chat with our friendly in-house experts, call us now on 01902 783172, or alternatively, just click HERE to contact us via the website.

We look forward to hearing from you.