Large businesses owe their small suppliers £23.4 billion in late payments, according to the Government, sparking a review by the Department for Business, Energy and Industrial Strategy (BEIS).

Business Secretary Grant Schapps said he would launch the review to scrutinise payment practices and “prevent small firms from being ripped off by larger companies”.

The review will also “consider the progress made in specific sectors of the economy in combating late payment and will include an examination of current payment reporting regulations and the prompt payment code”, according to the BEIS.

Schapps said:

“The UK’s 5.5m small businesses are an integral part not just of our economy, but of our communities too, and this Government is firmly on their side.

“That many small firms are routinely paid late is intolerable and presents a real barrier to productivity, the creation of high-skilled jobs and ultimately economic growth.”

According to research carried out by cloud accounting software provider Xero, payments to small businesses were an average of 8.2 days late in September, the highest late payment time since August 2020.

Calling for tougher penalties for larger businesses that fail to meet agreed payment terms, managing director of Xero, Alex von Schirmeister said the previous Government’s mini-budget has “left small businesses in limbo at a time when they need stability”.

Simon Gray, head of business at the Institute of Chartered Accountants for Wales and England (ICAEW), said:

“We’ve been here before, but it’s really starting to become a problem again. Businesses are facing pressures; costs are rising, and domestic sales are falling.

“As a result, there’s a squeeze in the middle on working capital, and one of the ways you manage working capital is you chase debt faster and pay your suppliers slower.”

Talk to us about your late payments.

The fundamentals of setting up a business.

A side hustle is a piece of work or a job that an individual can get paid for in addition to their main job.

From driving for a ride sharing company to tutoring online, copywriting, and more, a side hustle could be any commercially viable endeavour.

The practice became as popular as ever in the UK during the Covid-19 pandemic, which saw 11.7 million employee jobs furloughed.

Published in June 2022, an Aviva study found that 19% of adults in the country had started a side hustle since March 2020, with 16% claiming to have earned upwards of £1,000 a month from their new venture.

Almost two-thirds (61%) claimed their side hustle had been because of Covid-19, while 30% said it had been out of necessity to make ends meet.

But 39% said it was a way to turn a hobby into an income. Meanwhile, out of those who had started a side job, 63% are still active today – the equivalent of 6.49 million Brits – out of 29.7m payrolled employees.

But how do you turn that hobby-turned-income into a fully-fledged job and business idea? How do you take that next step?

Get your financial situation in check

No matter how profitable you think your side hustle could be in the future, you need to recognise that the most vulnerable time for any new business will be the first few months and years.

In fact, 20% of businesses fail in their first year and around 60% will go bust within their first three years.

A survey by CBInsights found that 42% of startup businesses fail because there is no market need for their services or products, but luckily for you, you’ve already got your foot in the door and a customer base.

Instead, you probably need to be more worried about why 29% of startups fail: because they run out of cash.

Therefore, you need to get your finances in order. First, make sure you have paid off any major debts; if your personal finances are not under control, you’ll keep finding reasons to turn back to your old job rather than focus on your new business.

Some financial coaches suggest saving at least 6 to 12 months of expenses to help you cope with slower months during the early days.

Crucially, you need to differentiate any money you have for your business from your personal finances – otherwise, you risk neglecting your personal finances for the sake of business growth.

However, make sure you don’t use this as an excuse to kick the can down the road. Once you’re financially ready to take the plunge, you should take the dive in rather than wait for the ‘right time’.

It’s natural to be nervous, but remember, you don’t have to go it alone – your financial adviser or accountant would only be happy to help you set up your business.

Make a business plan

When you have a side hustle, it’s easy to take a rather relaxed approach to things, especially if it’s something you do to supplement your income or to monetise a hobby, as opposed to something you rely on to put food on the table.

But if you’re serious about turning your side hustle into your dream job, you need to write a business plan.

These aren’t just a great way to put your thoughts to paper and formulate a strategic plan or evaluate different ideas; investors rely on business plans to evaluate  the feasibility of a business idea before funding it. The same is true with banks and business loans.

Therefore, you need to make sure your business plan is watertight. They also tend to be much more complex than you might think, so don’t hesitate to get in touch with a financial adviser to help you with this step.

Broadly speaking, though, your plan should include:

• an executive summary that distils the main points of the business plan
• a description of your business, including your industry, business objectives and business model
• a market analysis – including an ideal customer profile, competitor research and SWOT analysis
• an outline of management and organisation
• a list of products and services, and details
• a marketing plan
• a logistics and operations plan (who are your suppliers, how will you produce your product, etc.)
• a financial plan, especially an income statement, balance sheet and cashflow statement.

Just remember that your business plan isn’t necessarily only going to be read by you, so make sure the tone of voice is consistent and there are no grammatical or spelling errors.

Remember the admin

It’s easy to get caught up in the rush of turning a hobby or side hustle into your full-time job and your own business. But, as ever with life, there are some administrative tasks to keep in mind.

First, if you haven’t been doing so already, now is the time to start recording every single business expense. Not only will this help you keep track of your money, but it will help you reduce your tax bill later down the road.

Keep on top of your invoices, too. Whether that’s paying your invoices to remain in your suppliers’ good graces, or sending and chasing your own to get paid on time. A digital system will help massively here.

If you employ staff, you’ll have payroll to run, and if you have inventory, make sure to do regular stock checks.

It’s also useful to do a monthly performance review to see how your business has been doing, then create plans and projections for the future too.

Finally, there are your taxes to organise by filling and filing a self-assessment tax return (if you’re a sole trader) or a corporate tax return (if you’re a limited company).

Prioritise your time

Running your own business will suck up more hours in a day than you might realise. Too many people, unfortunately, sacrifice their personal time and stop meeting friends and family because there’s just so much to do.

We’re not saying you won’t have to work hard. If you didn’t, everyone would become self-employed. But for the success of your business, you need to prioritise your time correctly.

You‘ll quickly become overtired and potentially burned out if you don’t. You might even start making mistakes that threaten the viability of your business.

But things still need to be done – emails responded to, suppliers negotiated with, and taxes filed. You could work into the evening or recognise that you’re only human and surround yourself with people who can help you.

We, for one, would be more than happy to assist you with your accounting, bookkeeping and taxes to take some work off your plate. Depending on your situation, we might even be able to help you with your business plan while providing you with general business advice.

Get in contact with us today.

HMRC is reminding taxpayers to declare their self-employed income support scheme (SEISS) payments in their self-assessment return for the 2021/22 tax year.

The Government paid SEISS grants to eligible businesses adversely affected by the Covid-19 pandemic, with over 2.9 million people claiming at least one SEISS payment in the 2021/22 tax year.

The grants are subject to both income tax and National Insurance contributions (NICs) and must be declared before the approaching self-assessment return deadline on 31 January 2023.

Self-assessment taxpayers are warned not to include their SEISS grant in the ‘any other business income’ section of their return as there is a separate section dedicated to it.

Self-employed people and businesses that received other support payments through Covid-19 support schemes, including furlough and the ‘eat out to help out scheme’ should check to see if they need to be declared as well.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said:

“We want to help customers get their tax returns right the first time. We have videos and guidance available online to support you with your self-assessment.”

HMRC also reminded businesses that if they cannot afford their tax bill, they should get in contact as soon as possible so arrangements can be made.

Talk to us about your tax return.

Reasons to start your self-assessment tax return now.

With the new year just around the corner and tax season fast-approaching, now’s a good time to get a head start on your self-assessment tax return.

Self-assessment is a system HMRC uses to collect tax on income that wasn’t taxed at source. People who are self-employed, such as sole traders, have to file a self-assessment return, along with partners in partnerships and landlords who receive rental income. Directors of limited companies who pay themselves a dividend may also need to file a return.

If you’re not sure whether you’re affected, you can check if you need to send a return on the Government website.

The deadline for completing your return for the 2021/22 tax year is 31 January 2023, and while HMRC gave taxpayers an extra month to get everything together and filed in 2022, it is unlikely this will be the case this year. Any taxpayers who don’t file their return and pay any tax due by February 2023 will face penalties and interest.

It’s a good idea to submit your return now to avoid incurring any extra costs. To help you get started, we’ve outlined some of the benefits of filing your return early below, along with some common mistakes and how to avoid them.

Why you should submit your return now

Improved cashflow management

The earlier you submit your self-assessment return, the sooner you’ll know how much tax you owe. You don’t need to pay your tax bill at the same time as filing your return, so filing earlier will give you plenty of time to budget and manage your cashflow accordingly before 31 January.

Giving yourself that extra bit of notice enables you to adjust your finances and make provisions where you need to. Even if you end up with a bigger bill than you were expecting, it will be much easier to pay it when you’ve had a month or two to plan ahead.

On the other hand, missing the filing and payment deadline will result in having to pay interest on your tax bill, as well as penalties. Cashflow problems are very common this time of year, so avoiding this extra cost is crucial.

More time for tax planning

Making a headstart on your return will give you time to explore the wide range of reliefs and allowances available.

Moreover, filing early can give you more time to seek expert tax advice. Accountants know the tax system inside and out, and can advise you on how to become as tax efficient as possible while still staying compliant. Working with a specialist may introduce you to methods of reducing your tax liabilities that you were previously unaware of.

If you work as a sole trader or partner, you may be able to deduct some of your business costs as allowable expenses, which can include money spent on office supplies and travel, as well as the costs of running your business premises.

Other sources of tax relief include claiming on tax-free charitable donations and claiming any pension contributions that you make throughout the year.

Access tax refunds sooner

If you file your return early and you’re owed a refund, there’s a good chance you’ll receive it ahead of the deadline.

HMRC will let you know the amount you’ve overpaid by as soon as you complete your self-assessment form. After that, they’ll be able to process your refund, and you may not have to wait until 31 January to receive it. If you think you’ve overpaid, filing earlier can speed up the process.

Gain peace of mind

A looming tax deadline can make it hard to actually enjoy the holidays, but completing your forms now may alleviate some unnecessary stress in the coming weeks.

Common self-assessment mistakes

Thousands of taxpayers make mistakes when completing their tax returns each year, and this year will likely be no exception. However, once you know the most common mistakes, you can start to take steps to avoid them.

Missing deadlines

Missing the self-assessment tax return deadline can be expensive. People who file or pay their tax return up to three months late will need to pay a £100 penalty to HMRC, with increased fines thereafter. For those that pay their tax late they will not only be charged interest, but also a penalty which will be based on a percentage of the amount of tax outstanding.

Taxpayers often underestimate how long the process will take, so starting your return earlier will give you more time to meet the deadline. If you think that you won’t be able to pay your bill in full by 31 January, you can arrange a payment plan with HMRC.

Your accountant can ensure your return is done on time by maintaining your records throughout the year, and submitting your forms on your behalf.

Submitting incorrect figures

It’s easy to make mistakes when you’re in a rush, so it’s important to give yourself plenty of time to double-check your calculations. Submitting incorrect information may result in an investigation by HMRC, or even prosecution in the case of deliberate wrongdoing.

Maintaining accurate and up-to-date records throughout the year can help you avoid this problem, as well as make it quicker and easier to submit your return.

If you do make a mistake on your tax return, you can make a change up to a year from the amended deadline.

Underclaiming or overclaiming tax relief

It’s important to claim the right amount of tax relief. People who miss out on available reliefs and allowances end up paying more tax than they owe, while those who overclaim may face an investigation from HMRC – or even prosecution.

Tax can be complicated and legislation changes all the time, so getting it right requires a keen eye for detail and some expertise. Working with a chartered accountant can help you retain more of your earnings, while ensuring that you are compliant with any rules and regulations.

It’s important to keep detailed records of any business expenses throughout the year, too. While you may not have to submit them with your return, you’ll need to keep them on hand in case HMRC asks for proof.

Forgetting about payments on account

On top of your bill for the 2021/22 tax year, HMRC may ask you to make an advance payment towards your next self-assessment bill. This is called payments on account, and can result in you paying 50% more than you were expecting on 31 January.

You’ll need to factor this cost into your budget, and submitting your forms well in advance will give you time to set enough money aside. Likewise, you can start budgeting for the second instalment, which will be due 31 July 2023.

It also pays to think ahead. If you think your tax bill will be lower than last year, you can ask HMRC to reduce your payments on account online. Furthermore, looking at HMRC’s guidance on payments on account can help you prepare.

Making sure you get it right

Many taxpayers choose to do their self-assessment tax return by themselves, but hiring an accountant can have a lot of benefits, especially if you run your own business or have multiple sources of income.

If certain factors make your return more complicated, getting it right may require an expert eye. Calculating business expenses can be difficult, for example, especially if you use some items for both personal and business reasons.

It’s not just businesses that can benefit from this expertise. Hiring an accountant to file your return on your behalf can help ensure everything is submitted accurately and on schedule, and help reduce your tax liabilities.

Your accountant can also help you manage your finances and maintain accurate business records throughout the year. That way, filing your return next time will be much more straightforward.

Speak to an expert about your self-assessment tax return.

Chancellor Jeremy Hunt announced several measures in this year’s Autumn Statement in an attempt to plug the £55 billion ‘black hole’ in public finances.

The statement, delivered to the House of Commons on 17 November, included several tax threshold freezes and cuts in annual allowances.

One of the most important changes was the announcement that the additional-rate tax threshold would be lowered to £125,140, meaning a further 250,000 taxpayers will start being taxed 45% of their annual income.

The personal allowance of £12,570 will continue to be frozen at its 2021/22 level but for two extra years until 2028. According to chartered accountant Richard Murphy, this will increase the burden by up to £400 in income tax.

Hunt also announced Government plans to cut the capital gains tax allowance to £6,000 in 2023 and then to £3,000 in 2024, worth an extra £40m in revenue by 2027.

The Chancellor also delivered a number of support measures for smaller businesses in the UK.

As of April 2023, business rates relief for retail, hospitality and leisure will increase from 50% to 75%, equating to £110,000 per business over 2023/24.

Small businesses will also benefit from a new ‘supporting small business scheme’, which will cap business rate bills at £600 per year for smaller businesses.

Helen Dickinson, chief executive of the British Retail Consortium, said:

“This Autumn Statement supports [retailers] by reducing upwards pressure on prices in the short term and helping retailers protect jobs, keep shops open, and protect the vibrancy of local communities.”

Not everyone is pleased with the changes. Paul Johnson, director of the Institute for Financial Studies, said:

“Jeremy Hunt’s first fiscal event as Chancellor was a sombre affair. Surging global energy prices have made the UK a poorer country. The result is an OBR forecast that the next two years will see the biggest fall in household incomes in generations.”

Talk to us about your taxes.

The Government’s reversal of the National Insurance contribution (NICs) increase is now in effect as of 6 November.

The majority of working people will begin receiving the 1.25% tax cut in their payslips from November onwards.

The rise in NICs was introduced in April as part of the health and social care levy but was reversed by previous Chancellor Kwasi Kwarteng in the September mini-budget.

The Government had originally planned to use the £12.4 billion it predicted to raise through the levy to reform the social care system and reduce the backlog in the health service.

However, despite the tax cut, the Government has indicated the same levels of funding for the health and social care services will be maintained.

The reversal follows a rise in NI thresholds in July, which, in tandem with the cut to National Insurance rates, will save around 30 million people an average of £500 in 2023, according to HMRC. However, some people may not benefit immediately from the reduction if their employers cannot update payroll processes in time.

These employees are expected to receive the tax cut by February 2023 and should benefit retrospectively once updates are applied.

Speaking on the policy’s effects on business, HMRC said:

“Businesses who currently have NICs liabilities will pay less, allowing them greater scope to invest in their businesses and supporting the overall growth of the economy.”

Talk to us about your payroll.

The Bank of England (BoE) decided to increase the base interest rate from 2.25% to 3% last month in a bid to curb inflation.

The 0.75 percentage point rise is the largest hike since 1989 and the eighth consecutive increase since December 2021.

Updated projections from the Bank’s Monetary Policy Committee (MPC) indicated that the UK would face a “very challenging” two-year recession, with unemployment potentially doubling by 2025.

With inflation climbing at its fastest rate in 40 years, the BoE hopes that raising interest rates will reduce inflation by increasing the cost of personal and business borrowing to lower demand.

While this decision will benefit savers, higher interest will place more burden on people with mortgages, credit card debt and bank loans.

Chancellor of the Exchequer Jeremy Hunt acknowledged how families and businesses would be affected by the higher rates but pledged to “restore stability” to the UK economy and deliver long-term growth.

The BoE said:

“The Committee continues to judge that if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary.

“The MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit.”

Talk to us about your business costs.

Introduction

“British families make sacrifices every day to live within their means, and so too must their Government, because the United Kingdom will always pay its way.” – Chancellor Jeremy Hunt

 As Jeremy Hunt took to the dispatch box just 34 days after taking on the role of Chancellor of the Exchequer, all eyes were on him.

Following the dramatic sacking of Kwasi Kwarteng after his October mini-budget unleashed market turmoil, a swift change in Prime Minister, and an ever-burgeoning cost of living crisis, Hunt promised that today’s Autumn Statement (delayed from 31st October) would ensure his tax and spending plans would “stand the test of time”.

With food prices in the UK rising at their fastest rate for 45 years, and the Bank of England warning that the nation is facing its longest recession since records began, Hunt’s focus, he claimed, would be “economic stability and restoring confidence that the United Kingdom is a country that pays its way”.

New fiscal rules, announced by Hunt in the statement, dictate that public sector borrowing as a percentage of GDP must fall and be below 3% within a five year period. That left Hunt with a “black hole of around £55bn in public finances” to plug – either through spending cuts or tax rises.

Set on such a stage, the Chancellor’s inaugural Autumn Statement proved to be quite unlike any other seen since the days of the coalition.

Acknowledging that the UK is currently in recession while reiterating that the Government’s three-fold priorities (stability, growth and public services) will help rebuild the economy and reduce debt, Hunt went on to announce a barrage of tax hikes, spending cuts and threshold freezes.

We’ve outlined the highlights of the statement and what it means for you and your business, below.

Important information

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. The information in this report is based upon our understanding of the Chancellor’s 2022 Autumn Statement, in respect of which specific implementation details may change when the final legislation and supporting documentation are published.

 This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content. Pension eligibility depends on individual circumstances.

 Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.

Economic outlook

Hunt began his statement with a summary of expectations for the economy according to the Office for Budget Responsibility, which is required to publish an economic report at least twice a year.

The objective of the reports by the OBR is to summarise the UK economy, taking into account the changes made to national spending and the tax system in the accompanying Budget document.

The summary of the OBR report has long been anticipated, after the lack of such a report in Kwarteng’s mini-budget in September contributed to the market backlash that eventually led to his departure.

The economic forecast, released one day after the Office for National Statistics revealed inflation (excluding owner occupier housing costs) had hit 11.1% in the year to September – the highest level since October 1981 –  proved to be sombre listening.

The UK is currently in a recession, according to the OBR, which will last “just over a year from the third quarter of 2022, to a peak-to-trough fall in GDP of 2%”. In 2023, GDP is expected to fall by 1.4%.

“Without the fiscal support to households and businesses provided by the energy price guarantee and other measures announced since March, we estimate that the recession would be 1.1 percentage points deeper”, the OBR wrote.

GDP will rise by 1.3%, 2.6%, and 2.7% in the following years, according to the OBR’s forecast, while the economy will recover to its pre-pandemic level in the fourth quarter of 2024 as inflation begins to fall.

Overall this year, the economy is still forecast to grow by 4.2%, however.

The OBR said inflation had already peaked at a high of 11% in the current quarter and would be dropping “sharply” in 2023, dragging “below zero” in the middle of the decade, and returning to the target of 2% in 2027.

Rising prices will erode real wages and reduce living standards by 7% over the two financial years to 2023/24, wiping out the previous eight years’ growth, according to the OBR.

Meanwhile, unemployment will rise by 505,000 from 3.5% to a peak of 4.9% in the third quarter, according to the report.

On public debt, Hunt confirmed two new fiscal rules, dictating that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period, and be below 3% of GDP in the same year.

As such, Government plans will borrow a forecasted 7.1% of GDP in 2022, 5.5% in 2023, and 2.4% in 2027/28.

However, the OBR noted that “the Government’s two legislated fiscal targets to balance the current budget and get underlying debt falling in 2025-26 are on course to be missed by £8.7 billion and £11.4 billion respectively”.

Personal changes

A few changes for individuals had already been confirmed ahead of the Autumn Statement, either as part of Kwarteng’s mini-budget or its aftermath:

• Basic-rate income tax remains at 20% “indefinitely”. While Rishi Sunak originally announced the rate would drop to 19% from April 2024 during his previous role as Chancellor, and Kwarteng brought this change forward to 2023, Hunt has since announced the measure will be dropped altogether. The Government says it will save around £6bn a year by doing so.
• National Insurance increase has been scrapped. The National Insurance rise of 1.25 percentage points, which took effect in April this year, was reversed as part of the mini-budget. This measure has been kept in effect, along with the cancellation of the April 2023 health and social care levy.
• Dividend tax rates will remain unchanged. These also increased by 1.25 percentage points alongside National Insurance this April, and Hunt has confirmed they will remain at their increased levels from April 2023.

Additional-rate income tax

One of the biggest announcements made by the Chancellor was the lowering of the additional-rate tax threshold from £150,000 a year to £125,140 as of 6 April 2023.

The additional-rate threshold will be applied to anyone earning more than £125,140 a year in England, Wales and Northern Ireland. The Government will legislate this change in the Autumn finance bill 2022.

It’s predicted the change to the additional-rate threshold will mean 250,000 more taxpayers will now find themselves paying 45%.

This announcement is in stark contrast to Hunt’s predecessor’s plans to scrap the additional tax rate altogether.

Income tax thresholds

The personal allowance threshold will remain frozen for a further two years, continuing until 2028, along with the higher-rate threshold and the National Insurance contributions (NICs) thresholds.

Some are referring to this as a ‘stealth tax’ – where wage increases over time will cause people to find themselves caught in higher tax bands, potentially negating pay rises.

Richard Murphy, political economist, said: “The net effect of freezing tax allowances is that most people will pay more than £400 more in tax next year, and every year thereafter – putting the burden on those least able to afford it.”

National Insurance

In July 2022, NICs thresholds were increased to be brought in line with the income tax personal allowance, and fixed until April 2026. The Chancellor today announced that this freeze will be maintained for an additional two years, until April 2028.

Capital gains tax

In the statement, the Chancellor announced a cut to the capital gains tax (CGT) allowance, also known as the annual exempt amount, over the next two years.

The original allowance of £12,300 will be cut to £6,000 for the tax year 2023/24 and will then be halved again to £3,000 in 2024/25. This means a couple’s allowance will be reduced to £12,000 and £6,000 respectively.

The Government’s aim is to raise an extra £40m by 2027 by reducing the allowance rates for CGT.

Inheritance tax

The inheritance tax nil-rate is currently set at £325,000 until April 2026 and will remain at this rate for a further two years until April 2028.

The residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will still start at £2 million.

Qualifying estates will still be able to pass on up to £500,000, with the qualifying estate of a surviving spouse or civil partner remaining at £1m without inheritance tax liability.

The threshold freeze is seen by some as a way to increase inheritance tax bills without directly changing the rate. Due to the increase in house prices, more and more people will face higher inheritance tax bills when dealing with an estate.

Data published by HMRC in October showed a £400m increase in inheritance tax income when compared to the same time the previous year. These measures will be legislated by the Government in the Autumn finance bill.

Dividend allowance

The Chancellor announced that the dividend tax threshold will be slashed from £2,000 to £1,000 from April 2023 and then again to £500 the following year.

Along with the changes to CGT, the Chancellor says that these changes will raise over £1.2bn a year from 2025. Regardless of your tax band, anyone who receives dividends will be affected by the change.

Pension triple lock upheld

Ending weeks of speculation about whether or not the so-called ‘triple lock’ protection would be upheld, the Chancellor confirmed that pensions – like benefits – would rise in line with September’s inflation rate of 10.1%.

The triple lock refers to a manifesto pledge that state pensions would rise in line with whichever is highest of the following: the average wage increase, the previous September’s inflation figure, or 2.5%.

Acknowledging that the cost-of-living crisis is hurting all pensioners, Hunt announced that in April 2023, an £870 increase will represent the “biggest ever cash increase in the state pension”. The standard minimum income guarantee in pension credit will also increase in line with inflation from April 2023 (rather than in line with average earnings growth).

From April 2023, state pension payments will be:

• £203.85 per week (up from £185.15) for those who reached state pension age after April 2016
• £156.20 per week (up from £141.85) for those who reached state pension age before April 2016.

A review of the state pension age is currently being carried out, which considers whether the existing timetable remains appropriate. This will be published in early 2023.

Vehicle excise duty

Electric vehicles will no longer be exempt from vehicle excise duty from April 2025. Vehicle excise duty is a tax on all vehicles using public roads in the UK, and applies differently based on the vehicle’s CO2 emissions.

Stamp duty cuts remain until 2025

One of a few measures to remain initially unchanged from the mini-budget was the decision to raise the threshold at which stamp duty land tax is paid (in England and Northern Ireland) from £125,000 to £250,000.

For first-time buyers, the threshold increased from £300,000 to £425,000. Now, because the OBR expects housing activity to slow over the next two years, these cuts will only remain in place until 31st March 2025 – after which, Hunt will “sunset the measure”.

Business changes

Changes for businesses were also confirmed following Kwarteng’s September mini-budget:

• Corporation tax rises to 25% from 1 April 2023. This increase will go ahead, despite previous plans to scrap it. The full 25% rate will apply to profits of £250,000 and over, while companies with profits up to £50,000 will continue to pay at 19%. Profits between these two figures will be subject to a tapered rate.
• IR35 reforms to stay. Planned changes to IR35 will no longer be repealed, reportedly saving some £2bn in tax. The reforms, which were rolled out in 2017 for the public sector and 2021 for the private sector, saw changes to the way tax status is determined for off-payroll workers, including contractors.
• Bankers’ bonus cap abolished. One of the mini-budget measures left untouched by Hunt was the decision to lift the cap on bankers’ bonuses, which currently stands at 100% of a banker’s annual salary, or 200% depending on shareholder approval. The Prudential Regulation Authority (PRA) is set to consult on plans later this year.
• Alcohol duty freeze cancelled. The £600 million alcohol duty freeze that the Truss administration had planned on introducing on 1 February 2023 has been cancelled.
• VAT-free shopping scheme cancelled. The shopping scheme, which was originally proposed to remove VAT for tourists on UK products, has been scrapped.

Employment allowance

The employment allowance will remain at its current level of £5,000, having increased to that amount in April 2022.

This offers eligible employers relief on their class 1 NICs.

Business rates

The Chancellor confirmed that a business rates revaluation will still take place in April 2023, but also announced a set of changes, including:

• Multipliers will be frozen in 2023/24 at 49.9p and 51.2p (instead of rising to 52.9p and 54.2p).
• Relief for retail, hospitality and leisure will increase from 50% to 75%, equating to £110,000 per business in 2023/24.
• A transitional relief scheme will be put in place, placing ‘upward caps’ on bill increases caused by changes in rateable values at the 2023 revaluation. The caps will apply at different rates depending on business size.
• A new supporting small business scheme (SSBS) will take effect from 1 April 2023, capping bill increases at £600 per year for small businesses that are losing eligibility or seeing reductions in small business rate relief or rural rate relief.
• Improvement relief, which was announced at Autumn Budget 2021, will now be introduced from April 2024 until 2028.

Windfall tax

In response to recent increases to energy prices, Hunt announced that the current energy profits levy will be extended until March 2028, as well as increasing its rate from 25% to 35% from 1 January 2023.

A new, temporary levy will also be introduced for electricity generators. This will apply at 45% on excess returns, also from 1 January 2023 to 31 March 2028.

Annual investment allowance

One thing not mentioned directly in the Chancellor’s speech, but included in the accompanying documents, is the decision to permanently set the annual investment allowance (AIA) at £1m for businesses.

In September, Kwarteng announced that the AIA would remain at £1m rather than being decreased to £200,000 a year after 31 March 2023.

Now, Hunt has reinforced this change and will continue to keep the allowance at £1m from April next year.

R&D relief

Changes to the rates of the two research & development (R&D) relief schemes were announced.

The additional deduction for SME R&D relief will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. Meanwhile, the research and development expenditure credit (RDEC) rate will increase from 13% to 20%.

Hunt positioned the change as a “rebalancing” of the two reliefs, in response to reports of fraudulent claims. Broadly speaking, it means larger companies have more opportunity to benefit from the relief than smaller companies.

National living wage increase

From 1 April 2023, the national living wage will increase by 9.7%, to £10.42 an hour. This rate applies to people aged 23 and over and is said to equal an extra £150 per month.

Online sales tax

Following consultation, the Government has decided not to introduce a proposed online sales tax.

This tax would have aimed to rebalance the way online retail is taxed compared to in-store, but the Government said there were concerns it would be too complex and distort behaviour.

VAT threshold

The VAT registration and deregistration thresholds will remain at their current levels of £85,000 and £83,000 respectively until 1 April 2026.

These had previously been fixed at their current levels until 1 April 2024, but the statement confirmed they won’t change for a further two years.

Energy bills support

The current energy bill support scheme – the energy price guarantee – only runs until April 2023, with a price guarantee levied to help British taxpayers with their rising bills.

Originally announced by Kwarteng earlier in the year, Hunt made a change to this measure in his initial budget speech, reducing the time scale for support from two years down to only six months, lasting until April next year.

In the Autumn Statement, Hunt confirmed the change to the guarantee, continuing Government support, but increasing the threshold: with the average household now paying £3,000 a year, up £500 from the previous limit.

Experts predicted that, without Government support, energy bills could reach up to £3,700, but – regardless of this comparison – households that are already struggling with the current costs will see their bills increase by a further £500.

In response to these changes, Mike Foster, CEO of the Energy and Utilities Alliance, said: “News of the energy price cap protection coming to an end in April will surprise and worry millions of hard-pressed families. Together with the announcement that promised tax cuts have also been withdrawn will heap huge financial pressure onto those already struggling to pay their bills.”

Hunt also announced the following energy initiatives:

• Households on means-tested benefits will get £900 support payments next year
• £300 payments will be made to pensioner households, and £150 for individuals on disability benefit.

The one-off payment of £400 for winter energy bills has been in effect for the last month, so this saw no change.

The energy bill relief scheme, which is aimed at supporting businesses (which aren’t covered by the energy price cap) also remained in place – as did the energy markets financing scheme.

Reducing your tax bill when selling property.

A combination of financial challenges, eviction bans and a perceived lack of support meant the rental market was hit hard by the COVID-19 pandemic. Now, landlords and tenants are feeling the effects of rising costs.

Landlords are also concerned about rental reform, high taxation and higher energy efficiency standards, according to the UK Landlord Report by Simply Business.

They found that almost half of landlords had sold a property in the last year or are planning to do so, which “comes as little surprise when you consider the pace of market change, as well as tax disincentives such as Section 24 and the stamp duty surcharge”.

That’s not even taking into account the aftermath of the mini-budget announced by former Chancellor Kwasi Kwarteng on 23 September 2022, which piled even more risks onto landlords after the Bank of England signalled it could raise interest rates to 6%. As a result, some buy-to-let landlords may see their profitability decline when they go to refinance their loans.

Data issued by Hamptons suggests many will face losses if interest rates shoot up. It said the average higher-rate tax-paying landlord could expect their annual net profit to plummet from £3,198 to £884 – a 72% decline.

If the most recent 0.5 percentage point rate to 2.25% is passed on to mortgage costs, that could slash average profits to just £212 a year. And if the base rate were only to nudge up to 2.5%, that same landlord could expect to make a loss.

That leaves some investment property owners, in effect, faced with two options: raise rents in the hope a tenant will pay it to keep the landlord in profit territory or sell up. Meanwhile, some analysts predict house prices could fall by up to 20%, which puts more pressure on sellers.

But selling a residential property comes with its fair share of tax obligations, namely capital gains tax, which could end up costing you a fair amount of money. There are, however, ways to mitigate your tax bill.

You should only sell a buy-to-let residential property after talking through your specific situation with a financial adviser.

Capital gains tax on residential property

Capital gains tax is a tax on the profit you make when you sell (or ‘dispose of’) certain assets and property that has increased in value from when you first purchased it.

It is the gain you make that is taxed rather than the total amount of money you receive. For instance, a painting bought for £5,000 and sold later for £25,000 would have made a £20,000 gain.

Therefore, landlords who invest in property to take advantage of house price growth will almost certainly have paid capital gains tax in the past or are likely to do so in the future.

It is paid on:

• most personal possessions worth £6,000 or more, apart from your car
• property that is not your main home
• your main home if you’ve let it out, used part of it exclusively for business, or it is above 5,000 square metres in total
• any shares that are not in an ISA or PEP
• business assets.

You pay a different rate of tax on gains from residential property than you do on most other assets.

If you’re a higher or additional rate taxpayer, you’ll pay 28% on your gains from residential property and 20% on your gains from other chargeable assets.

If you’re a basic-rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and, again, whether your gain is from residential property or other assets:

1. Work out how much taxable income you have – your income minus your personal allowance and any other income tax reliefs you’re entitled to.
2. Work out your total taxable gains less taxable losses in the year.
3. Deduct your annual exempt amount from your net gains.
4. Add this amount to your taxable income.
5. If this amount is within the basic income tax band, you’ll pay 18% on your gains from residential property (10% for most other assets). You’ll pay 28% on gains from residential property (or 20% on most other assets) on any remaining amount above the basic tax rate band.

If you have gains from both residential property and other assets, you can use your annual exempt amount against the gains that would be charged at the highest rates first.

The annual exempt amount for capital gains is £12,300 for the 2022/23 tax year, and you are entitled to an annual exempt amount each year, so planning your asset or property disposals over the long term is important to save money on tax.

You must report and pay any capital gains tax on most sales of UK residential property within 60 days.

Property developers and businesses

If you own a business that buys and sells property (you’re a property developer, for instance), you do not pay capital gains tax when you sell a property.

Instead, you’ll pay income tax if you’re a sole trader or partner or corporation tax if you’re a limited company.

Non-resident CGT on UK property

Non-UK residents and landlords are liable to pay capital gains tax with a non-resident capital gains tax return if they sold or disposed of UK property before 5 April 2020.

From 6 April 2020, non-resident capital gains tax needs to be reported and paid using the capital gains tax on UK property service if you sold or disposed of:

• residential UK property or land
• non-residential UK property or land
• mixed-used UK property or land (property that has both residential and non-residential elements)
• rights to assets that derive at least 75% of their value from UK land (indirect disposals).

CGT deductions for landlords

Luckily for landlords, there are ways to reduce a capital gains tax bill.

First, the amount of capital gains tax payable will reduce if, at any time during the ownership of the property, the landlord lived there themselves.

If you lived in a property and then moved out to let the property out, you can claim private residence relief for the time you lived there, plus the last nine months you owned the property.

If you lived in your home at the same as your tenants, you might qualify for letting relief on gains you make when you sell the property.

You can get the lowest of the following:

• the same amount you got in private residence relief
• £40,000
• the same amount as the chargeable gain you made while letting out part of your home.

Letting relief does not cover any proportion of the chargeable gain you make while your home is empty.

If you purchased a property with multiple people, you won’t pay the same amount of tax as you would have if you purchased it alone, as the annual exempt amount of all the buyers is applied to the gain..

Landlords can also save money by claiming improvements to their properties as a tax-deductible capital expense. Improvements can be anything from installing cavity wall insulation to building an extension.

In most cases, landlords will have already deducted many of the expenses maintaining their property when completing their annual tax return. If not, there may be allowable expenses against capital gains tax when the property is sold. This also applies to fees associated with buying and selling a property, such as those related to surveyor inspections, solicitors, buy-to-let mortgage brokers, stamp duty and estate agents.

Talk to us about tax on your property.

The Government has u-turned on IR35 reforms.

Late September into mid-October has been a turbulent time for the Government and a confusing time (at best) for taxpayers, after former chancellor Kwasi Kwarteng’s fiscal statement.

On 17 October, the new chancellor, Jeremy Hunt, reversed around two thirds of the tax cuts in the fiscal statement, including complicated changes to the controversial off-payroll working rules known as IR35.

Background of IR35

IR35 rules first came into law via the Finance Act 2000, the idea being to clamp down on the growing use of one-man-band limited companies to provide professional services to clients, where the individual was still working in a manner akin to a traditional ‘employee’.

In other words, the rules were designed to clamp down on self-employed workers who enjoyed the tax benefits afforded by a corporate structure, while benefiting from what was essentially ‘employment’.

If a contract was ‘inside’ IR35, it meant the contractor was a ‘disguised employee’ and would have to pay the same income tax and NICs as an employee, even if they worked through a limited company. If the contract was ‘outside’ IR35 and the contractor worked through a company, corporation tax was payable instead.

Directors of limited companies benefited if their contracts were outside IR35, because they could pay themselves low salaries and top up their payment with dividends, which were (and still are) generally taxed at lower rates than employment income liable for income tax and National Insurance. They therefore had an incentive to find their contracts to be outside of IR35 legislation.

Note how contracts, not the worker, were and are analysed on a case-by-case basis as to whether IR35 applied or not.

IR35 was controversial from the start, with what is now the Association of Independent Professionals and the Self-Employed (IPSE) seeking permission for a judicial review of IR35 in 2001, which they lost.

After efforts to help taxpayers understand the rules more easily during the coalition-Government era, the IR35 tax rules were reformed in the 2016 Budget, when businesses were given more responsibility for determining the tax status of their contractors.

The aim of the policy was to ensure contractors who are not genuinely self-employed pay the same income tax and NICs as employees, and that businesses could not avoid taxes by hiring self-employed workers in the place of regular employees.

It came into force for the public sector in 2017, and the private sector in 2021 after a one-year postponement due to Covid-19.

However, it only applies to medium and large companies, meaning contractors working for small end-clients have to work out their IR35 status themselves.

A small end-client will fall under two or more of these requirements:

• turnover of no more than £10.2 million
• balance sheet total of no more than £5.1 million
• no more than 50 employees

In a surprise move as part of the September 2022 mini-budget, then-Chancellor Kwasi Kwarteng announced a repeal to both the 2017 and 2021 IR35 reforms from 6 April 2023.

This repeal was then cancelled, however, by Jeremy Hunt after he succeeded Kwarteng as Chancellor.

At the time of writing, no further changes are due to happen to IR35, and the end clients of contractors will continue to be responsible for applying the rules.

Good or bad?

Many businesses and contractors alike will be unhappy to hear the IR35 reforms have been repealed.

Andy Chamberlain, director of policy at IPSE, said:

“[The] announcement will be a huge blow to thousands of self-employed contractors and the businesses they work with.

“The reforms to IR35 have created a nightmare for businesses seeking to engage talent on a flexible basis, while simultaneously forcing individuals out of business altogether.”

Research conducted by YouGov earlier this year on behalf of IPSE found the reforms damaged the ability of businesses to grow and hurt freelancers.

The research found that despite nearly half of UK businesses (49%) stating they could not achieve “the same outcomes without the use of contractors”, 28% had decreased their number of contracts since the reforms.

The survey of 501 businesses also found that IR35 reforms had “financial implications” for 42% of companies and added a significant administrative burden for 47% of businesses.

Meanwhile, the reforms hurt many contractors and freelancers, 35% of whom had closed their business since the changes.

Many contractors’ clients may have unfairly and incorrectly determined they were inside IR35 rules, as 20% of businesses made a blanket statement and decided all their contractors were within IR35.

Chamberlain said:

“We know that the Government is well aware of the problems caused by this damaging legislation – the previous Chancellor said so at the mini-budget and the Prime Minister made it clear during her leadership campaign.

However, some people and organisations, such as the Resolution Foundation, call pre-reform IR35 rules “regressive”, as analysis shows higher-paying workers were caught within IR35 from 2021 onwards.

“Higher earners moving into self-employment could increase the scale of the resulting tax avoidance,” the Resolution Foundation said in this analysis.

It added that IR35 reforms have increased tax receipts:

“Repealing this provision [would have brought] about a fall in tax revenue of £1.1 billion next fiscal year, and £2.0 billion a year by 2026-27, presumably because of abuse as contractors choose to self-declare their self-employed status (which comes with a significant tax advantage over employees).”

What you need to do

So, with the IR35 reforms here to stay, businesses remain the ones liable to identify the true tax status of their contracted workers. But how do you know whether they are inside IR35 or not?

IR35 is underpinned by employment legislation and case law, so tests of employment have evolved over the decades.

A tool called ‘check employment status for tax’ (CEST) provides HMRC’s view of a worker’s employment status based on the information provided.

Hirers, agencies and contractors themselves can all use the tool. It was published in March 2017 in conjunction with the reforms.

IR35 checklist

The following is a non-exhaustive IR35 compliance checklist of some of the factors that can indicate whether a contractor is inside or outside IR35.

A contractor might be inside IR35 if they:

• carry out all the work they are contracted to do personally
• work for their own limited company, but receive employment benefits, such as paid leave or sick pay
• are being paid on a time basis
• work for one client long-term
• are supplied with the equipment by a client and work at their premises.

They might be outside IR35 if:

• they have the right to delegate or substitute work contracted to another person and use that right in practice
• they are paid on a project basis rate or at a fixed rate
• they can decide how and when they work, and can send a substitute to do the job
• pay for all rejected work is corrected at their own cost
• they work with more than one client at one time or on short successive projects with a variety of clients.

Get in touch to talk about IR35.