MPs are demanding urgent improvements to HMRC’s “unacceptable service standards” after a parliamentary report discovered an “eye-watering” £42 billion is owed to HMRC from unpaid tax.

 The report also highlighted a dramatic drop in HMRC staffing levels, with 6,000 employees being cut over the past five years.

Dame Meg Hillier, chair of the committee, said:

“The eye-watering £42 billion now owed to HMRC in unpaid taxes would have filled a lot of this year’s infamous public spending black hole.”

The public accounts committee report, meanwhile, reads:

“We do not consider that HMRC has the resources required to provide the level of service its customers need, or to maximise the tax revenues it collects, at a time when the public finances are under huge strain.”

The average speed of answering incoming calls to HMRC helplines was 12.22 minutes in 2021/22, almost double the length of waiting times in 2019/20, while there have even been reports of people on hold at HMRC for hours at a time.

Harriett Baldwin, Head of the Treasury Committee, wrote to HMRC chief executive Jim Harra, requesting an explanation for the long phone waits experienced by taxpayers.

In light of the growing number of complaints, Baldwin asked whether the disruption to the service was due to high levels of demand, too many HMRC staff members working from home, or whether the delays were connected to the IT issues experienced in early December 2022.

In the letter, Baldwin said:

“It is of serious concern that taxpayers are apparently unable to reach HMRC by telephone in the run-up to the 31 January online self-assessment deadline.”

The MP also asked what steps were being taken to resolve the reported concerns and whether HMRC would implement procedures to prevent similar issues in the future.

Speak to us about your self-assessment.

Soaring inflation remained a key concern for businesses at the end of 2022, according to the latest quarterly economic survey from the British Chambers of Commerce (BCC).

 Of the 5,600 firms surveyed – 92% of which are SMEs – 80% said that inflation was a growing worry for their business in Q4 of 2022. Nearly 38% expressed concerns about rising tax burdens, while 43% said interest rates impacted their business.

Business confidence stabilised at a low level following significant declines in Q3, with just 33% of respondents experiencing an increase in sales over the three months to November 2022, while 25% reported a decrease.

Meanwhile, firms in the retail and hospitality industry were more likely to report a decrease in sales than an increase.

Only 34% expected higher profits in 2023, while 36% anticipated a decline in profitability.

Responding to the survey’s findings, director general of the BCC, Shevaun Haviland, said:

“The outlook from businesses remains bleak. Now, more than ever, we need to create the right conditions for firms to invest and grow.

“The Government’s New Year’s resolution should be to put business support for SMEs at the heart of its agenda and get the UK back on the road to recovery.”

Contact us to discuss your business costs.

One in four business leaders (24%) believe the Government’s energy bill relief scheme (EBRS) has removed a “serious risk” to their business, according to a poll by the Institute of Directors (IoD).

Of the surveyed 500 or so directors whose energy bills made up more than 5% of their costs, 11% stated they have been able to keep their premises open for longer due to the scheme.

A further 35% said that having the energy price cap in place over the winter has made it easier for their business to plan for the future.

Meanwhile, 5% said they would have stopped trading altogether if the Government had not stepped in to help businesses with energy bills.

However, the majority of directors (75%) disagreed with the idea that they would have had to stop trading if it were not for the energy price cap this winter, while 19% neither agreed nor disagreed.

The EBRS scheme is available to everyone on a non-domestic contract including:

• businesses
• voluntary sector organisations, such as charities
• public sector organisations such as schools, hospitals and care homes.

For all non-domestic energy users in Great Britain and Northern Ireland, the Government supported price has been set at:

• electricity – £211 per megawatt hour (MWh)/ 21.1p per kilowatt hour (KWh)
• gas – £75 per MWh/ 7.5p per KWh.

Alex Hall-Chen, senior policy advisor at the IoD, said:

“Our data shows that the Government’s energy bill relief scheme has been a crucial intervention, removing a serious risk to around a quarter of businesses.

“We therefore urge the government to continue the EBRS for sectors of the economy particularly vulnerable to current fluctuations in international energy markets.

“To this end, we are concerned that no provision was made for the extension of the scheme beyond March 2023 in the policy costings that accompanied the Autumn Statement.”

The Treasury has confirmed that Making Tax Digital for income tax self-assessment (MTD for ITSA) will be delayed a further two years until April 2026.

According to First Secretary to the Treasury Victoria Atkins, this phased approach will give businesses more time to prepare and adapt to new ways of working.

The minimum reporting level for businesses, self-employed individuals and landlords will be increased from £10,000 to £50,000, with those earning over £30,000 not needing to comply with MTD rules until 2027.

The Government will also launch a review into how MTD for ITSA can better serve the needs of smaller businesses, particularly those earning less than £30,000 a year.

Partnerships will not be brought into MTD for ITSA in 2025 as previously planned, and will instead be mandated to join the scheme at a later date.

Furthermore, a points-based system aimed at making penalties fairer and simpler will come into effect for taxpayers when they join MTD for ITSA.

In a statement on 19 December 2022, Victoria Atkins said:

“It is right to take the time needed to work together to maximise those benefits of MTD for small business by implementing it gradually.”

Talk to us for advice on MTD.

Monthly GDP grew by around 0.5% in October 2022, following 0.6% drop in September, according to the Office for National Statistics (ONS).

Despite the recovery in monthly figures, the UK economy nevertheless contracted by 0.3% in the three months to October.

The rise in GDP in October follows a 0.6% fall in September, which “was affected by the additional bank holiday for the State Funeral of HM Queen Elizabeth II”, according to the ONS.

October saw the services sector grow by 0.6% after falling by 0.8% in September, largely driven by a 1.9% rise in the wholesale and retail trade including the repair of motor vehicles and motorcycles.

Meanwhile, output in consumer-facing services grew by 1.2% in October – but only after falling by 1.7% in September and 1.6% in August.

Commenting on the figures, economics director at the Institute of Chartered Accountants in England and Wales (ICAEW), Suren Thiru said:

“October’s rebound is a false dawn for the economy, as it mostly reflects the favourable comparison with September.

“The positive start to the fourth quarter may not prevent recession with the growing squeeze on incomes likely to drive falls in GDP in November and December.”

Talk to us about your business.

What to expect from April 2023.

A number of changes are coming to income tax in April 2023 that will affect taxpayers across the UK.

Many of these measures were announced by Chancellor of the Exchequer Jeremy Hunt in his Autumn Statement on 17 November 2022. According to Hunt, these decisions will see everyone pay “a bit more tax” from the 2023/24 tax year onwards.

Many of the decisions announced in the September mini-budget, including those affecting income tax, have been changed or scrapped completely. The new measures are expected to raise a further £34 billion a year for the UK Government.

As the cost of living crisis worsens and the UK enters a recession, it’s increasingly important to be aware of your liabilities. Understanding these measures may help you take the necessary steps to safeguard your finances.

Here’s what you need to know about the upcoming changes, and how they’ll affect your income tax bill.

Recap of changes to income tax

Additional-rate threshold

One of the biggest announcements made in the Autumn Statement was the lowering of the additional-rate threshold for income tax from £150,000 to £125,140.

Around 660,000 taxpayers currently pay the additional rate of income tax, and a further 232,000 people will fall into the tax bracket once the changes come into place in April 2023.

This is in stark contrast to previous Chancellor Kwasi Kwarteng’s announcement that the 45% additional rate would be scrapped altogether, which has now been reversed.

Personal allowance taper

By lowering the additional rate tax threshold to £125,140, the Government has aligned the top rate of tax with the personal allowance taper.

Under current legislation, taxpayers’ personal allowance is reduced by £1 for every £2 their net income exceeds £100,000. That means if your income is £125,140 or higher, your personal allowance will be zero.

Essentially, anyone who falls into the additional rate tax band from April onwards will pay income tax on all their earnings.

Basic rate

The basic rate of income tax in England, Wales and Northern Ireland will remain unchanged at 20% in April 2023, despite previous plans to lower it to 19%.

In the 2022 Spring Statement, then-Chancellor Rishi Sunak announced the basic rate would drop to 19% in April 2024. This plan was then supposed to be brought forward to April 2023 by Kwasi Kwarteng in the mini-budget.

However, the basic rate of income tax will instead stay fixed at 20% “indefinitely”, saving the Government approximately £6bn a year.

Frozen thresholds

The Chancellor announced several threshold freezes that will affect taxpayers in England, Wales and Northern Ireland over the coming years.

The following freezes were already in place until 2026, but will now be extended a further two years until 2028:

• the personal allowance threshold at £12,570
• the higher-rate threshold at £50,270.

Freezes to the various National Insurance contribution thresholds are also in place, which are important to be aware of alongside income tax.

Income tax in Scotland

While Westminster sets income tax rates for most UK taxpayers, the Scottish Government sets its own rules. This means that many of the measures set out in the Autumn Statement will not apply to people in Scotland.

Deputy First Minister of Scotland, John Swinney, announced a number of changes to income tax in the Scottish Budget on 15 December 2022 that will affect top earners the most.

Much like the rest of the UK, the threshold for Scotland’s top rate will be lowered from £150,000 to £125,140 in April 2023, pushing more taxpayers into the top band.

Unlike the rest of the UK, tax rates for higher earners are also changing in April. The higher rate of income tax will rise from 41% to 42% while the additional rate will rise from 46% to 47%. There will be no changes to the starter, basic or intermediate rates of income tax in Scotland.

Furthermore, the UK Government’s decision to freeze the personal allowance threshold at £12,570 applies to taxpayers nationwide, including Scotland.

The Welsh Government also has devolution powers, but has chosen not to use them so far.

How the changes will affect your income tax bill

The Government has said that the “fairest way” to restore public finances is for everyone to contribute a little, with the highest earners paying a “larger share”. However, many taxpayers who fall into lower tax bands will also be affected by the upcoming changes.

With thresholds frozen until 2028, taxpayers across all bands will see a greater proportion of their earnings going towards their income tax bill as wages rise with inflation.

The Office for Budget Responsibility (OBR) estimates these freezes will create an additional 3.2m new taxpayers, causing 2.6m people to fall into a higher tax bracket.

Because of this, many are viewing the threshold freezes as a “stealth tax”, and some people may find their pay rises effectively cancelled out by increased tax liabilities.

For example, individuals who currently pay the 20% basic rate of tax will need to pay 40% on their income above £50,270, if it exceeds that level between now and 2028.

Furthermore, people on lower incomes may need to tighten their purse strings as inflation continues to soar while the personal allowance threshold remains fixed at £12,570.

Meanwhile, around 232,000 taxpayers currently paying the higher rate will need to pay the additional rate once the threshold is lowered in April.

According to the Government, the impact of this measure will vary depending on individual circumstances. On average, the cash loss will be £621 for those who earn between £125,140 and £150,000, and £1,256 for people with incomes above £150,000.

However, those who do fall into the additional tax rate band in April will be able to take advantage of the more generous pension relief it offers.

Basic rate relief of 20% is automatically applied to each person’s pension contributions, and people who pay the additional rate can claim a further 25% on top of that.

To benefit from this relief, top earners will need to claim the money back in their self-assessment tax return.

Work with tax experts

With legislation constantly evolving, it can be difficult for individuals to navigate the complexities of income tax. Without a good understanding of your obligations, you may end up with a bigger income tax bill than you bargained for and risk incurring extra costs.

Working with an accountant will help you stay in HMRC’s good books, and may save you time and money in the long run. As tax experts, we can explain how the new changes will affect your finances directly, and calculate and submit your returns on your behalf.

Your accountant can also draw up an in-depth tax strategy, ensuring you take home as much of your hard-earned profits as possible.

Talk to an expert about the upcoming changes to your income tax bill.

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.