The temporary reduced rate of VAT (5%), introduced to assist qualifying hospitality trades disrupted by COVID lockdown measures, was increased to 12.5% from 1 October 2021. Based on present information, from 31 March 2022, this 12.5% rate will revert to the 20% standard rate.

This reduction in VAT applied to the sales of hospitality trades will have allowed VAT registered traders to retain more of their turnover subject to VAT if no change was made to their selling prices.

If no change in selling prices

For example, for every £10,000 of income received and subject to VAT at 20%, hospitality traders would retain £8,333.

During the period up to 30 September 2021, when the rate of VAT on hospitality trades was reduced to 5%, for every £10,000 of income received hospitality traders would retain £9,524.

Since 1 October 2021, for every £10,000 of income received including VAT at the 12.5% rate that now applies, for every £10,000 of income received hospitality traders will retain £8,889.

And from 31 March 2022, its back to square one. Turnover will revert to a 20% VAT charge.

If traders have passed on VAT reductions to customers

If traders have decided that it was more beneficial to pass on VAT savings to their customers the reduction in VAT would have allowed them to drop their prices as follows – all figures based on a selling price of £100 before VAT was added:

• Selling price at 20% VAT – £120
• Selling price at 5% VAT – £105
• Selling price at 12.5% VAT – £112.50

And, of course, traders can pass on some of the VAT reductions to customers and retain the difference.

What is clear, is that this support for the hospitality industry is being phased out. Much now will depend on how effective government is in keeping the downside disruption of COVID to a minimum. Otherwise, the Chancellor may have to dig-deep to find other ways to support this significant industry sector.

Practical considerations

As turnover from 1 October is subject to a 12.5% rate of VAT, affected traders will need to add a 12.5% rate to their accounting software and use this new rate for the period 1 October 2021 to 31 March 2022. The 12.5% is a new rate of VAT and accordingly will not be included as a choice in most accounts software.

If you are unsure how to do this please call, we can help

At present, self-employed traders (sole traders and partnerships) are taxed for each tax year on profits for the accounting period ending in that tax year.

Therefore, if a trader’s accounting year end is 31 December, their assessment for 2021-22 will be based on adjusted profits for the year ending 31 December 2021. Which means that actual profits earned from January to March 2022 will not be assessed until the following tax year, 2022-23.

While profits are rising, the existing system means that tax collection on a proportion of profits is delayed by one year. And consequently, if profits are falling, tax payable may be higher than if profits had been assessed on an actual basis.

Based on current information being released by HMRC, it would seem that they now want all self-employed persons to be taxed on actual profits earned in a tax year. If this change is followed through it would prepare traders for the shake-up of income tax assessment to a quarterly, digital upload from April 2024. It would mean that all self-employed year ends would change to 31 March.

Aside from the effects on HMRC’s switch to a Making Tax Digital reporting for income tax purposes, any move to change from assessments being based on accounts’ years ending in a tax year (say the year to 31 December) to results actually made in a tax year (trading years ending 31 March) would involve a process of transition that could have unexpected changes to tax bills in the year the transition is undertaken. Bills for affected taxpayers could increase or decrease.

As HMRC have announced that their MTD for income tax change will start April 2024, we can expect more on a possible change to an actual basis quite soon.

A recent HMRC press release confirmed that sole traders and buy-to-let property businesses (but not incorporated businesses) will have an extra year to prepare for the digitalisation of Income Tax.

Recognising the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic, and having listened to stakeholder feedback, the government will introduce Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) a year later than planned, in the tax year beginning in April 2024.

A later start for MTD for ITSA gives those required to join more time to prepare and for HMRC to deliver a robust service, with additional time for customer testing in the pilot.

We also suspect that the delay will give HMRC’s under pressure staff more time to make the necessary changes to their IT systems and fully beta test their MTD ITSA processes.

Making Tax Digital for Income Tax will be mandated for sole traders and landlords with a business income over £10,000 per annum in the tax year beginning in April 2024.

General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed in the future.

In March 2021, the government announced a new, fairer system of penalties for the late filing and late payment of tax for ITSA. The new penalty system for those who are mandated for MTD for ITSA will now come into effect in the tax year beginning in April 2024, and in the tax year beginning in April 2025 for all other ITSA taxpayers.

This major change in the taxation of affected sole traders and landlords is thus deferred for a further twelve months.

However, we recommend that all mandated business owners and landlords who presently record their accounting details manually or on rudimentary spreadsheets, give urgent attention to adopting an approved digital accounts software that will be fit for purpose when the new implementation date arrives, April 2024.

We can help. Call now so we can assist with the choice and implementation of suitable software. As well as providing you with the means to comply with the new MTD ITSA requirements, using an appropriate accounts software package will also provide you with access to real-time data, information that can only help as we steer a path through present challenges.

The UK Government has announced that further measures will be put in place to help ease supply chain pressures as spikes in demand for fuel create a panic buying hysteria.

This added pressure to already stretched supply chains is a further blow to affected businesses across the UK.

The Government has announced the new measures in a bid to help ease issues currently affecting petrol stations across the UK, including the placement of a team of military drivers to improve delivery of fuel to out of stock petrol retailers.

Last week saw motorists across the UK panic-buy fuel after BP and Esso warned that their stations were experiencing a shortage of petrol and diesel deliveries due to the shortage of HGV drivers.

Despite efforts made by the UK Government to assure the public that there was no reason for concern or panic buying, cars descended in their thousands to petrol stations across the country to fill up their vehicles despite the Government’s advice.

Business Secretary Kwasi Kwarteng said:

“The UK continues to have strong supplies of fuel; however, we are aware of the supply chain issues at fuel station forecourts and are taking steps to ease these as a matter of priority.”

Transport Secretary, Grant Shapps, has authorised an extension to ADR driver licenses, which allow drivers to transport goods, such as fuel. This will aim to provide immediate relief to the shortage of HGV drivers, by allowing affected drivers to maximise their available capacity instead of being taken out of circulation for refresher training purposes.

It doesn’t stop with fuel, however. As a result of many EU drivers returning to their home countries due to COVID-19 and Brexit, a stock and supply shortage crisis has emerged in the UK, with an estimated shortfall of 100,000 drivers, according to the Road Haulage Association (RHA). Meanwhile, the existing workforce is rapidly ageing. The industry body is warning that about a third of the UK’s 380,000 drivers may retire within the next five years.

Last week, the Government announced a further package of measures to help ease supply chain pressures, including an introduction of short-term visas for HGV drivers, increasing HGV testing and establishing bootcamps to train up to 3,000 more people to become HGV drivers, providing more flexibility for the industry.

If you have been keeping up with announcements from Downing Street, you will know that from April 2022 the hybrid rates of Income Tax on dividend income are increasing by 1.25 percentage points.

The changes from April 2022 are:

• The first £2,000 of dividends received are free of any additional tax charge, no change here.
• If you are a basic rate tax payer, your dividend income in excess of £2,000 will be taxed at 8.75% (presently 7.5%).
• If you are a higher rate tax payer, any dividend income that falls into the higher rate band will be taxed at 33.75% (presently 32.5%).
• If you are an additional rate tax payer, any dividend income that falls into the additional rate band will be taxed at 39.35% (presently 38.1%).

Even with these increases, it is likely that director/shareholders adopting the high dividend, low salary strategy will still save on NIC costs.

Savers who have their funds in tax-exempt wrappers, ISAs for example, will be unaffected.

Other savers would need to have fairly significant portfolios outside tax exempt investments in order to pay any dividend tax. With average dividend yields running at approximately 3.5%, you would need to have a portfolio in excess of £57,000 to breach the £2,000 tax-free limit.

From April 2022, in line with announcements made last month, National Insurance Class 1 contributions (that will affect employed persons and their employers) and Class 4 contributions (that will affect the self-employed), are increasing by 1.25%.

These increases will affect all employed and self-employed workers that presently pay National Insurance.

This increase will only apply to NIC rates for one year. From April 2023, the 1.25% increase will be removed from Class 1 and Class 4 NIC rates and a new tax is being created to be known as the Health and Social Care Levy (HSCL).

The HSCL will appear as a separate item on payslips and tax statements for the self-employed. The Levy is the closest the UK will have to a hypothecated tax – a tax levied and applied to a specific funding objective, i.e., funds for the NHS and social care budgets.

Whilst payroll software providers will already be making changes to their code to accommodate this new tax, it will be interesting to see if HMRC can adapt their systems in time for the April 2023 launch date.

Many smaller company employers, those that can claim the £4,000 employment allowance, will likely escape payment of the 1.25% increase in employers’ Class 1 contributions. However, the increase will also apply to Class 1A NIC employer contributions and these are not covered by the employment allowance.

Note: Class 1A NIC is payable on the value of taxable benefits provided by employers and is levied at the end of each tax year.

In a recent press release issued by the Department for Digital, Culture, Media and Sport, with the leading title “Unleashing Data’s Power”, it was announced:

“The Information Commissioner’s Office (ICO) is set for an overhaul to drive greater innovation and growth in the UK’s data sector and better protect the public from major data threats, under planned reforms announced by the Digital Secretary Oliver Dowden today.

• Plans include tougher penalties for nuisance calls and text messages.
• Government wants new data regime “based on common sense, not box ticking” to cement UK’s position as a science and tech superpower.
• Consultation launched today will also examine what more can be done to mitigate algorithmic bias.
• World-leading experts appointed to the Centre for Data Ethics and Innovation’s advisory board to drive trustworthy innovation.

According to government sources the reforms will:

• Cement our position as a science superpower, simplifying data use by researchers and developers of AI and other cutting-edge technologies.
• Build on the unprecedented and life-saving use of data to tackle the COVID-19 pandemic.
• Secure the UK’s status as a global hub for the free and responsible flow of personal data – complementing our ambitious agenda for new trade deals and data partnerships with some of the world’s fastest growing economies.
• Reinforce the responsibility of businesses to keep personal information safe, while empowering them to grow and innovate.
• Ensure that the ICO remains a world-leading regulator, enabling people to use data responsibly to achieve economic and social goals.”

University students taking part-time jobs are at increased risk of falling victim to scams, HMRC is warning.

Higher numbers of students going to university this year means more young people may choose to take on part-time work. Being new to interacting with HMRC and unfamiliar with genuine contact from the department could make them vulnerable to scams.

In the past year almost one million people reported scams to HMRC.

Nearly half of all tax scams offer fake tax refunds, which HMRC does not offer by SMS or email. The criminals involved are usually trying to steal money or personal information to sell on to others. HMRC is a familiar brand, which scammers abuse to add credibility to their scams.

Links or files in emails or texts can also download dangerous software onto a computer or phone. This can then gather personal data or lock the recipient’s machine until they pay a ransom.

Between April and May this year, 18- to 24-year-olds reported more than 5,000 phone scams to HMRC.

1 October 2021 – Due date for Corporation Tax due for the year ended 31 December 2020.

19 October 2021 – PAYE and NIC deductions due for month ended 5 October 2021. (If you pay your tax electronically the due date is 22 October 2021.)

19 October 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2021.

19 October 2021 – CIS tax deducted for the month ended 5 October 2021 is payable by today.

31 October 2021 – Latest date you can file a paper version of your 2021 self-assessment tax return.

1 November 2021 – Due date for Corporation Tax due for the year ended 31 January 2021.

19 November 2021 – PAYE and NIC deductions due for month ended 5 November 2021. (If you pay your tax electronically the due date is 22 November 2021.)

19 November 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2021.

19 November 2021 – CIS tax deducted for the month ended 5 November 2021 is payable by today.

As well as increasing National Insurance contributions from April 2022 – the 1.25% increase announced earlier this month – the Treasury also increased the hybrid income tax rates applied to dividends received, by the same amount and from the same date.

The changes from April 2022 are:

• The first £2,000 of dividends received are free of any additional tax charge, no change here.
• If you are a basic rate tax payer, your dividend income in excess of £2,000 will be taxed at 8.75% (presently 7.5%).
• If you are a higher rate tax payer, any dividend income that falls into the higher rate band will be taxed at 33.75% (presently 32.5%).
• If you are an additional rate tax payer, any dividend income that falls into the additional rate band will be taxed at 39.35% (presently 38.1%).

These increases are unlikely to influence the present planning options available to director/shareholders of smaller companies that have adopted the high dividend, low salary approach to reduce exposure to NIC charges.

However, after tax income from dividends will reduce.

Other share owners who have their funds in tax-exempt wrappers, ISAs for example, will be unaffected by these changes.

Investors who have fairly significant portfolios outside tax exempt investments may suffer tax increases on these income sources.

With average dividend yields running at approximately 3.5%, you would need to have a portfolio in excess of £57,000 to breach the £2,000 tax-free limit.