HMRC Making Tax Digital project will mean that from April 2024 all business owners with sales turnover in excess of £10,000 a year will have to keep their records in a digital format (accounting software or a modified spreadsheet).
From 2024-25 HMRC will require all sole traders and partnerships prepare their accounts to a year end date of 31st March.
Update Autumn 2022
The changes announced in April were largely reversed in Septeember by a disastrous mini budget and Autumn Statement.
National Insurance for self-employed has been restored to 9%, but Dividend Tax will remain at 8.75%.
Dividend and Capiital Gains allowances have been reduced to £1,000 and £6,000 respectively.
Tax Changes From April 2022
National Insurance rates are set to rise by 1.25 percentage points from 6 April 2022, as part of the government’s plan to introduce a health and social care levy where working people contribute to fund the NHS and the social care crisis. Employees will pay 13.25% on earnings over £9,880 and Self-employed will pay 10.5% National Insurance on annual profits over £9,880 and £3.15 per week.
Similarly to the National Insurance rate rises, those who earn money from dividends will also see a 1.25 percentage point rise from April TO 8.75% (Basic Rate Taxpayers)
Value Added Tax relief for the hospitality sector will end on 31st March 2022. From this date it will return to the standard rate of VAT, which is currently 20%.
From April 2022, all businesses trading in the UK that use more than 10 tonnes of plastic packaging a year need to register for and pay the new Plastic Packaging Tax. This is £200 per ton applied to all plastic packaging that does not contain at least 30% recycled plastic.
Rates of Vehicle Excise Duty will increase in line with inflation.
Making Tax Digital
MTD for VAT was first introduced in April 2019, though only for businesses with a taxable turnover of more than £85,000. From April 2022, all VAT registered businesses will have to comply. They will be required to keep digital records and submit a VAT return from within MTD-compliant software.
Then, from 6 April 2024, any self-employed person, or landlord with an annual income of more than £10,000 will be required to comply with MTD for Income Tax Self-Assessment (MTD ITSA). If earnings are below £10,000, the existing Self-Assessment system will still apply.
With MTD ITSA, rather than a once a year tax return business owners will need to submit information more regularly, in fact, once a quarter. This is supported by a legal requirement to keep digital records. At the end of the year an end of period submission will involve making sure everything is accurate, making any adjustments, and then making a final declaration, and paying the tax.
The best thing that anyone can do to prepare for MTD ITSA is to start keeping digital records now if they don’t already use accounting software. It may mean a change at first, but in the longer run could make keeping accounts easier and the information more accurate and up to date. If it’s not possible for a person to use computers or the internet, as a result of age, disability, religion, or location, they can apply for exemption for MTD.
The significant dates to remember are the dates that tax returns should be submitted and tax paid to HMRC
Sole traders must complete a tax return and pay the tax due on business profits for the previous Tax Year by the following 31st January. For example, the tax year 2021-22 runs from 6.4.2021 to 5.4.2022, and any income tax not deducted at source (Pay as you Earn) must be paid by 31.1.2023.
Directors of limited companies must make a personal tax return of any income they receive from their company .
Directors of limited companies are also responsible for the submission of a Corporation Tax return by 12 months after the end of the company's accounting year. Corporation Tax must be paid within 9 months of the end of the accounting year (when the accounts end). They must also submit accounts and a confirmation statement to Companies House each year.
VAT must be paid and a VAT return made to HMRC by the 7th day following the end of the month after the VAT quarter.
Enterprise Links Ltd can be engaged to do all of the above on your behalf. Although personal tax returns can still be made on paper, 94% of them are now made electronically.
For 2021-22 the personal allowance, which is the amount any man woman or child domiciled in the UK is allowed to earn tax free, is £12,570 and the income tax basic rate of 20% applies to income from£12,570 to £50,000.
The transferable tax allowance for married and civil partners (aka the marriage allowance) is £1,257 for 2021-22. The capital gains tax annual exempt amount was £12,500.
For businesses the annual captial investment allowance has been temporarily increased to £1 million. The tax free Individual Savings Account annual subscription limit is £20,000.
Self Assessment - a guide
Self assessment is the system under which taxpayers are required to account for tax that has not been deducted at source. You will need to submit a tax return to HMRC if you are:
working for yourself and your income from self-employment was more than £1,000 - anything under this amount falls within the ‘trading allowance’.
renting out a property and your rental income is more than £2,500 - you will need to phone HMRC to give them the figures if you receive between £1,000 and £2,500.
a company director (except for directors of a not-for-profit organisation and you did not receive any pay or benefits, like a company car or medical insurance).
a trustee of a trust or registered pension scheme or the executor of an estate.
living abroad and have a UK income - this includes non-UK resident landlords.
or if you receive:
income from savings and investments of more than £10,000.
dividend income of more than £10,000.
other ‘untaxed income’ of more than £2,500. This could be tips or commission. If the income is less than £2,500 a year you might not have to complete a tax return but it is still your responsibility to report such income.
taxable foreign income, even if tax was paid in the country of origin, whether or not you are resident in the UK.
a taxable annual income of more than £100,000.
A P800 form from HMRC showing tax due at the end of the year that cannot be collected via your PAYE income and you did not make a voluntary payment.
regular annual income from a trust or settlement, or income from the estate of a deceased person and further tax is due.
state pension which is more than your personal allowance and is your only source of income, except in cases where your pension commenced on or after 6th April 2016.
income over £50,000 (or your partner’s income was over this amount) and one of you claimed child benefit.
or have a capital loss but your gains net of any losses are more than the annual exemption
or have no losses to claim but your gains are more than the annual exemption
and you may also want to complete a tax return if you:
want to claim for expenses of employment which total £2,500 or more.
want to claim tax relief for donations made to charity or private pension contributions.
want to prove you are self-employed, for example to claim tax free childcare.
want to make voluntary class 2 national insurance payments to qualify for benefits.
If HMRC have sent you a tax return, or a notice to complete one, the return must be completed and submitted by the due date, which for the 2021-22 tax year is 31st January 2023 for online submissions.
National Insurance and the State Pension
There are complex rules regarding state pension entitlement as a result of national insurance contributions. Basically the present rules are that you need 10 years NI contributions to get a state pension at all, and 35 years for a full state pension. People retiring could have their state pension provided under three state pension systems: the basic state pension, State Earnings Related Pension (Serps), and State Second Pension. Only the basic state pension is available now.
In April 2016, a calculation was done to work out what pension you have earned under the old rules and the new rules. Pensioners will get the higher of the two, less any deductions from "contacting out". If you have opted out of either Serps or the State Second Pension, or both, your state pension will be reduced.
If this "foundation" pension is less than the maximum state pension then further NI contributions will increase it, at the rate of 1/35 of the maximum state pension, for each further year until you reach the maximum or state pension age.
If you had a private pension that replaced part of your state pension, then by paying more NI in future you could gain a higher state pension than you would have achieved under the old state pension system while keeping the private pension.
HMRC accepts that you can keep documents that form part of your accounting records on paper, digitally or as part of a software program (like accounting software). The Making Tax Digital initiative will mean the abolition of the traditional 'tax return' and its replacement by a three monthly summary confirmation of income and a final statement signed once a year. This process will be introduced after 2023, but there will be a threshold to exclude those with earnings from self-employment under £10,000.
HMRC already uses third-party data from banks, building societies, pension providers and employers. In time those sources could include income from property, peer-to-peer lending, and dividends and shares. These sources, they argue, are necessary in today’s economy where “taxpayers hold more than one job and may have fluctuating and unpredictable incomes. HMRC is keen to stress that new third-party information will be sourced openly and transparently, and that all legal requirements, including privacy impact assessments, will be met. Taxpayers will be able to see all the third-party data sources linked to their records at any time through their digital personal tax accounts. But many will need help to understand or comply, and will have doubts over security.
HMRC estimates that the use of third-party sources, and the reduction in under- and over-payments, will benefit six million customers in the short-term and up to 40 million taxpayers in future. However previous initiatives did not involve the entire British population, multiple data sets, and real-time information which re often both incorrect and incomplete.
Personal Tax Accounts
The Personal Tax Account gives taxpayers information on their tax affairs 24 hours a day, 7 days a week.
filing a Self-Assessment tax return
claiming a tax refund directly into your bank account
checking and managing tax credits
checking your State Pension and national insurance contributions
For information visit www.gov.uk/personal-tax-account where you can sign up for free.