Residence & domicile after Brexit

How your status affects the amount of tax you pay.

For most UK citizens, the question of what income and gains should be included on their tax return is easily answered because they are both UK domiciled and UK tax resident. 

Anyone domiciled and resident in the UK will need to report their worldwide income and capital gains on their return. However, what happens if you are either non-UK domiciled (non-dom) but UK resident, or UK domiciled but non-UK resident? 

In these circumstances, different rules apply and the last four years have seen considerable change to tax legislation in this area as the Government seeks to expand the scope of what can be taxed within the UK.

Non-doms make a significant contribution to UK tax revenues, but their numbers are falling. The decline of this small but significant group of UK taxpayers has been partly attributed to tax changes surrounding ‘deemed domicile’, which made their status in the UK less attractive. 

Those self-employed grants are taxable

Three grants worth up to £21,570 are taxable. 

A chunk of time has passed since the self-employed income support scheme (SEISS) was launched in May 2020, following the onset of the COVID-19 pandemic. 

The first taxable grant, worth up to £7,500 in total, was paid out in August 2020. That was followed by a second grant of up to a total of £6,570 and a third grant, worth up to £7,500 in total. 

Many self-employed individuals or business partners who met the SEISS’s eligibility criteria could have claimed up to £21,570 in total from these grants claimed during 2020/21. 

What’s that got to do with your next personal tax return, you might wonder? Quite a lot, actually, as any of the three emergency support grants you received via the SEISS between 6 April 2020 and 5 April 2021 are taxable.

Tax rates rise 2022/23

National Insurance and dividends tax rates to rise 1.25% in 2022/23

National Insurance contributions (NICs) and the three dividend tax rates will all increase 1.25% from April 2022 to pay for the social care system in England. 

This social care package will be funded through a new UK-wide health and social care levy, which is expected to raise around £12 billion a year. 

The levy will apply to employers, employees, and the self-employed from April 2022, followed by people who work beyond their state pension age from April 2023. 

Tax and electric cars

The rise of electric vehicles could create £30bn tax hole

The Government is being urged to introduce a new road-pricing system, because the increasing popularity of electric vehicles risks leaving a £30 billion hole in public finances each year. 

Research submitted by the Tony Blair Institute for Global Change called for a new system, with options including charges based on emissions, vehicle weight and traffic levels, to replace fuel duty and road taxes.

It said there are currently around 300,000 electric vehicles on our roads, and that number is set to rise rapidly to around three million by 2025, 10m by 2030 and 25m by 2035. 

Currently, electric vehicles are much cheaper to drive and pay virtually no tax, with the average electric vehicle costing just £320 a year to run, compared to £1,100 a year for a typical petrol or diesel car. 

New trust registration service

Millions of trustees need to register details of their trusts before next autumn, following the launch of a new trust registration service. 

The service was originally announced in draft form in 2017, at a time when it would only have applied to taxable-relevant trusts. 

Since then it has been expanded to include all UK-resident express trusts, with a few exemptions for pension trusts and charity trusts. 

As such, details of up to two million trusts must be registered with HMRC on or before 1 September 2022. 

Stamp duty is back

The stamp duty land tax holiday in England and Northern Ireland has come to an end, more than 14 months after it first came into effect. 

The tax break saw most buyers who purchased residential homes for £500,000 or less pay no stamp duty land tax until 30 June 2021, although landlords still had to pay the 3% surcharge. 

HMRC collected £5.7 billion in stamp duty between April and July 2021, £2.2bn more than the same pandemic-affected period in 2020. 

Unsurprisingly, July 2021 was the highest month on record for stamp duty land tax receipts after £1.3bn was collected from residential completions.

Accounting for charities & non-profits

How the third sector is assessed for tax.

Anyone who’s involved in operating a charity knows how it differs from running a business, both in terms of motives and objectives.

HMRC treats non-profit organisations and charities very differently to businesses, offering some unique tax breaks in the process. 

If a charity is recognised by the tax authority, it will benefit from certain tax reliefs as long as the funds raised are used for charitable purposes.

Charities usually pay tax when they receive income that doesn’t qualify for tax relief, or if any income has been spent on non-charitable purposes.

With unique tax breaks come unique challenges, many of which have been exacerbated by the pandemic, especially in the case of smaller charities.

The public’s generosity has been directed largely towards the UK’s major charities, including the NHS, leaving many others facing financial ruin. 

Unincorporated businesses – watch out…

What might this mean for your business?

Unincorporated businesses could be about to see significant changes to the ways in which they are taxed, following the launch of a Government consultation. 

The Government plans to reform the basis period rules in a bid to simplify how unincorporated businesses, such as sole traders and business partnerships, allocate trading profits to tax years for inclusion on their self-assessment returns.

It aims to streamline the system before Making Tax Digital for income tax self-assessment (MTD for ITSA) becomes mandatory from April 2023 for these small businesses and align the way self-employed income is taxed with other forms of income, such as property income.

Such businesses are currently taxed on the profits of their accounting period, whereas under the new proposals they would be taxed on the profits arising in the tax year. 

Capital gains tax receipts climb 3% to record-high

HMRC collected a record of £9.9 billion from capital gains tax receipts in 2019/20, according to official statistics published last month. 

The tax authority said this was 3% up on the previous tax year’s receipts, but the number of taxpayers paying tax on their gains fell 6% to around 265,000. 

Most of the liabilities collected came from 1% of taxpayers who made the biggest gains in 2019/20, with 41% of the receipts coming from those who made gains of £5 million or more. 

More than a quarter (28%) of these revenues (£2.8bn) came from business assets that qualified for entrepreneurs’ relief, which saw its lifetime limit slashed from £10m to £1m with effect from 11 March 2020. 

1 in 5 UK employers consider making redundancies

A minority of UK employers could be about to cut jobs, due to the withdrawal of the furlough scheme and rising costs.

The scheme, which has protected around 11.6 million jobs since the start of the pandemic, will close on 30 September 2021.

The Government currently pays 60% of a furloughed worker’s wages and employers will pay 20%, plus workplace pension and National Insurance contributions. 

By making furlough more expensive for employers, the Government hopes to encourage them to take workers back full-time, if they can. 

Some employers with workers on furlough might find that they cannot afford to keep them on as business returns to normal from 1 October 2021.