National Insurance contributions rates ‘poised to increase’

The Government could be set to raise National Insurance contributions (NICs) by 1% for both employers and employees, a report has claimed. 

The Times claimed senior ministers have agreed to increase rates to raise an extra £10 billion a year for the National Insurance Fund. 

This would initially be used to reduce NHS waiting lists, before helping to fund longer-term social care reforms. 

Most employers pay NICs at a rate of 13.8%, while the majority of employees pay NICs at 12% on their earnings in 2021/22. 

The move, which would go against a Conservative manifesto pledge not to raise NICs rates, has been greeted with dismay.

Deadline approaches for fifth and final self-employed grant

The self-employed have until the end of the month to apply for the final grant available via the self-employed income support scheme (SEISS). 

Everyone who is eligible for the last SEISS grant should have received a personal start date from HMRC in recent months. 

These gave self-employed taxpayers a date from which they can apply for the support, with the first applications being accepted from 29 July 2021.

HMRC has warned it won’t process claims submitted before an individual’s personal start date. 

Thinking of starting a new business after COVID-19.

The pandemic has proven a huge challenge for businesses, with 396,155 UK firms closing in 2020 according to the Office for National Statistics.

The FSB expects that an additional 250,000 small businesses could fold by the end of 2021. Yet, despite the challenges, 407,510 new businesses were formed during 2020.

Businesses that were able to move their operations online or open up delivery services, have been the ones to grow and flourish.

This will remain the case for entrepreneurs in the second half of 2021 and beyond, after restrictions and social distancing rules in England ended on 19 July 2021.

Meanwhile, with Government financial support still in place but tapering off, some entrepreneurs might in fact benefit from starting sooner rather than later.

IHT planning – The basics

Increasing house prices raise inheritance tax risk. 

Soaring house prices coupled with certain thresholds being frozen in the most recent Budget have the potential to drag more estates into the inheritance tax net over the coming years. 

Back in March 2021, Chancellor Rishi Sunak confirmed the main inheritance tax thresholds will remain frozen at their 2021/22 levels “up to and including 2025/26”. 

Inheritance tax is usually charged at 40% on the value of your estate (your property, money and possessions) over the £325,000 nil-rate band. There’s an additional allowance of up to £175,000 if you pass on your family home to children or grandchildren. 

If you’re married, you can effectively combine your thresholds and transfer assets between each other tax-free. When one dies, the surviving spouse can inherit without any inheritance tax liability and you are able to utilise their unused thresholds on your death.

Freezing these thresholds until 5 April 2026, subject to any further political change, is expected to net the Treasury an extra £15 million from estates this year, rising to £70m in 2022/23, £165m in 2023/24, £290m in 2024/25, and £445m in 2025/26. If those projections are accurate, that’s an extra £985m in total over the course of the next four tax years after 2021/22. 

At the heart of this stealth tax grab is poor or non-existent estate planning and increasing house prices. According to The Times, there were 563,240 homes in Britain worth more than £1m in June 2021, while the Land Registry said the UK’s average house price stood at £250,772 in April 2021. 

Should house prices remain at these levels or increase further, most people should think about taking steps now to protect their estates and ensure as much of their wealth passes on to their beneficiaries as possible. 

Pensions tax traps catch out thousands more savers

The number of savers who breached the annual allowance and the lifetime allowance increased in 2018/19, according to government statistics.

Figures from HMRC show 34,220 people reported saving more in their pension pots than the £40,000 annual allowance in 2018/19, triggering total tax charges worth £817 million. 

The amount of people who exceeded their annual pension allowance in 2018/19 was 14% higher than the previous tax year, when 29,910 savers were caught. 

Savers who breach this allowance can either pay the tax charge via an accounting-for-tax (AFT) return, or via self-assessment tax returns on or before 31 January. 

Treasury seeks feedback on business rates revaluations

Business rates revaluations in England could take place every three years, following the launch of a recent consultation. 

The latest consultation forms part of a comprehensive review into business rates in England, with a report due to be published in the autumn. 

Business rates are similar to council tax for business properties in England. They are paid by businesses, or landlords if a property is empty.

How much they pay is based on open-market rental values which are determined by the Valuation Office Agency every five years.

Employer costs increase as furlough scheme winds down

Employer contributions towards furloughed workers’ wages have increased again, as the furlough scheme prepares to close for good on 30 September 2021. 

Officially introduced at the start of the pandemic in March 2020, the scheme has supported around 11.6 million jobs in the UK to date at a cost of £66 billion. 

For most of that time, the scheme has paid 80% of the wages of people who couldn’t work, or whose employers could no longer afford them, up to £2,500 a month. 

While that £2,500 cap remains in place until the scheme closes, employers’ costs started to increase last month. 

Lower stamp duty land tax threshold in place until October

The stamp duty land tax-free threshold in England and Northern Ireland reduced last month, as the tax holiday introduced in July 2020 began to be phased out. 

The first cliff edge for residential property buyers came and went on 30 June 2021, marking the end of a three-month extension announced on 3 March 2021. 

Buyers who completed their purchases before last month’s deadline avoided having to pay this property tax on the first £500,000 of the property price. 

The holiday enabled those who were able to complete their purchases before 30 June 2021 to save up to £15,000 on their stamp duty land tax bills, although others were not so fortunate.

The basics of VAT for UK businesses

VAT is a business tax on the supply of goods and services. It is charged at varying rates depending on what is being supplied, who it is being supplied to and where it is being supplied to. 

But with Brexit, temporary rate changes due to COVID-19, the rollout of Making Tax Digital for VAT and new rules relating to the reverse charge and subcontractors, this is a complex time for a business grappling to ensure VAT compliance. With penalties in place for non-compliance, it’s important to seek professional help to aid with navigating any tricky issues.

As a VAT-registered business, you will essentially act as a collecting agent for HMRC. Your business can recover the VAT it incurs on purchases (known as input VAT), but in return must charge VAT on sales (output VAT). 

The difference between the input VAT incurred and the output VAT charged is either paid over to HMRC or refunded each time the business submits a VAT return.

Self-employed, allowable expenses

If you’re self-employed, your business will rack up various running costs throughout 2021/22. Some of those you’re able to deduct as allowable expenses. 

By deducting these allowable expenses as part of calculating your business’s taxable profits, it’s possible for us to reduce your income tax bill in the process. 

For example, if your business has turnover of £50,000 in 2021/22, and you have £15,000 in allowable expenses, your taxable profit will be £35,000. This is what you will pay tax on. 

Money you take from your business to pay for private purchases, however, does not count as an allowable expense and cannot be deducted against your business’s profit.