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What is a SA302 form?

If you’ve ever sat down to sort out some tax matters or tried getting a loan, you might have heard about the SA302 form. If you’re feeling a little lost, read on for our simple guide to the what, why and when of the SA302 form. 

What is the SA302?

An SA302 form is a tax calculation produced by HMRC for those who file a Self-assessment tax return. It details your income for a particular tax year and the tax that you owe or are due. Think of this as a report card that shows your tax position and explains how it was calculated. If you’ve used an accountant to complete your return, you’ll get an SA302 (also known as a Tax Calculation) on the back of the return.

Why Would I Need an SA302?

There are a few primary reasons why someone might need an SA302:

  1. Proof of Income: If you’re self-employed or have several sources of income, proving your income can be slightly more complicated than just presenting a payslip. Many lenders or financial institutions will request an SA302 as evidence of earnings.
  2. Mortgage Applications: Mortgage lenders often ask for the SA302 form as it provides a detailed breakdown of income over the tax year. It’s not uncommon for lenders to ask for SA302 forms spanning several years to gauge consistency in earnings. It gives them an idea of how much you earn, helping them decide how much they can lend you.
  3. Renting a Property: Some landlords or letting agents might request an SA302 to ensure potential tenants have a stable income.
  4. Personal Records: It’s always good practice to keep a record of your earnings and taxes paid. The SA302 is a comprehensive document that can be part of your financial records.

What’s on the SA302 Form?

The SA302 form contains:

  • Your total income for the tax year.
  • Breakdown of sources of income (e.g. from employment, property rental, dividends).
  • Total tax owed or refunded.
  • Personal Allowance and other tax adjustments.

It’s worth noting that the SA302 reflects what has been reported to HMRC. So, ensure all your income sources are declared accurately on your Self-assessment tax return.

But There’s a Catch

Here’s where things can get tricky. A tax return can be created without sending it to the tax office (HMRC). So, it’s possible to bump up the profit to make it look like you earn more than you actually do. The idea is to make lenders think you’re a safe bet.

But there’s a system in place to catch this.

Enter: The Tax Year Overview

To make sure everything’s above board, lenders also ask for another document called the Tax Year Overview. This can be obtained online by your accountant or by you if you have an HMRC account.

What’s it for? It shows your tax position with HMRC. Lenders will compare the numbers on this overview with those on the SA302. If they match up, it means the tax return was sent off with the numbers shown on the SA302, and the tax office is okay with it. The lender can then move forward.

What If Things Don’t Add Up?

If the numbers on the SA302 and the Tax Year Overview don’t match, it could cause problems. There might be different reasons for this mismatch, and lenders might stop everything until it’s sorted out. They just want to be sure they have the right information.

How to Get Your SA302 Tax Calculation

You can get evidence of your earnings (your SA302) once you’ve submitted your Self-Assessment tax return. You can also get a tax year overview for any year. To access both, log in to your HMRC online account, go to ‘Self-Assessment’, then ‘More Self-Assessment details’. If you or your accountant use commercial software to do your return, you’ll need to use that software to print your tax calculation. It might be called something different in the software – for example, ‘tax computation’.

If you’ve used an accountant to handle your tax affairs, they can obtain and provide you with the SA302 form.

In Short

The SA302 is basically a snapshot of your tax situation. When teamed up with the Tax Year Overview, it makes sure everything is transparent and above board.

If all this tax talk is making your head spin, don’t hesitate to get in touch for help. It’s always better to be in the know, especially when money is involved.

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Our Guide to UK Corporation Tax

Navigating the world of UK business taxes can sometimes feel like wandering through a dense forest without a map. Whether you’re a business owner or just curious about how the tax works, you’ve landed at the right place. Let’s unravel the mysteries of UK Corporation Tax in this easy-to-follow guide.

What is Corporation Tax?

At its core, Corporation Tax is a bit like income tax but for companies. Every year, companies need to pay a portion of their profits to the government, and that’s what we call Corporation Tax.

Being a yearly tax on the profits generated by limited businesses and incorporated bodies it’s calculated based on the company’s accounting period, which is usually due for payment every 12 months, or 9 months in the year from 31st March depending on when your annual accounting period ends. 

Who pays Corporation Tax?

If you run a limited company in the UK – whether that’s a small business, a start-up, or a large enterprise, you’ll need to pay Corporation Tax on all your profits. This includes companies that are incorporated in the UK, as well as companies that are incorporated overseas, and have a permanent establishment in the UK.

You must pay Corporation Tax on profits from doing business as:

  • a limited company
  • any foreign company with a UK branch or office
  • a club, co-operative or other unincorporated association, for example, a community group or sports club

How much is it?

The rate you pay differs depending on the amount of profit you make.

  • If you made company profits of more than £250,000, you’ll pay the ‘main rate’ or Corporation tax, which is currently 25%.*
  • If your company made a profit between £50,000* and £250,000* you may be entitled to Marginal Relief which provides a gradual increase between the small and main rate. Find out if you are eligible here.
  • If you made a £50,000* or less profit, you’ll pay the ‘small profits rate’ which is 19%*

How is corporation tax calculated?

The formula is simple:

Corporation Tax = Taxable Profits x Corporation Tax Rate

The tricky part is figuring out what counts as taxable profits, which can include:

  • Trading profits
  • Investments
  • Selling assets (like business property or shares)

Remember, costs like salaries, business expenses, and certain allowances can reduce your taxable profits.

It’s calculated on the profits generated during a company’s accounting period after expenses, such as the cost of goods sold, salaries and rent, have been deducted. 

Deductions and Reliefs

If you’re worried about how much corporation tax you’ll have to pay, the good news is that there are a few reliefs and allowances you can use to claim against your profits like research and development allowances, relief for creative industries and capital allowances.

Find out all the allowances and reliefs here

How and when to pay?

You don’t get a bill for Corporation Tax. Instead, there are specific things you need to work out, pay and report.

To pay, you’ll need to:

  1. Register for Corporation Tax 
  2. Keep accounting records 
  3. Calculate your Corporation Tax (or hire an accountant to do it!)
  4. Pay HMRC – you can do this by Faster Payments, CHAPS or Bacs or over the phone. You’ll need to report if you have nothing to pay by your deadline. This is usually 9 months and 1 day after the end of your accounting period, which is typically the end of your financial year. 
  5. File your Company Tax Return by your deadline – usually 12 months after the end of your accounting period.

What are the penalties for not paying corporation tax?

On a more serious note, companies that don’t pay their corporation tax on time are liable to incur penalties applied by HM Revenue & Customs (HMRC). The penalties can be significant but may also lead to criminal prosecution. They also increase the longer you leave it to pay.

Current penalties are: 

  • 1 day: £100*
  • 3 months: £200*
  • 6 months: HM Revenue and Customs (HMRC) will estimate your Corporation Tax bill and add a penalty of 10%* the unpaid tax.
  • 12 months: Another 10%* of any unpaid tax.
  • If your tax return is late 3 times in a row, the £100 penalties are increased to £500* each.

If you have a reasonable excuse, you can appeal by writing to your company’s Corporation Tax office.

What if I make a mistake?

Mistakes happen. If you realise you’ve made an error on your tax return after it’s been submitted, you can amend it within 12 months. If you’re unsure, it’s always best to get advice from an accountant. To make changes you can:

  • Use commercial software
  • Send a paper return or write to your company’s Corporation Tax office.

Keeping Records

The UK law mandates that you keep records of your company’s income, costs, and other financial transactions for at least 6 years. This helps in case HMRC wants to review your tax calculation or if you need to revisit any data.

How can I find out more about corporation tax?

The government website has a lot of information about corporation tax, including the current rates of tax, how to calculate it on your profits and the penalties incurred for non-payment. 

Find out detailed information here.

Understanding Corporation Tax doesn’t need to be daunting. While there are intricacies to the process, a bit of knowledge and the help of a good accountant can make it all manageable. If you ever feel lost, remember: Your business is our business and we’re always here to lend a friendly ear and a helping hand. 

*All figures are correct at September 2023 and subject to change

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What is the Gross Payment Status (GPS) Compliance Test and How to Apply

The construction industry in the UK operates under a unique tax system known as the Construction Industry Scheme (CIS). If you’re a contractor or subcontractor in this industry, understanding the CIS, specifically the Gross Payment Status (GPS), can be crucial for your business finances. So, what is the Gross Payment Status Compliance Test, and how can you apply for it? Let’s dive in.

What is Gross Payment Status (GPS)?

Within the CIS, contractors usually deduct tax at source from payments made to subcontractors. This means that subcontractors receive payments after the tax has been deducted. However, businesses with a Gross Payment Status receive their payments in full, without any deductions. Instead, they are responsible for managing their tax and National Insurance contributions.

Benefits of GPS

  • Improved Cash Flow: As your payments are not subject to up-front deductions, you have better control over your funds.
  • Business Reputation: Achieving and maintaining GPS can elevate your reputation in the construction industry. It indicates financial stability and reliability in managing tax obligations.

Achieving GPS can be beneficial, but to be eligible a subcontractor must pass the GPS Compliance Test.

GPS Compliance Test

The GPS Compliance Test makes sure subcontractors can be trusted to handle their own taxes responsibly. The main criteria include:

  1. Business Test: The construction work must be undertaken in the UK and run through a bank account.
  2. Turnover Test: There’s a threshold for the turnover from construction work. HMRC evaluates your past year’s turnover, excluding VAT and material costs. The required turnover is:
  • £30,000 for sole traders.
  • £30,000 per partner in a partnership or a minimum of £100,000 for the entire partnership.
  • £30,000 per company director or a minimum of £100,000 for the entire company.
  • For companies controlled by 5 or fewer people, the annual turnover must be £30,000 for each individual.
  1. Compliance Test: You must show a good record of tax returns and payments for the previous 12 months. No late submissions, unpaid tax or overdue amounts!

If you pass all three parts of the test, you can apply for GPS. But remember, you have to continue meeting these criteria because HMRC reviews the status annually.

How to Apply for Gross Payment Status

  1. CIS Registration: Before applying for GPS make sure you’re registered under the CIS. Both contractors and subcontractors need to be registered. You can apply when you register for the CIS or at a later date.
  1. Application:

If applying at the same time as registering for CIS:

  1. Sign in to Government Gateway. 
  2. From ‘Your tax account’, go to ‘Other services’. 
  3. Choose ‘Construction Industry Scheme – Subcontractors.

If applying after you register for CIS:

  1. Call the CIS helpline.
  2. Fill in a form.
  3. Supporting Documentation: You may be asked to provide certain documents such as business accounts, VAT returns, and evidence of operating your business through a bank account.
  4. Compliance Checks: HMRC will conduct checks to ensure you meet all the criteria for the GPS Compliance Test.
  5. Approval: If your application is successful, you’ll be granted GPS, and contractors won’t make deductions from your payments. You will, however, be responsible for paying your tax and National Insurance at the end of the tax year.
  6. Regular Review: HMRC reviews your status annually. Stay compliant with all your tax obligations to maintain your GPS.

        Helping You Navigate The GPS

        Navigating the Gross Payment Status (GPS) might sound complex, but the perks for subcontractors are huge. Just remember, staying on top of your taxes is the key. The HMRC sees GPS as a trust badge, given only to those who’ve earned it.

        Thinking of diving into GPS? Make sure your finances are tidy, and keep an eye on any CIS or GPS updates. With the right approach, GPS can be a game-changer for your business.

        Find current HMRC CIS info here

        Find current HMRC GPS info here

        Need a hand? As your go-to tax partners, we’ll simplify the CIS, manage your payments, and make sure your tax returns are on point. Our goal? Letting you focus on building great things, while we handle the numbers.

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        A Guide to the New Employment Laws in 2023

        The UK’s employment law landscape is constantly evolving, and 2023 so far has been no exception. New laws and regulations regarding employment aiming to protect workers’ rights, promote diversity and offer better working conditions have been passed with some coming into effect in 2023 and others in 2024. So, what are the main changes, and how could they affect you?

        Key changes to UK employment laws

        Here are five of the notable changes you should be aware of:

        1. Increased flexibility for employees

        The pandemic changed how we work, and the government responded by introducing a framework around remote working and requiring employers to discuss and document remote work policies. 

        With effect from 1 April 2023, employees now have the right to request flexible working from day one of employment. This removes the existing 26-week qualifying period. Employers will also be required to respond to a flexible working request within 2 months and consult with employees before rejecting it if that’s the decision.

        1. Enhanced protection for pregnant women and new parents. 

        The Protection from Redundancy (Pregnancy and Family Leave) Bill 2023 came into force on 24th July 2023, and the regulations needed to bring the proposals into effect are working their way through Parliament. 

        Whilst we don’t know yet when the government will make the changes they’ve talked about, the Act will enhance redundancy protection for pregnant workers and working parents returning to the workplace after family-related leave. The Bill will include the right to be offered a suitable alternative vacancy and to be consulted on any redundancy plans.

        1. New rights for carers. 

        The Carers’ Leave Act 2024 was passed on 24th May 2023 and gives employees the right to take unpaid time off work to provide or arrange for the care of a dependant with a long-term care need. The Bill introduces a statutory entitlement of five days of unpaid leave per calendar year which will be available to eligible employees from the first day of their employment. The Act is expected to come into force in 2024 and will be a significant step forward for carers who currently have very few legal rights in the workplace.

        1. Increased pay for statutory leave. 

        From 2 April 2023, the statutory rate of pay for maternity, paternity, adoption, shared parental and parental bereavement leave increased from £156.66 to £172.48 per week. This is a welcome increase for employees taking statutory leave and helps to ensure they’re not financially worse off when on leave.

        1. Update of statutory redundancy pay calculations.

        New limits on employment statutory redundancy pay came into effect on the 6th of April. The result means that employers that dismiss employees for redundancy must pay those with two years’ service an amount based on the employee’s weekly pay, length of service and age. 

        Informed and in the know

        Whilst there are other changes to the UK’s employment laws going through Parliament, these five are important ones to be aware of. It’s in your best interest to know what they mean to make sure you know what you’re entitled to as an employee or what you need to comply with as an employer. 

        If you’re unsure how the new employment law changes will affect you or your business, or if you’ve any further questions, it’s a good idea to speak to an employment law specialist. And with some of these changes impacting pay and salaries, we can help give you peace of mind when it comes to payroll.

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        How to reduce your Capital Gains Tax

        Capital Gains Tax (CGT) is one of those financial terms with the potential to send shivers down anyone’s spine. Often seen as a hindrance, it is a tax levied on the profit gained from selling an asset like property, shares, or valuable possessions. 

        While paying tax is a civic duty, there’s no reason you shouldn’t take advantage of legitimate means to reduce your CGT liability. In this blog, we’ll cover some tried and tested strategies to help you minimise your CGT burden.

        Understand Your Allowance

        Before plunging into complex tax-saving mechanisms, it’s important to understand that the UK has an annual tax-free allowance known as the annual exempt amount (AEA). This is the amount you can make in capital gains without paying any tax. Always take this into account before making any disposals.

        For the tax year 2023 to 2024, the AEA is £6,000 for individuals and personal representatives and £3,000 for most trustees. For the tax year 2024 to 2025 and subsequent tax years, the AEA will be permanently fixed at £3,000 for individuals and personal representatives, and £1,500 for most trustees.

        How much Capital Gains Tax will I pay?

        Again, before looking at ways to minimise your tax payments, it’s good to know how much tax you’ll expect to pay when you sell your assets.

        The rates differ if you are looking at gains from residential property and whether you pay a higher rate of Income Tax.

        If you pay a higher rate of Income Tax, you’ll pay:-

        1. 28%* on your gains from residential property
        2. 20%* on your gains from other chargeable assets

        If you pay basic rate Income Tax, you’ll need to:

        • Work out how much taxable income you have
        • Work out your total taxable gains
        • Deduct your Capital Gains tax-free allowance. 
        • Add this amount to your taxable income.
        • If this amount is within the basic Income Tax band, you’ll pay 10%* on your gains (or 18%* on residential property). You’ll pay 20%* on any amount above the basic tax rate (or 28%* on residential property)

        7 Ways to Reduce Capital Gains Tax

        1. Utilise the Spouse Exemption

        One of the ways to minimise your Capital Gains Tax is to utilise the spouse exemption. If you’re married or in a civil partnership, you can transfer assets to your spouse or civil partner without triggering CGT. Once the asset is in their name you can utilise both your tax-free allowances, effectively doubling the tax-free amount.

        1. Hold Investments in a Tax-Efficient Wrapper

        You might consider holding your investments in an Individual Savings Account (ISA) or a pension fund. Investments within these wrappers can grow and be withdrawn tax-free, offering a legitimate way to avoid CGT. However, bear in mind there are annual limits on contributions to these accounts, so plan wisely.

        1. Offset Your Losses

        Another effective way to reduce your CGT is by offsetting capital losses against your capital gains. If you have investments that aren’t performing well, consider selling them to realise a capital loss. These losses can then be used to offset gains, reducing your overall tax liability. You can even carry forward unused losses to offset against future gains.

        1. Make Use of Business Asset Disposal Relief

        If you own a business, Business Asset Disposal Relief (formerly Entrepreneurs’ Relief until 2020) could be beneficial. This relief allows you to pay a reduced tax rate of 10% on gains from selling all or part of your business, subject to certain conditions. The lifetime limit for this relief is £1 million, so it’s an excellent way to save on large capital gains.

        To qualify for the relief, you must have been a sole trader or business partner for 2 years and owned the business for at least 2 years up to the date you sold your business.

        1. Invest in Enterprise Investment Schemes (EIS)

        The EIS is designed to help smaller companies raise finance by offering tax relief to investors. By investing in an EIS-eligible venture, you can defer CGT from other assets as long as the gain is invested in the EIS within a set period. Plus, there are other tax benefits of investing in an EIS, such as income tax relief and inheritance tax exemption.

        1. Make Charitable Contributions

        Giving to charity can also help reduce your CGT. If you donate an asset to a registered charity no CGT will be due. Alternatively, you can sell an asset to a charity at less than its market value, which will minimise the capital gain and, therefore, the CGT.

        1. Plan Your Disposals

        Timing is everything. Spreading the disposal of assets across multiple tax years can help you maximise your annual tax-free allowance. By planning the timing of your disposals wisely, you can reduce the amount of gain subject to CGT.

        Still have questions?

        Capital Gains Tax may seem daunting, but there are various strategies to mitigate the amount you pay. By understanding your tax-free allowance, utilising tax-efficient wrappers, and making smart financial decisions, you can minimise your CGT liability and keep more of your hard-earned money. Always remember that failing to plan is planning to fail, especially where taxes are concerned.

        If you still have questions about Capital Gains or any other taxes, get in touch or contact us online here. 

        * Remember, these figures can change based on government decisions

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        Income Tax Explained For Sole Traders

        Navigating the world of income tax can be daunting, especially for sole traders with no colleagues to turn to. Whether you’ve recently ventured into self-employment or have been flying solo for a while, understanding your tax obligations is crucial. In this blog, we’ll simplify income tax for sole traders, helping you gain clarity and confidence in tackling your tax head-on.

        Who is a Sole Trader?

        First and foremost, let’s understand what it means to be a sole trader. A sole trader is an individual who runs their own business and is considered self-employed. Unlike limited companies, sole traders don’t have a separate legal identity from their business. This means the business’s profits and losses directly affect the individual’s finances.

        Income tax basics

        Income tax is the tax you pay on your earnings. For sole traders, this means the turnover you make from your business minus allowable expenses. The amount you owe is calculated annually through the Self-Assessment tax system.

        Every year, by the 5th of October for paper returns and the 31st of January for online returns, sole traders must complete and submit a Self-Assessment tax return to HMRC. This outlines your earnings and expenses for the previous tax year (from 6th April to the following 5th April).

        Allowable expenses

        One advantage of being a sole trader is that you can deduct certain costs, known as “allowable expenses”, from your turnover before tax. Common allowable expenses include:

        • Office costs (e.g., phone bills, stationery)
        • Travel costs (e.g., fuel, public transport)
        • Clothing expenses (e.g., uniforms)
        • Staff costs (e.g., salaries, freelance work)
        • Things you buy to sell on (e.g., stock, raw materials)
        • Financial costs (e.g., insurance, bank charges)
        • Advertising or marketing (e.g., website costs)

        Remember to keep a detailed record of these expenses, as HMRC may ask you to prove them.

        How much income tax do I pay?

        The amount of self-employment tax you’ll pay depends on your income and any business expenses. The government allocates a personal allowance, which is the amount you can earn tax-free in a financial year. For the 2023/24 tax year, the personal allowance is set at £12,570*.

        But once you’ve exceeded your personal allowance, you’ll pay tax on your income earned above this at the following rates:

        • Basic rate: £12,571 to £50,270 – 20%.*
        • Higher rate: £50,271 to £125,140 – 40%.*
        • Additional rate: Over £125,140 – 45%.*

        For instance, if you made a profit of £40,000 (after deducting allowable expenses), you’d owe no tax on the first £12,570 and 20% on the remaining £27,430.

        How do I pay my income tax?

        Being self-employed, you’ll pay tax on your sole trader profits through the government’s self-assessment scheme. This means completing a self-assessment tax return and submitting it to HM Revenue and Customs (HMRC) annually.

        The deadline for submitting your online self-assessment tax return is 31st January of every year. It’s important to note that, if you miss the deadline, you could be liable for a penalty.

        Sign up or sign in and file your Self Assessment tax return here.

        Payments on Account

        This is a system used by HMRC to collect tax in advance from those who owe tax from the previous year. If your tax bill from the previous year was over £1,000 and only a small amount was deducted at source (e.g., from wages or pensions), you’d likely have to make “payments on account”.

        You make these payments in two instalments: by midnight on 31st January (covering the first half of the tax year) and 31st July (covering the second half). Each payment is half of your previous year’s tax bill.

        What if I make a loss?

        If your business makes a loss, as some sole traders do, the loss is carried forward to the following financial year and used to offset future profits. The result is you won’t have to pay tax on any future profits until you’ve recouped the loss of the previous year.

        National Insurance

        As well as income tax, sole traders also need to pay National Insurance contributions. There are two types relevant to sole traders:

        • Class 2 National Insurance: A flat weekly rate of £3.45 if your profits are £12,570 or more a year (for the 2023/24 tax year*). Even if your profits are under the threshold, it’s a good idea to keep paying your Class 2 National Insurance to make sure you qualify for certain state benefits, including the state pension.
        • Class 4 National Insurance: 9% on profits between £12,570 and £50,270
          2% on profits over £50,270 (for the 2023/24 tax year*)

        Tips for managing your taxes

        • Stay Organised: Keep a detailed record of your income and expenses. Use accounting software or hire an accountant if necessary.
        • Save Regularly: Put aside a percentage of your income for taxes to avoid a last-minute scramble.
        • Stay Updated: Tax rules and rates can change. Regularly check the HMRC website or speak to your accountant.

        So, while income tax obligations might seem overwhelming at first, understanding the basics is the first step to efficient and stress-free tax management for sole traders. With organisation, diligence, and possibly some professional guidance, you can master your taxes and focus on running your business.

        If you still have questions about taxes as a sole trader or need a hand to complete your tax return, get in touch or contact us online here. Don’t forget – we’re all about tax returns with stress deducted. 

        * Remember, these figures can change annually based on government decisions

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        What is IR35 and How Do the Rules Affect You?

        Have you heard about IR35 and wondered what it is? Or, maybe you’re a freelancer or contractor who knows a little bit about it but are unsure if it applies to you.

        If you want to find out the ins and outs of IR35, let’s look at what it means and how the tax rules around it affect you.

        Decoding IR35

        IR35, often called ‘off-payroll working rules,’ is tax legislation introduced in the UK in 2000. 

        Its primary aim was to prevent ‘disguised employment’. This is where individuals who operate like regular employees use an intermediary to be paid for their services, reducing their income tax and National Insurance Contributions (NICs). An intermediary in this instance is often a personal service company (PSC). A PSC isn’t defined in law but is typically a limited company that a worker controls and has some interest in, through which the worker provides their services.

        The legislation ensures that if a contractor functions similarly to an employee, they pay roughly the same Income Tax and NICs as employees.

        IR35 Changes from April 2021:

        Significant changes to IR35 rules were introduced in April 2021 for private-sector employers. Before these changes, it was up to the contractor’s intermediary to determine their IR35 status. Now, for medium and large businesses, it’s the responsibility of the hiring organisation to determine the IR35 status of a contractor.

        Whom Does IR35 Affect?

        You might be thinking, “Well, I’m not a contractor, so this doesn’t affect me.” However, IR35 has a broader reach. It impacts:

        1. Workers, Contractors and Freelancers – Especially those who provide services via an intermediary (like PSC, a partnership, or even another individual). If you’re partnered with an umbrella company as an employee, IR35 might not affect you directly.
        2. Employers (or Clients) – This includes anyone who uses the services of a contractor. They could be the engager, hirer, or end client.
        3. Agencies – Any entity that helps place workers in roles where they provide their services through an intermediary.

        When Does IR35 Kick in?

        IR35 rules become relevant when the worker (contractor) who provides services to a client through their intermediary would have been an employee if they provide their services directly to that client. 

        Who gets to decide if a contractor falls under the scope of IR35 depends on the client’s sector and size:

        • Public Sector: The client makes the determination.
        • Private & Voluntary Sectors: Typically, the client decides. However, if the client is a small business, the onus is on the worker’s intermediary.
        • Agencies: Regardless of size, agencies have specific responsibilities under the IR35 rules.

        How Does it Work?

        The key is understanding the concept of ‘inside IR35’ and ‘outside IR35’:

        • Inside IR35: If your working arrangement is similar to traditional employment, you’re ‘inside IR35’. You may need to pay the same tax and NICs as an employee. However, you won’t necessarily receive traditional employee benefits, such as pension contributions or paid leave.
        • Outside IR35: If your arrangement is genuinely that of a business providing services, you’re ‘outside IR35’, meaning you can be paid gross and manage your own taxes.

        If a client determines that a contractor falls within the IR35 rules, they must:

        • Produce a Status Determination Statement (SDS) detailing the reasons for this determination.
        • Deduct Income Tax and employee National Insurance contributions from the fees given to the contractor’s intermediary.
        • Pay Employer National Insurance contributions and, if applicable, the Apprenticeship Levy to HMRC.

        Factors Determining IR35 Status

        These aren’t the only determinants but are some of the most pivotal:

        1. Supervision, Direction, and Control: How much say does your client have over how, when, and where you complete the work?
        2. Substitution: Can someone else replace you, or are you personally required to provide the services?
        3. Mutuality of Obligation (MOO): Is the client obliged to offer you work, and are you obliged to accept it?

        Navigating the IR35 Maze

        If you’re puzzled about a worker’s employment status for tax, the government provides the Check Employment Status for Tax (CEST) tool to give you clarity.

        Another critical point is that the IR35 assessment is on a contract-by-contract basis. This means a contractor could have multiple assignments, some under IR35 and some outside its ambit.

        How Do The Rules Affect You?

        1. Financial Implications: As a contractor, being ‘inside IR35’ could significantly increase the tax and NICs you owe. Some contractors have seen their net income reduced by up to 25%.
        2. Contractual Changes: Companies wary of the IR35 legislation might change how they engage with freelancers and contractors, opting for short-term engagements or using umbrella companies.
        3. Administrative Burden: There’s an increased administrative load, especially for employers who need to determine the IR35 status of every contractor they engage.
        4. Potential for Disputes: As with any tax matter, disagreements can arise over whether a contractor is genuinely ‘inside’ or ‘outside’ IR35. It’s crucial to ensure all contractual agreements are clear and to seek expert advice if you need more clarification.

        Understanding IR35 rules: extra tips

        The IR35 rules can be complex, so here are our extra tips for contractors affected by IR35:

        • Keep good records. Keep good records of contractors’ work, including their contracts, invoices and timesheets. This demonstrates they are not your employees and are not subject to the IR35 rules.
        • Review your contract. If you’re working through a PSC, review your contract to ensure it’s IR35 compliant. If not, you may need to renegotiate the contract with the company.
        • Get professional advice. If you’re unsure whether the IR35 rules apply to you, always seek professional advice from an accountant or tax advisor. They’ll be able to help you understand the rules and make sure you are compliant.

        Here to help

        If you’re a contractor, or an employer or agency working with contractors, it’s essential to understand the IR35 rules and how they may affect you. 

        We hope you found this article useful and that it has helped clear up any questions you have, but if there are areas you’d like more information on, or for any other matters around tax and payroll, we’re always here to help.

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        What is the impact of high-interest rates on the UK’s mortgage market?

        Interest – it’s what you pay for borrowing money and what banks and building societies pay you for saving money with them. The Bank of England Base Rate is the single most important interest rate in the UK and determines and influences many other interest rates, including those you might have for a loan, mortgage, or savings account. If you have a mortgage or loan, a higher interest rate means your payments may go up. If you have savings, that means you may get a higher return. So, not great news for mortgage holders but better news for savers. 

        The UK’s mortgage market is facing challenges as a result of rising interest rates. The Bank of England has been steadily lifting the base rate since December 2021, with 14 increases from 0.25% in December 2021 to 5.25% in August 2023. Understandably, this has a knock-on effect on mortgage rates, which have been steadily increasing, leading to a worrying time for homeowners.

        In this article, we’ll look in more detail at the impact of high-interest rates in the UK’s mortgage market and how it can affect you. Hopefully, it’s of ‘interest’ (see what we did there).

        Why have interest rates gone up?

        Interest rates are closely tied to inflation, and rates have increased because the UK’s inflation is too high. 

        Inflation is the increase in the price of something over time. For example, if a loaf of bread costs £1 but £1.05 a year later, then annual bread inflation is 5%. The Office for National Statistics (ONS) tracks the prices of hundreds of everyday items in an imaginary and regularly reviewed “basket of goods” to calculate inflation. Britain has struggled more than other countries with the surging cost of food, a shortage of workers to fill jobs and its heavy reliance on natural gas to generate power and domestic heating, all of which adds to inflation pressure.

        Inflation is bad for the economy and hits those who can least afford it the hardest. Raising interest rates is how the Bank of England can help to get inflation back down. The theory behind this is that raising interest rates makes it more expensive to borrow money, meaning people have less to spend, reducing demand and, in turn, inflation.

        How high-interest rates affect the housing market

        The housing market is intricately linked to the mortgage market, and rising interest rates can lead to a slowdown in both home sales and price appreciation. This dynamic often results in a shift from a seller’s market to a buyer’s market, where buyers have more negotiating power. 

        Higher interest rates can affect potential homebuyers who were previously on the edge of their borrowing capacity, potentially pushing them out of the market and adding to a decline in demand and increased downward pressure on prices. As a result, sellers might find it challenging to sell their properties at the price they’d like, resulting in longer listing times. Alternatively, sellers might resort to reducing the price of their home. And when the housing sector experiences a slowdown, construction and related industries can also see a knock-on effect. 

        High-interest rates can also influence the decisions of property investors. With higher borrowing costs, the potential return on investment decreases. As a result, some investors might reconsider buying additional properties or may even sell existing ones. This can impact the supply of rental properties in the market, potentially leading to rental price increases as property owners look to offset and pass on their increased costs.

        Another important factor in the housing market is the behaviour of lenders. As interest rates rise, they may become more cautious about lending to potential homebuyers, particularly those with higher risk profiles. Stricter lending standards might be implemented, making it more difficult for individuals with lower credit scores or irregular income streams to secure mortgages. This could create barriers to entry for first-time homebuyers and dampen overall housing market activity.

        How high-interest rates affect people with mortgages

        If you already have a mortgage, high-interest rates can affect you in several ways:

        • The affordability of mortgages. As interest rates rise, so does the cost of borrowing, resulting in higher monthly mortgage payments. The impact will vary depending on individual circumstances; for example, people with high LTV (loan-to-value ratios) mortgages will be impacted more than those with low LTV mortgages. Additionally, if you have a variable-rate mortgage, the cost of your repayments is likely to go up straight away. But if you’re on a fixed rate, you won’t see any change until your fixed period ends.
        • Less disposable income. As interest rates rise and borrowing becomes more expensive, consumer spending can take a hit. When households allocate a larger portion of their income towards mortgage payments, they have less to spend on other goods and services. 
        • The ability to remortgage existing homes. When rates are low, homeowners often refinance to secure lower monthly payments or tap into their home equity. However, this option becomes less attractive when rates are high as consumers have less disposable income. This may lead to people having to sell their homes because they can no longer afford the monthly repayments.
        • Mortgage defaults. Rising interest rates may lead to more mortgage defaults as people struggle to afford their monthly repayments and default on their loans.

        How to deal with rising mortgage interest rates

        While rising interest rates undoubtedly cause concern for mortgage holders, several factors may mitigate the impact of high-interest rates. 

        Government help. There is government help for those who are really struggling, called support for mortgage interest (SMI). This is available to people who receive one of a list of other benefits, including universal credit and income support. For those who qualify, the government pays some of your mortgage interest payments, but in the form of a loan (which must be repaid with interest). Borrowers tend to pay off the loan when they sell the property or when they die.

        A growing economy. Another factor that could mitigate the impact of high rates is that the economy is still growing. So, people’s incomes are still rising, which may help them afford higher mortgage repayments. 

        As well as these mitigating factors, there are also a few ways to stay in control of your mortgage payments.

        Budgeting. You can use a mortgage calculator to work out how your monthly payments might be affected and then create a budget and see if there are any areas where you can cut back. If increases are likely in the future, you can start building up a savings buffer so you can still afford your mortgage when they hit.

        Contact your lender. If you’re struggling to pay your mortgage, you should contact your lender as soon as possible. Depending on your circumstances, the lender may offer a range of options, such as reducing the amount you pay for a short period.

        Overall, the impact of high-interest rates on the UK’s mortgage market is uncertain. The market may slow down, but it’s also possible that government schemes and a growing economy will help mitigate the impact. Only time will tell how the market will react to rising interest rates. 

        If you’re thinking about buying a home, it’s important to factor in the impact of rising interest rates in the future. Think about your circumstances and how you’ll be affected by higher mortgage repayments. In essence, work out what you can afford now and whether you’ll still be able to afford it if rates rise again. 

        As always, get in touch if you need to know more, and we’ll be happy to help.

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        What do the proposed Companies House reforms mean for small businesses

        The UK government has proposed a number of reforms to Companies House, the official registrar of companies in the UK. These reforms should improve the transparency and accountability of companies, making it easier for law enforcement agencies to investigate financial crime. Whilst it might mean some extra admin, it should paint a more transparent picture of a business, helping people make more informed decisions about who they do business with.

        There are 3 main proposed changes:

        • Enhanced Identity Verification helps to deter criminals from using companies for illegal purposes.
        • Compulsory filing of profit and loss accounts for all small companies, making it easier for investors, customers and suppliers to assess a company’s financial health.
        • Digital filing only makes it easier for Companies House to process filings and simultaneously help reduce fraud.

        Let’s look at the changes in more detail and what they can mean for small businesses.

        When and why are the changes happening?

        Since February 2022, the UK Government has made clear its intention to expand the role and powers of Companies House to address the increasing misuse of UK corporate identities and improve the accuracy of filed data. The changes form part of the Economic Crime and Corporate Transparency (ECCT) Bill. As the ECCT is still making its way through Parliament, the changes are still at the proposal stage, so the exact timings aren’t yet known. 

        The vision of the changes for Companies House is to create a single, cost-effective, sustainable way of filing accounts, which will be secure, transparent and traceable. 

        Enhanced Identity Verification

        One of the most significant proposed changes is introducing an identity verification process for all company directors, People with Significant Control (PSC), and those filing on behalf of a company. This move is designed to reduce the risk of fraud and ensure accurate information is provided to Companies House.

        Implications for Small Businesses: While identity verification may seem like an added layer of bureaucracy, the intention is to protect businesses. By ensuring that only legitimate individuals can register or make changes to a company’s details, small businesses are safeguarded from potentially fraudulent activities. However, it also means that small businesses need to make sure their documentation is always up-to-date and accurate.

        Compulsory filing of profit and loss accounts for all small companies

        Currently, small companies don’t have to file profit and loss accounts with Companies House. This change would mean that all small companies will be required to file this information annually, making it easier for investors, customers and suppliers to assess a company’s financial health.

        Implications for Small Businesses: This change has pros and cons for small business owners. For some, it may mean more paperwork and potential costs. They might have to spend more on accounting help, and competitors could see how they’re doing financially. While it may make things clearer and fairer for everyone, it also means less privacy for the businesses’ earnings. 

        Digital filing

        Currently, companies can file their accounts with Companies House in paper form using web-based systems or software. Under the proposed reforms, all filings would need to be made digitally. That will make it easier for Companies House to process filings and help to reduce fraud. Companies House has already begun work to move to software-only accounts filing, which will see the removal of all other filing routes for accounts.

        Implications for Small Businesses: The move to digital filing could save small businesses time and money. However, it’s important to ensure they have access to the technology and support they need to comply with the new requirements.

        The overall impact on small businesses

        These reforms are likely to significantly impact small businesses in the UK, particularly having to file profit and loss accounts which could add more administrative burden. But, on the plus side, the increased transparency may help attract investors and customers, making it easier for small businesses to raise finance.

        Overall, we believe the proposed Companies House reforms will have a positive impact on small businesses in the UK. They will improve transparency, accountability and security, making it easier for small businesses to raise finance and generate growth.

        What can small businesses do to prepare for the reforms?

        Nothing will change until after the ECCT Bill receives royal assent, so you don’t need to do anything differently yet. But preparation is key, so, here are our tips on how small businesses can get ready for the reforms:

        • Keep good records. Keep good records of your financial transactions, making it easier to prepare the required accounts for filing. It’ll also demonstrate compliance with the new regulations.
        • Get familiar with the new requirements. Get to know the new requirements by reading the guidance published by Companies House.
        • Seek professional advice. If you need help complying with the new requirements, seek professional advice from an accountant or solicitor.

        Following these tips will help you stay on track as the changes come into play. From keeping your records to advice on the changes and what they mean for you and your business, we’re always here to help.

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        What Your Accountant Needs To File Your Individual Tax Return

        Filing a tax return isn’t everybody’s idea of fun. But you must get it right and filed on time. While it can seem like a tedious task, you can choose to use an accountant to file your tax return if you don’t have time to do it yourself, you have complex financial arrangements, or you want to make sure that you’re taking advantage of all of the deductions and credits that you’re eligible for. That means you’re not tied up with tax and are free to spend time on the things you’d rather be doing.

        If you choose to use an accountant, they’ll need a variety of information from you to file your tax return. This information will help them determine your taxable income and calculate your tax liability. And, perhaps most importantly, show you how to reduce your tax bill. 

        Read on for a comprehensive guide to what your accountant needs from you to file your tax return successfully. From essential documents and financial records to specific details about your income and expenses, we’ll walk you through the key information that will enable your accountant to prepare your taxes accurately, maximise deductions, and minimise your tax liability. 

        Information About You and Your Income

        Identification information: Your accountant will need your name, address, National Insurance number, and date of birth. They may also need the identification information for your spouse and dependents.

        Copy of your most recent tax return: This will help your accountant determine your filing status, income and deductions from previous years, and any credits you may be eligible for.

        Wage statements: If you have any employment income on top of your self-employed earnings, you’ll need to provide your accountant with your wage statements from your employer(s). These statements will show your gross income, deductions, and your tax withholding. You’ll also need to provide your P60, or P45 if that employment income ceased during the year, together with your P11d, which outlines any benefits in kind you received from your employment.

        Additional income statements: If you have any other sources of income, such as rental income, or investment income, you’ll need to provide your accountant with statements showing this. You must include any bank interest, dividends, and savings interest received during the year (excluding ISAs).  

        Particulars of your rental property If you own property, you’ll need to provide your accountant with documents showing your rental income, mortgage interest, property taxes, and all expenses relating to the property. These include statements from your letting agent if you use one. Whilst previously there was mortgage rate relief, since April 2020, all buy-to-let landlords must pay tax on the entirety of their rental income. However, they can receive a tax credit worth 20% of their mortgage interest rates.

        Private pension payments: You’ll need to supply details of any pension payments you’ve made in the previous year, as these can give you additional tax relief if you qualify.

        Information About Your Business

        All sales income: You’ll need to provide all your sales invoices for the year or details outlining your daily takings if, for example, you’re a shop that doesn’t issue invoices. One question we are often asked is whether you need to provide invoices that haven’t yet been paid. The short answer is yes; you must provide all the invoices issued in the given tax year. 

        Proof of expenses: If you’re claiming any deductions or credits, you’ll need to provide your accountant with proof of these expenses. This proof could include receipts, invoices, or other documentation.

        Bank statements: Providing bank statements for your business allows your accountant to cross-check everything going in and coming out and acts as evidence of these. While you may only have one business bank account, if you have a deposit account or reserve account, make sure to include these statements too.

        Business credit card: You might put everything for your business on a business credit card, and you’ll need to give your accountant these statements. If you occasionally use a personal card to pay business expenses, include these with the business-related costs highlighted. 

        Loan statements: If you have any business loans, your accountant will need to see the statements. This will mean that the closing balance is included in the accounts correctly and that the correct amount of interest has been included as a deductible expense.

        Finance agreements: Provide copies of any new finance agreement contracts signed in the past year. The interest on the payments is tax-deductible, and the asset bought could qualify for the annual investment or other capital allowances.

        Petty cash receipts: If your business carries cash, your accountant will need to know how much money is in cash at the end of the year. They need to balance your money, so these records are very important.

        Payroll records: Your accountant may operate your payroll, but if not, you’ll need to supply copies of each month’s pay run. This is so your accountant can check to ensure all wage and national insurance amounts are included.

        Stock value: If relevant, you must supply a valuation of any stock held at the year-end. This should include information about what it costs, or its value if lower.

        Making Tax Digital

        In the past, all information was sent to accountants on paper, which, unsurprisingly, was difficult to keep track of. Things would be lost, and a lot of time wasted. Most information can now be supplied online, and as we move closer to Making Tax Digital, you should consider moving to online bookkeeping software. This will automatically organise your records and keep them all in one place. As a result, you won’t need to worry about missing anything, and it also means you can give your accountant access to your online records throughout the year. 

        At Norwich Accountancy, we offer clients access to and full training on Xero, the online cloud-based accounting software for small and medium-sized businesses.  

        All in the timing 

        The deadline for sending your online self-assessment tax returns to HMRC and paying any taxes owed is 31st January each year for the previous tax year. So, on the 31st of January 2024, you’ll have submitted all your information for the tax year from the 6th of April 2022 to the 5th of April 2023. 

        If you have chosen to use an accountant to file your taxes, getting everything in order well ahead of these deadlines will give you plenty of time to plan for any tax liabilities. If you need help completing your tax return, get in touch or contact us online here. After all, we’re all about tax returns, stress deducted. 

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