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Reducing the Tax Gap: Tips for Small Businesses

The tax gap – the difference between taxes owed and taxes collected – was a staggering £39.8 billion for the 2022-2023 tax year, with 4.8% of taxes uncollected. 

Small businesses account for about 60% of this gap. But don’t worry; there are strategies to reduce your impact and remain compliant with tax regulations. Here’s a look at where small businesses often slip up and how to improve tax compliance.

Common hurdles for small businesses

1. Incorrect VAT returns

VAT can be tricky, with many rules and potential pitfalls. Common mistakes include:

  • Miscalculating VAT: Errors in VAT calculations can lead to incorrect returns.
  • Incorrect claims: Claiming VAT on ineligible items can result in penalties.
  • Incorrect filings: Even something as simple as putting the numbers in the wrong box can trigger an HMRC Compliance Check.
  • Missing deadlines: Late VAT returns can incur fines and interest.

To avoid these issues, keep your VAT records accurate and current and regularly review your VAT return preparation process.

2. Not reporting offshore income

If your business earns money from abroad, it’s important to report it correctly. Issues often arise from:

  • Not reporting offshore income: Whether accidental or due to misunderstanding reporting requirements.
  • Lack of awareness: Many small business owners may not realise offshore income needs to be reported.

Keep detailed records of international transactions and consult a tax advisor with expertise in international tax laws to ensure accurate reporting and avoid fines.

3. Payroll reporting mistakes

Payroll mistakes can be costly and include:

  • Misreporting wages or bonuses: Affects National Insurance contributions and income tax.
  • Errors in employee data: Incorrect personal or payment details.
  • Non-compliance with updates: Failing to apply changes in payroll laws or rates.
  • Failure to declare company benefits: Many businesses get caught out as they may not realise they are providing their employees with a taxable benefit and need to declare it.

To avoid these issues, use reliable payroll accountants or software and regularly check payroll reports for accuracy. Stay informed about the latest tax rules affecting payroll.

How to improve your tax compliance

1. Keep your team updated

To boost tax compliance, keep your accounting team updated:

  • Training: Regularly invest in HMRC webinars, workshops, or online courses.
  • Subscriptions: Subscribe to tax update newsletters for the latest info.
  • Internal communication: Foster open discussions about tax law changes and their impact.
  • News: Keeping an eye on the news will help you stay up to date with the most recent and upcoming changes to legislation.

Regular updates will help your team stay compliant and avoid costly errors.

2. Perform regular internal audits

Internal audits are a proactive way to catch and correct errors before they lead to bigger problems. Regular audits can help you:

  • Identify mistakes: Spot errors in financial records, VAT returns, or payroll reports.
  • Maintain compliance: Verify that all tax obligations are met and records are accurate.
  • Improve processes: Discover inefficiencies or areas for improvement in your financial processes.
  • Discovery of internal fraud: An internal audit can reveal if there have been any internal wrongdoings.

Schedule internal audits periodically and consider bringing in an external auditor for an objective review.

3. Understand and apply for available reliefs

Tax reliefs and exemptions can lower your tax bill. Key updates include;

  • National Insurance: Reduced rates for Class 1 and Class 4, with Class 2 removed for the self-employed.
  • Tax relief schemes: Support for research and development tax reliefs and embedded capital allowances on commercial property.

Consult a tax advisor to identify and apply the relevant reliefs and exemptions for your business.

4. Report accurately and on time

Timely and accurate reporting is important to avoid fines. Key deadlines for this year included:

  • P60s: Due by the 31st of May 2024.
  • End of Year Reporting: Final FPS/EPS submissions needed a final submission indicator, with EPS due by the 19th of April 2024 if no further payments were made.
  • P11D Submission: The deadline was the 6th of July 2024, with no paper forms accepted.

Make sure all reports are accurate and submitted on time to avoid penalties. Stay on top of future deadlines to keep everything running smoothly.

5. Get professional help

Sometimes, the best way to stay compliant and address complex tax issues is to consult professionals. A tax advisor or accountant can:

  • Provide expertise: Offer specialised knowledge of tax regulations and compliance.
  • Identify risks: Help identify potential areas of non-compliance before they become issues.
  • Help with planning: Offer advice on tax planning and strategies to minimise your tax liability.

Regular consultations with a tax professional can provide peace of mind and help you navigate the complexities of tax compliance.

Contributing to a fair tax system

Reducing the tax gap isn’t just about avoiding penalties; it’s about supporting a fair tax system. By tackling common compliance issues and following these tips – training your team, conducting regular audits, applying for reliefs, reporting accurately and on time, and consulting professionals – you can improve your tax accuracy and make sure your business contributes fairly.

Get in touch with our team for accountancy and payroll guidance.

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Streamlining Client Onboarding with Advanced AML Security Checks

In today’s business world, Anti-Money Laundering (AML) security checks are essential for financial sector businesses. These checks not only protect companies from fraud and illegal activities but also keep them compliant with the law. At Norwich Accountancy, we take this responsibility seriously and have recently improved our AML and ID verification processes to simplify and secure client onboarding, making the experience more efficient and reassuring.

What are AML security checks?

AML security checks are procedures used to prevent, detect, and report money laundering activities. They involve verifying clients’ identities, monitoring transactions, and ensuring all activities comply with legal standards. These checks are important for keeping the financial system honest and preventing money from being used for illegal activities like funding terrorism or drug trafficking.

Why are AML security checks important?

The main purpose of AML security checks is to protect businesses from being used as channels for money laundering. This protection maintains the trust and stability of the financial sector. Also, compliance with AML regulations is mandatory for companies that want to operate legally and avoid hefty fines and legal repercussions. By carrying out thorough AML checks, businesses can also improve their reputation and build trust with clients and partners.

Introducing Red Flag Alert

To streamline our AML security checks, we’ve partnered with Red Flag Alert, a leading provider of advanced AML solutions. Red Flag Alert’s cutting-edge technology allows us to perform thorough checks quickly and efficiently, reducing the burden on our staff and minimising the impact on our clients. This partnership enables us to maintain a proactive stance against financial crime while making sure our onboarding process stays smooth and responsive to our clients’ needs.

How Red Flag Alert Works

Red Flag Alert’s AML security checks are fully digital and user-friendly. When a new client begins the onboarding process they’ll receive a verification SMS asking them to verify their identity via their smartphone. This process involves three simple steps:

  1. ID document capture: The client is asked to take a picture of a valid government-issued ID document. The system ensures the document is clearly visible and free from glare or blurring.
  2. Selfie video: Next, the client takes a short selfie video using their smartphone camera. This biometric likeness check confirms the person presenting the ID is the actual owner of the document.
  3. Submission and verification: The client submits the photos, and Red Flag Alert’s AI-driven system performs an in-depth analysis, cross-referencing multiple databases to verify the information.

This whole process takes no more than 90 seconds, providing a swift and hassle-free experience. Also, Red Flag Alert’s technology includes advanced features such as multi-bureau analysis and a biometric liveness check, which enhance the accuracy and reliability of the AML checks.

Benefits of Red Flag Alert security checks

By implementing Red Flag Alert’s AML security checks, we offer several key benefits to our clients:

  • Speed and efficiency: Traditional AML checks can be time-consuming, often taking days to complete. Red Flag Alert reduces this time to just minutes, allowing us to onboard clients faster and without unnecessary delays.
  • Compliance assurance: Red Flag Alert’s technology ensures our AML processes are always up-to-date with the latest regulations, reducing the risk of non-compliance.
  • Enhanced accuracy: The AI-driven system provides a high match rate, reducing the need for manual intervention and reducing errors.
  • Improved client experience: The fully digital process is convenient and easy to use, providing a seamless onboarding experience for our clients.

Staying compliant with changing regulations

The regulatory landscape is constantly evolving, with new rules and requirements introduced regularly. The UK government is particularly focused on cracking down on economic crime, corruption, and data security. As a responsible company, we’re committed to staying ahead of these changes and ensuring our AML processes are always compliant.

Ensuring AML efficiency with Red Flag Alert

AML security checks are a key part of the financial sector’s compliance framework. By partnering with Red Flag Alert, we’ve enhanced our AML processes, making them more efficient, accurate, and user-friendly. This partnership not only helps us comply with regulatory requirements but also means that our clients enjoy a smooth and secure onboarding experience. By using advanced technology and staying compliant, we can protect our business and clients from the risks associated with money laundering and other illegal activities. As regulations continue to evolve, we’re focused on keeping our operations secure and following the highest standards of compliance.

Get in touch today

At Norwich Accountancy, we understand the importance of AML security checks and are proud to offer our clients the most advanced solutions. For more information on our AML processes or to discuss any concerns, please don’t hesitate to get in touch with our team.

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Keeping Payroll on Track Through Business Mergers and Changes

Managing payroll during business changes like mergers or successions is important to make sure you’re following HM Revenue & Customs (HMRC) rules. Here’s a detailed guide on what businesses should think about and how to manage these transitions smoothly. It covers updating employee records, handling taxes, and meeting legal requirements to protect both employers and employees. By following these steps, businesses can manage payroll effectively during these changes, keeping things running smoothly and making sure they stay on the right side of HMRC. This proactive approach not only helps with a seamless transition but also strengthens the business to adapt better to new situations.

Understanding mergers and successions

Before addressing payroll changes during mergers or successions, it’s important to grasp their impact on operations. Here’s how these transitions influence payroll management and what businesses should consider for smooth navigation:

Mergers: When businesses merge, they typically combine their payroll systems, sometimes using a new employer reference number. This helps simplify things and makes sure they follow HMRC rules. They might also need to merge employee records and payroll systems to fit the new setup.

Successions: In a succession, when a business changes hands through a sale or insolvency, the new owner takes over payroll duties. They’ll likely get a new employer reference number. This switch involves transferring employee records and payroll responsibilities to make sure everyone gets paid correctly and meets legal requirements. They might also tweak how they handle payroll to match how the new owner wants things done, keeping everything stable and compliant during the transition.

First steps to take

If your business is going through a merger or succession, make sure to reach out to the HMRC employer helpline straight away. They can help work out if it’s a merger or succession and give advice on which employer reference to use. If you need a new reference, HMRC will sort that out for you.

Moving employees to new payrolls

Before deciding whether to use the same employer reference or a different one during a business transition, it’s important to understand how each option affects payroll operations and compliance. Here’s how you can manage these changes effectively:

Same employer reference:

  • If moving employees to a new payroll but retaining the same employer reference, continue operating PAYE as usual under that reference.

Different employer reference:

  • Transfer payroll records to the new employer reference.
  • Submit a Full Payment Submission (FPS) under the old employer reference, including year-to-date pay and tax figures.
  • Provide affected employees with details of their pay and deductions up to the transfer date.
  • Submit an FPS under the new employer reference, making sure to restart year-to-date figures from zero and include full starting details for each employee.

Managing payroll obligations

When moving employees to a new payroll under a different employer reference, it’s important to handle PAYE tax and National Insurance Credits accurately. If you’re using cumulative tax codes, continue using the pay and tax details linked to the old employer reference until the transition is finalised. This consistency means that payroll calculations stay accurate and compliant with HMRC regulations throughout the transition. It’s essential for maintaining accurate records of employees’ tax deductions and National Insurance contributions. Managing these aspects carefully helps businesses smoothly switch to new payroll systems without disrupting employee payments or tax reporting.

Submitting P11D forms

P11D forms must be submitted depending on the type of change your business has experienced:

Merger of PAYE schemes:

  • Submit two P11D forms per employee receiving company benefits:
    • One under the original PAYE reference covering up to the merger date.
    • One under the new PAYE reference covering from the merger date.

Succession:

  • If HMRC has been notified about the succession, submit one P11D form per employee under the new PAYE reference, containing information for both old and new references.
  • If HMRC hasn’t been notified, submit two P11D forms per employee:
    • One under the old PAYE reference up to the succession date.
    • One under the new PAYE reference from the succession date.

Part scheme transfer:

  • Submit two P11D forms per employee:
    • One under the old PAYE reference covering up to the transfer date.
    • One under the new PAYE reference covering from the transfer date.

Compliance and reporting

Making sure you submit FPS and P11D forms on time and with accurate information is important to meet HMRC’s rules. Stick to the deadlines and give detailed information to avoid any fines or hold-ups in processing.

Navigating payroll changes in business transitions

Handling payroll adjustments during business mergers or changes involves careful planning and following HMRC guidelines. Understanding the differences between mergers and successions, transferring employees between payrolls correctly, and fulfilling P11D obligations are key steps. This makes sure payroll operations continue smoothly and comply with tax regulations. 

By following these steps, businesses can handle payroll responsibilities effectively during mergers, successions, or other significant changes, maintaining both regulatory compliance and smooth operations.

Need some help?

Connect with our experts for personalised advice. Call us today on 01603 630882 or fill out our contact form to get tailored support for your payroll transitions.

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How to Work Out Your Transitional Profit if You’re Self-Employed

With the new tax year basis reforms coming into effect for the 2023 to 2024 tax year, the self-employed must understand these changes to ensure they get their transitional profits right. This blog is here to help. We’ll walk you through figuring out your transition profit, splitting your profits, deducting Overlap Relief, and understanding how much of your transitional profit will be taxed in the 2023 to 2024 tax year.

Understanding Transitional Profit

Transition profit comes from the Basis Period Reform, which changes how self-employed people report their income. Before, you might have reported your profits based on an accounting period that didn’t align with the tax year. 

This reform aims to make the whole process more straightforward. So, getting the transition period right is key for accurate tax reporting and making sure you comply with the new regulations. It might seem a bit daunting at first, but understanding these changes will make managing your taxes much simpler in the long run.

Standard Part vs. Transitional Part

Let’s break down the standard part and transitional part of your basis period so you can better understand how to handle them:

  • Standard Part: This is the 12-month period right after the end of your basis period for the 2022 to 2023 tax year. It usually lines up with your accounting period from 2022 to 2023.
  • Transitional Part: This begins right after the standard part and goes until the 5th of April 2024, or your accounting date in 2023 to 2024 if it’s between the 31st of March and the 4th of April 2024. For example, if your accounting year ends on the 31st of December your transition period would run from the 1st of January to the 5th of April 2024.

Deducting Overlap Relief

Overlap Relief is important for reducing your taxable transition profit. If you’ve previously reported profits for overlapping periods, you can deduct these amounts from your transition profit to lower your tax bill. This figure may have been reported on the first tax return you declared your self-employment/partnership profits, which may have been long in the past, so the best way to check the amount to provide to your accountant is to use the HMRC service https://www.gov.uk/guidance/get-your-overlap-relief-figure.

Spreading Your Transitional Profit

After deducting Overlap Relief, your transitional profit will be spread over five years, starting from the 2023 to 2024 tax year. This means in the first year (2023-24), you’ll need to include at least 20% of those transitional profits in your taxable income. You have the choice to include more if it suits your financial strategy. The rest will be spread evenly over the following four years. This gives you flexibility in managing how these profits affect your taxes over time.

It’s important to carefully consider the impact on your tax obligations for the 2023/2024 tax year. By spreading out the taxable amount over five years, you can potentially reduce the immediate tax burden while making sure you stay compliant with HMRC guidelines. 

If you opt to accelerate the recognition of transitional profits into an earlier tax year, you must make this election by the first anniversary of your normal Self Assessment filing date for that tax year. This strategic approach allows you to align your tax liabilities with your business’s financial circumstances more effectively.

Reporting on Your Tax Return

When filling out your Self Assessment tax return, you’ll need to include:

  • Your transitional profit
  • Your Overlap Relief
  • The amount of your transition profit after Overlap Relief that should be taxed in 2023 to 2024

If you decide to tax more than 20% in the first year, mention this amount and explain it in the ‘Any other information’ section.

Special Considerations

  • If your business ends before the 5th of April, 2027, any remaining transitional profits yet to be declared, after Overlap Relief, must be taxed in the year your business ceases.
  • Farmers and creative artists should remember that transition profit doesn’t count when calculating averaging adjustments.

Need Help?

Calculating your transition profit can be tricky, especially with needing to split profits accurately and deduct Overlap Relief. If you’re self-employed, use the HMRC transitional profit calculator for detailed help.

It’s a good idea to prepare your annual accounts to the 31st of March or the 5th of April to simplify future tax returns. Aligning your accounting period with the tax year removes the need for complex apportionment and makes tax reporting smoother. It will also reduce the complexity of your tax returns meaning you’ll be more likely to actually understand the figures you’re sending to HMRC.

By following these guidelines and using the available resources, you should be able to confidently handle the Basis Period Reform and ensure your tax return is accurate for the 2023 to 2024 tax year. Should you need any further guidance with the above, you can always get in touch with one of our in-house Tax advisors who are specialists on this subject.

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What you need to know about the Spring Budget 2024

It’s the time of year again when the Chancellor of the Exchequer has unveiled the much-anticipated Spring Budget, outlining the Government’s plans for taxation and spending. Let’s dive into the highlights of the 2024 Budget to help you understand what it means for you.

National Insurance Cuts

One of the headline announcements in this year’s Budget is the reduction in the main rates of National Insurance contributions (NICs) for both employees and the self-employed. Effective from April 2024, the Class 1 employee NICs will see a significant cut from 10% to 8%, while Class 4 employee NICs will drop from 8% to 6%. This move aims to put more money back into the pockets of workers and self-employed individuals.

High-Income Child Benefit Charge (HICBC)

Families across the UK will welcome the changes to the High Income Child Benefit Charge (HICBC). The threshold for HICBC will rise from £50,000 to £60,000 starting in April 2024. Also, the rate at which this charge is applied will be halved, making sure that Child Benefit is not entirely withdrawn until individuals earn £80,000 or more. These changes give families some relief while ensuring that benefits are taken away more fairly.

Taxation of Non-Doms

A big change in the Budget is the end of the tax rules for those not from the UK (‘non-doms’). From April 2025, a new residence-based tax regime will be introduced, making sure that all UK residents pay the same tax on their foreign income and gains after living in the UK for over four years. This move aims to simplify the tax system and promote fairness for everyone living here.

Capital Gains Tax and Stamp Duty Land Tax

Great news for property owners. The Budget is cutting the higher rate of Capital Gains Tax for selling residential properties from 28% to 24% starting in April 2024. And if you’re into buying multiple properties, get ready because Multiple Dwellings Relief in the Stamp Duty Land Tax system is being axed from June 2024. These changes are all about boosting the property market and encouraging people to invest.

Furnished Holiday Lettings

For landlords, changes are on the horizon concerning furnished holiday lettings. From April 2025, the Government will end a tax advantage for landlords who let short-term furnished holiday properties over those who let residential properties to longer-term tenants. This aims to create a level playing field in the rental market.

Fuel Duty and Alcohol Duty

Good news for motorists and drinkers alike – not to be done at the same time, obviously! Fuel duty will remain frozen for another year, extending the temporary 5p cut and making sure that duty rates are not increased with inflation. Similarly, alcohol duty will be frozen from August 2024 until February 2025, providing relief for consumers.

Tobacco and Vaping Duties

In a bid to incentivise healthier choices, a new duty on vaping products will be introduced from October 2026. Tobacco duty will be increased from the same date, maintaining the financial incentive to choose vaping over smoking.

Air Passenger Duty and VAT Threshold

Passengers flying premium economy class, business, and first class, and those travelling by private jet, will see increased rates in Air Passenger Duty from 2025/26 to account for recent high inflation. What’s more, the VAT threshold will be increased from £85,000 to £90,000 in April 2024, providing relief for small businesses.

Energy Profits Levy and Household Support Fund

The Energy Profits Levy, introduced in response to the rise in oil and gas company profits, will be extended to 2028/29. Also, the Household Support Fund, aimed at helping those most in need with rising costs of living, has been extended to September 2024.

Spring Budget 2024: A Diverse Mix of Tax Measures

The Spring Budget 2024 presents a mixed bag of tax measures and announcements aimed at encouraging economic growth, supporting families, and ensuring the tax system is fair for everyone. From cuts in National Insurance contributions to reforms in property taxation and incentives for healthier choices, the Budget sets the stage for a more inclusive and fruitful future. As these changes occur, it’s important to remain up-to-date and adjust to the shifting world of taxes and government spending.

Get Expert Guidance

If you’re eager to optimise your tax strategy, don’t miss out on this chance to make a difference. Reach out to us today for expert advice and support. Whether you prefer a personalised phone call or the convenience of filling out our user-friendly online form, we’re here to help you every step of the way. Call 01603 630882 now to connect with our team or simply complete our online form to kickstart the process. Let’s work together to transform your tax strategy into a powerful catalyst for growth post-budget and beyond. 

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Salary Sacrifice Arrangements for Employers Explained

We’re diving deep into the world of salary sacrifice arrangements. If you’ve ever wondered what they are, how they work, and what benefits they can bring to your business, you’ve come to the right place. Salary sacrifice arrangements can be a great tool to attract and retain talent, all while saving you and your employees some money. 

What is a Salary Sacrifice Arrangement?

In simple terms, it’s an agreement between you as an employer and your employees to exchange part of their cash pay for non-cash benefits. These non-cash benefits include things like childcare vouchers, pensions, or even cycle-to-work schemes. The key here is that employees willingly agree to this arrangement.

How to Set Up a Salary Sacrifice Arrangement

To set up a salary sacrifice arrangement, you’ll need to change the terms of your employee’s employment contract. This change should be made clearly, and your employee must consent to it. It’s important to note that a salary sacrifice arrangement should never drop an employee’s cash earnings below the National Minimum Wage (NMW) rate. As an employer, it’s your responsibility to ensure this doesn’t happen and to cap salary sacrifice deductions if needed.

When to Alter a Salary Sacrifice Arrangement

Life happens, and circumstances change. Sometimes, you might need to adjust a salary sacrifice arrangement due to life events like marriage, divorce, or changes brought about by unforeseen events like the COVID-19 pandemic. These changes can affect an employee’s financial situation, and salary sacrifice arrangements can be flexible enough to adapt to these circumstances. Always remember to update the employment contract when changes happen.

Exceptions and Considerations

While flexibility is great, there are some rules to follow. If employees constantly switch between cash earnings and non-cash benefits, the expected tax and National Insurance contribution advantages may not apply. But, there are exceptions to this, detailed in the Employment Income Manual 42755.

Calculating the Impact on Tax and National Insurance Contributions

One of the key aspects of salary sacrifice arrangements is understanding their impact on taxes and National Insurance contributions. This depends on the mix of cash and non-cash benefits within the arrangement. For the cash part, make sure you’re correctly operating the PAYE system through your payroll.

For non-cash benefits, you’ll need to calculate their value. If it’s a new salary sacrifice arrangement, calculate the value by using the higher amount of salary given up or the earnings charge under the usual benefit-in-kind rules. It’s worth noting that some non-cash benefits, like pension scheme contributions and workplace nurseries, are exempt from valuation and reporting.

Reporting Requirements

Reporting non-cash benefits differs from cash earnings. Generally, you’ll need to report benefits to HMRC at the end of the tax year using the end-of-year expenses and benefits online form. Plus, you can use the payrolling benefits and expenses online service to show that you’re collecting taxes and benefits through your payroll.

Consulting with HMRC

If there’s any legal uncertainty or you’re unsure about a particular salary sacrifice arrangement, you can contact HMRC’s clearance team.  Bear in mind that HMRC won’t comment on a proposed arrangement before it’s implemented. To keep HMRC happy, be prepared with evidence of the variation of terms and conditions, payslips before and after the variation (if there’s a written contract), and any other relevant documentation.

Examples of Salary Sacrifice

To make things more tangible, let’s look at a few examples. 

  • Employee A sacrifices £50 of their £350 weekly salary for childcare vouchers of the same value. In this case, only £300 is subject to tax and National Insurance contributions, as childcare vouchers are exempt up to a limit of £55 per week.
  • Employee B sacrifices £100 of their £350 weekly salary for childcare vouchers. Here, £295 is subject to tax and National Insurance contributions, and £45 is reported as a non-cash benefit at the end of the tax year.
  • Employee C receives a £5,000 bonus and decides to sacrifice the full amount for an employer contribution to a registered pension scheme. In this case, no employment income tax or National Insurance contributions are charged to the employee, and the total amount goes into the pension fund.

Other Considerations

Remember, salary sacrifice can affect various aspects of your employees’ financial lives. This includes earnings-related payments, benefits, contribution-based benefits, statutory payments, and workplace pension schemes. Always communicate any changes clearly to your employees so they understand the impact on their finances.

Unlocking mutual benefits

Salary sacrifice arrangements can be a win-win for both employers and employees. They offer flexibility, potential tax benefits, and the chance to provide valuable non-cash benefits to your team. It’s important to navigate these arrangements carefully, following legal guidelines and ensuring employees’ cash earnings stay above the National Minimum Wage. With the right approach and communication, salary sacrifice arrangements can be a valuable tool in your organisation’s toolkit. 

Get expert guidance 

If you want to explore the benefits of salary sacrifice arrangements for your business and discuss your options, get in touch today by calling us on 01603 630882. You can also fill out our online form to get started. Let’s improve your employee benefits and financial flexibility together.

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Guidance on Selling Online and Paying Taxes

If you’ve ever dabbled in selling goods or services through an online marketplace in the UK, this blog is for you. We’ll break down the ins and outs of paying taxes on your online earnings in an easy-to-follow way so you can confidently navigate the tax world.

Understanding the Basics: Are You Trading or Making a Capital Gain?

First things first, when paying taxes on your online sales, you need to determine whether you’re trading or making a capital gain.

  • Selling Unwanted Items: If you’re just clearing out your attic or garage and selling personal possessions you no longer need, you’re probably not considered a trader. For example, if you’re like Sally, who sold some items from her attic for about the same price she bought them, you likely won’t have to pay tax on those sales.
  • Buying for Resale: On the flip side, if you’re actively buying items intending to sell them at a profit, like Josh, who hunts around car boot sales and charity shops, you’re in the trading game, and those profits are taxable.
  • Creating and Expanding: Now, if you’re like Gina, who started by making greeting cards for friends and family but expanded to sell them online with the intent of making a profit, you’re likely considered a trader. Gina’s profits would be subject to tax because she’s running her activities like a business.
  • Collecting with Purpose: Even collectors like David, who buys and sells model cars to complete sets for profitable resale, are often classed as traders because they’re buying and selling for profit.
  • Importing for Profit: If you’re importing goods like Steve and selling them online for a profit, you’re probably trading, too.
  • Offering Services: And then there’s Adam, who offers online language tuition. If you’re promoting and organising your services like a business, it’s likely considered trading, and you’ll need to pay taxes on your earnings.

Trading and Miscellaneous Income Allowance

Now, here’s a little ray of sunshine for those of you with a small online income. If your total earnings from online trading or providing services amount to less than £1,000 (before expenses) in a tax year, you won’t need to inform HMRC or pay any tax on the profits. This is thanks to the Trading and Miscellaneous Income Allowance. So, if you’re just getting started or selling on a smaller scale, you have some breathing room.

The Role of Online Marketplaces

In recent years, tax regulations have evolved to adapt to the digital age. From the 1st of January, 2024, digital platforms, like websites and mobile apps, have been required to collect and report seller information and income to HMRC. They must report this information by January 2025, in line with international agreements.

So, what does this mean for you as a seller? You’ll receive a copy of this information, which can help work out your income and expenses incurred through these platforms. This data can help you calculate whether you owe any tax on your profits.

Registering and Paying Taxes

If you have to pay taxes on your online earnings, you might wonder how to get started. Well, it’s not as daunting as it may seem.

  • Self Assessment Tax Return: For starters, if you’ve never declared income through a Self Assessment tax return, you’ll need to register. Don’t worry; it’s a straightforward process, and you can find all the information you need on the HMRC website.
  • Using the HMRC App: Once registered, you can easily check what you owe and pay your Self Assessment bill using the HMRC App. It’s available for both iOS and Android devices, making it super convenient.

Mastering Online Sales: Navigating Taxes with Confidence

In a nutshell, selling goods or services online can be a great way to earn extra income, but it’s important to be aware of your tax obligations. Whether you’re selling vintage treasures, crafting homemade goods, or providing services, it’s important to understand when you need to pay taxes.

Remember, if you’re selling a few items here and there for a bit of pocket money, you may not need to worry about taxes. But if you’re actively trading and making a profit, it’s time to consider your tax responsibilities.

Stay informed, keep track of your income and expenses, and make good use of the information provided by online marketplaces.  If you’re unsure about your tax situation, it’s a good idea to consult a tax professional who can provide personalised guidance.

Selling online can be rewarding, and with a bit of tax knowledge under your belt, you can navigate this digital marketplace confidently. Happy selling, and remember to pay your taxes on time.

We’re here to help
If you’re ready to take control of your online business taxes, give us a call today on 01603 630882, or take a moment to fill out our online form. Let’s make sure your online ventures are tax-savvy and hassle-free. Your financial peace of mind is just a call or click away.

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Guidance On Recent Changes In Reporting Self-Employment Income

If you’re self-employed or running a trading partnership, navigating tax regulations can be daunting. The UK’s tax reporting system has had some recent changes, which began with the 2023 to 2024 tax year, so it’s important to stay informed and be prepared. This blog will walk you through these new changes, especially if your business’s financial year doesn’t align with the usual tax year (from the 31st of March to the 5th of April).

This year is a transitional phase. You’ll report profits from just after your last financial year-end in 2022 to 2023, to 5th April 2024. This could mean considering two financial years to figure out your taxable income.

If you end up with profits for more than 12 months, that’s your ‘transition profit’. You can shrink this down with Overlap Relief, and the remaining profit gets spread out until the tax year 2027 to 2028.

Here are the steps you’ll need to take: 

  1. Calculate your overlap relief
  2. Work out your transition profit
  3. Include these figures in your 2023 to 2024 self-assessment tax return

Specific Cases

If your financial year ends close to the tax year, between the 31st of March and the 4th of April, you can treat it as ending on the 5th of April, saving you the hassle of splitting profits for a few days.

Reporting Profits from the 5th of April 2024

From the 2024 to 2025 tax year onwards, your profit reporting will align with the tax year (the 6th of April to the 5th of April the following year). This involves combining profits from the 6th of April up to your financial year-end and the start of your new business year to the 5th of April the following year. In a leap year, count 366 days instead of 365.

Examples of Dividing Up Your Profits

You can split up your profits daily, monthly, or in any way that makes sense. Let’s look at a couple of examples:

  • Daily Splitting: Say your business year is from the 1st of October 2025 to the 30th of September 2026, with a profit of £45,000, and then from the 1st of October 2026 to the 30th of September 2027, making £75,000. For the 2025 to 2026 tax year, you’ll calculate profit from the 1st of October 2025 to the 5th of April 2026, and so on.
  • Monthly Splitting: If your business runs from the 1st of January 2026 to the 31st of December 2026 (making £50,000), and then from the 1st of January 2027 (earning £15,000), you’d divide the profits based on the months in each tax year.

Estimating Profits

Sometimes, you might not know your exact profit for the entire tax year when you file your return. In that case, use provisional figures and update your return when you get the exact numbers. Doing it this way keeps everything neat and accurate, ensuring your tax records truly mirror what’s happening in your business. 

Keeping Up With the New Tax Year Basis

These changes are fairly big for self-employed individuals and partnerships. It’s crucial to understand them, how they’ll impact your tax returns, and what you need to do. Staying informed and maybe even getting some advice can really help. Preparing for tax changes can make your life easier and avoid unwelcome surprises later on.

If you’d like to prepare for these changes, start now to make your future tax experience smooth sailing. You can call us at 01603 630882 or fill out our online form. Taking steps today will secure your financial future and keep you up-to-date with these evolving tax rules.

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Accurate Tax Payments: HMRC’s Compliance Checks Unveiled

HMRC’s compliance checks might sound daunting, but they’re a key part of how the UK tax system stays fair and on track. It’s not just about keeping an eye on things; these checks help make sure everyone’s paying what they should, so it’s fair for all of us. This guide is here to break down what these checks are all about, why they’re important, and give you some handy tips on handling them. Think of it as your go-to resource for navigating these checks with less worry and more confidence.

Understanding HMRC Compliance Checks

His Majesty’s Revenue and Customs (HMRC) conducts compliance checks to ensure that everyone pays the right amount of tax at the right time, claims the correct allowances and tax reliefs, discourages tax evasion, and maintains tax system fairness. These checks can be triggered by various factors, such as inconsistencies in tax returns or significant changes in your financial situation. You can find out more about what triggers an HMRC compliance check here. 

The Role of Tax Agents and Advisors

If you have a tax agent or advisor, it’s important to make sure they have formal agent authorisation to handle your compliance checks with HMRC. This authorisation allows them to communicate and deal with HMRC on your behalf. If they don’t have this authorisation, you must arrange temporary authorisation. If you’re an agent yourself, it’s important to apply for formal agent authorisation or arrange temporary authorisation for your clients to manage compliance checks efficiently.

Why Does HMRC Carry Out Checks?

HMRC may initiate a compliance check for reasons such as:

  • Figures entered on a return that appear incorrect.
  • A large VAT refund claim is made when turnover is low.
  • A small amount of tax is declared when turnover is high.

HMRC will contact you and your tax agent (if you have one) to explain what they wish to check and why. If you believe the check is unnecessary, you can communicate this directly with HMRC.

Continuing Your Tax Obligations

Even if a check is underway, it’s important to continue filing tax returns and paying taxes if they’re due. Compliance checks can also extend to tax credit claims to make sure you receive the correct amount.

Cooperation During the Checks

During the checks, HMRC might ask for information or documents, and they may ask to meet with you or visit your business premises. If you don’t think this is necessary or it is unreasonable, you can speak to the officer in charge. If an agreement can’t be reached, HMRC may use legal powers to get the information needed. HMRC does this by sending you an information notice. If you receive this, it is important to give HMRC what they’ve asked for; otherwise, you may be issued a penalty. 

The Importance of Accurate Information

You’re responsible for providing accurate information to HMRC. If you have a tax agent, make sure they’re fully informed about your financial situation. Cooperation can lead to a quicker resolution and potentially reduce any penalties if inconsistencies are found.

Need Help During the Checks?

HMRC understands that dealing with compliance checks can be challenging, especially if you face personal difficulties or health issues. If you communicate these to HMRC, they can work with you to put reasonable adjustments in place. Also, if you need more time for a valid reason, don’t hesitate to request it.

Appointing Someone to Speak on Your Behalf

You can appoint a friend, relative, or adviser to handle communications with HMRC. Just make sure to appoint them officially first.

Seeking Independent Help

There are charities and organisations available to help if you’re struggling with the compliance check process. If the checks are affecting your mental health, speak to your GP, or organisations like TaxAid, Mind, or Samaritans can offer support.

Outcomes of Compliance Checks

If the check finds everything is in order, HMRC will quickly close the case. If you have overpaid tax, you’ll receive a refund with interest. On the other hand, if you’ve underpaid, you’ll need to repay the amount, possibly with interest and penalties.

Dispute Resolution and Appeals

If you disagree with HMRC’s decision, you can appeal. You usually have three options: providing new information, having your case reviewed by an unrelated officer, or arranging for an independent tribunal to hear your appeal.

Penalties and Criminal Investigations

If inconsistencies are found during the check, you may face penalties. However, the extent of your cooperation can influence the penalty amount. HMRC generally handles fraud through civil investigation procedures, reserving criminal investigation for particularly severe cases.

Compliance and Expert Help

Understanding HMRC’s compliance checks is important for every taxpayer. By maintaining accurate records, seeking professional advice, and cooperating with HMRC you can confidently navigate these checks. Remember, these checks are in place to ensure the tax system is fair and efficient for everyone. If you need help or have concerns about a compliance check, don’t hesitate to get in touch.

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What Triggers an HMRC Compliance Check

For the tax affairs of individuals and businesses in the UK, the HM Revenue and Customs (HMRC) is the governing authority that makes sure you’re toeing the line when it comes to tax laws. To maintain the integrity of the system, HMRC conducts compliance checks, also known as tax investigations. These can be daunting for anyone who finds themselves on the receiving end. Understanding what can trigger an HMRC compliance check is crucial for any taxpayer.

Common Triggers for HMRC Compliance Checks

  • Discrepancies in Tax Returns: The most common trigger is a discrepancy or anomaly in the tax return compared to previous years or similar businesses. This could include significant changes in income and expenses or making a large claim for a VAT refund when turnover is low. HMRC uses a sophisticated system to analyse returns, highlighting any that fall outside the norms for further inspection.
  • Late Filings and Payments: Consistently late filings or tax payments can raise red flags. This suggests to HMRC that there may be deeper issues with your financial management or a potential for incomplete or inaccurate reporting.
  • Informant Tips: Yes, HMRC receives tips, sometimes from disgruntled employees or competitors. If someone informs HMRC that a business or individual isn’t complying with tax laws, it may initiate a check.
  • Random Selection: Sometimes, there’s no specific reason; HMRC randomly selects tax profiles for investigation. It’s their way of keeping everyone on their toes and ensuring taxpayers maintain accurate records.
  • Sector-Specific Checks: HMRC periodically targets specific sectors where they believe tax avoidance or evasion is widespread. If your business operates within one of these sectors, your chances of a compliance check might increase during these campaigns.
  • Business Performance Inconsistencies: If your business shows markedly different performance metrics compared to others in your industry, HMRC might investigate to understand why. This doesn’t just apply to underperformance – unusually high success can also trigger a check.
  • International Transactions: With global transactions under increasing scrutiny, those who conduct a high volume of international business might find themselves subject to checks, especially if there are transactions from jurisdictions considered high-risk for tax evasion.

The Process of a Compliance Check

  • Initial Contact: A compliance check typically starts with HMRC notifying you, either through a letter or phone call. They will inform you of the check and what they need from you.
  • Gathering Information: HMRC will request specific documents, which could include personal or business bank statements, receipts, invoices, and accounting records. They may also want to look at your tax calculations and self-assessment returns in detail.
  • Meeting and Interviews: Sometimes, HMRC will ask to meet you or your accountant, or they may want to interview you to gather more information.
  • Outcome: Once HMRC has reviewed the necessary documentation and information, they will communicate their findings. If they find everything in order, they will close the investigation. If not, they may request additional payment of unpaid taxes, apply penalties, or, in severe cases, pursue criminal prosecution. In general, the more help you give, the lower the penalty will be.

How to Reduce the Risk of a Compliance Check

  • Accurate and Timely Filing: Ensure all tax returns are accurate and filed on time. Use professional accountancy services if you’re unsure about your ability to do this correctly.
  • Consistent Records: Maintain consistent and detailed financial records. This can make a compliance check much smoother and quicker.
  • Seek Professional Advice: If you’re in doubt about your tax affairs, it’s wise to seek advice from a qualified accountant or tax advisor. They can help you avoid pitfalls that might lead to a compliance check.
  • Disclose All Income: Declare all sources of income, including those from overseas. Full disclosure is always your safest bet.
  • Understand the Rules: Have a good understanding of the tax rules applicable to your business. If HMRC updates tax laws or guidance, make sure you’re following the new rules.
  • Report Changes: If there are legitimate reasons for changes in your income or business performance, report these proactively in your tax return.

Navigating Compliance Checks with Confidence

An HMRC compliance check can be a stressful experience, but understanding what can trigger an investigation is your first line of defence. Remember, most checks are initiated by anomalies or suspicions of incorrect tax reporting. By maintaining good records, submitting accurate and timely returns, and seeking professional guidance when necessary, you can minimise the chances of an HMRC compliance check disrupting your business or personal finances. If you need help keeping your records in order, don’t hesitate to reach out and speak to one of our tax return specialists. Our motto is ‘Tax Returns: Stress Deducted’ because we’re here to help keep your taxes on track, headache-free and hassle-free.

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