Welcome to our round up of the latest business news for our clients. Please contact us if you want to talk about how these updates affect your business. We are here to support you!
Personal tax planning ahead of April 2022
The costs of keeping the country running through COVID were huge and inflation is expected to add to the country’s debt. The Office for Budget Responsibility has indicated that the treasury will need to find £45bn in interest, before even thinking about paying off the debt itself. As taxpayers we will be providing the extra cash!
From April, the Chancellor is not directly increasing the rates of income tax we pay, he is freezing the thresholds at which basic and higher rates of income tax are paid from April 2022 to April 2026, effectively increasing the amount we actually pay as inflation pushes up earnings.
There will also be an additional 1.25% contribution added to both employee and employer National Insurance from April and a similar additional charge on dividends. This is referred to as the Health and Social Care Levy. From April 2023 it will be extended to employees above the state pension age.
The changes will not end there. The Treasury has issued a raft of consultations which could all mean extra costs.
There will be greater scrutiny if you are self-employed, or if you become a new landlord, with the onus on you to report your new venture even before it turns a taxable profit.
There could also be increasing pressure for ‘timely payment’ or in other words, collecting tax sooner. This is still just a consultation at this stage, but the government is understandably keen to raise funds quickly.
These changes mean that it will be more important than ever to ensure that you are not paying too much tax – and there are two key areas to look at:
Can you reduce your tax liabilities?
It might be time to take a more proactive approach to reducing your tax.
It could be time to:
- Maximise your pension contributions to make full use of tax relief
- Get a detailed pension forecast – to see the effect changes will have
- Make full use of your ISA entitlements
- Look at your investment portfolio and (if practicable) ensure you take advantage of the full £12,300 CGT allowance before 5 April 2022
- For Shareholder/directors, consider the timing of bonuses and dividends to mitigate the planned 1.25% rate increase
- Look at Salary sacrifice arrangements which can be particularly effective in mitigating income tax and national insurance contributions
These steps are all entirely legitimate, but the rules and regulations are complicated. Getting expert help may be vital. Please contact us about planning for the April tax changes. We can provide a full tax review which will help identify the marginal tax traps waiting for you – and help you to avoid them.
HMRC guidance on VAT place of supply of services
HMRC have recently updated their internal VAT manual to clarify the “place of supply” rules for services. This is one of the most complex areas of VAT legislation and of course the rules changed significantly since the UK left the EU.
The country where a supply is deemed to be made is called the ‘place of supply’ and is the place where it is liable to VAT, if any. These rules are necessary to ensure that VAT, where payable, is paid only in the correct country and to avoid the possibility of supplies being taxed more than once or not at all.
Although there are numerous exceptions depending on the nature of the services, the general rule is that services supplied between businesses (B2B) are taxable where the customer belongs. If the supplier and customer belong in the UK then the UK supplier accounts for VAT on his supply. However, where the supplier is in the UK and the customer is outside the UK the supply will be outside the scope of UK VAT.
Where the supply is to a non-business customer (B2C), the general rule is that the place of supply is the place where the supplier belongs.
Where the place of supply of a service is in an EU member state, that supply is outside the scope of UK VAT and is liable to the VAT rules in that member state and in no other country. If the place of supply of a service is outside the UK and EU, that supply is described as outside the scope of VAT altogether.
It is important to establish whether a supply of services is made to a relevant business person (B2B) or non-business customer (B2C). A person is a relevant business person in relation to a supply of services if:
(a) the person carries on a business, and
(b) the services are not received by the person wholly for private purposes.
Click here for the updated internal HMRC guidance.
Note that the simplified guidance on the HMRC website has not been updated since December 2020.
Rising Caseloads, A Disrupted Recovery, and Higher Inflation
The International Monetary Fund (IMF) world economic outlook update for January 2022 shows us in a weaker position than previously expected. As the new Omicron COVID-19 variant spreads, countries have reimposed mobility restrictions. Rising energy prices and supply disruptions have resulted in higher and more broad-based inflation than anticipated, notably in the United States and many emerging market and developing economies. The ongoing retrenchment of China’s real estate sector and slower-than-expected recovery of private consumption also have limited growth prospects.
Global growth is expected to moderate from 5.9 in 2021 to 4.4 percent in 2022—half a percentage point lower for 2022 than in the October World Economic Outlook (WEO), largely reflecting forecast markdowns in the two largest economies of China and the United States.
Global growth is expected to slow to 3.8 percent in 2023. Although this is 0.2 percentage point higher than in the previous forecast, the upgrade largely reflects a mechanical pickup after current drags on growth dissipate in the second half of 2022. The forecast is conditional on adverse health outcomes declining to low levels in most countries by end-2022, assuming vaccination rates improve worldwide, and therapies become more effective.
The UK economy will grow more slowly than expected this year as it recovers from the Covid pandemic, the IMF has said. The forecast for UK growth in 2022 has been cut to 4.7% from 5% in the IMF’s latest world economic outlook. However, this will be the fastest in the G7 industrialised nations, as it was last year. It partly reflects a rebound from sharp falls the UK suffered during initial pandemic lockdowns two years ago.
Please talk to us about scenario planning and looking at a range of options – we have considerable experience in helping businesses plan ahead.
Contact Treetops for business planning
Please talk to us about planning ahead because with some help you may be able to make your money work harder for you and reduce the amount the taxman can take.
Your financial plans may need a fresh look, and you may need an accounting expert to help you. We are ready to provide all the help you need.