September Tax Update

This is the first of what I hope to make a regular feature on this blog. I hope you find it informative. Please contact me to discuss any of the matters discussed in further detail.

PLEASE NOTE: content is accurate as of the date of publication (31st August 2021). As with anything related to taxation these things are subject to change so please do take advice before you rely on anything in this article.

Big Tax Bills For the Self-Employed In 2022/23?

Draft legislation has been published to change the basis periods for the assessment of self-employed profits to coincide with the tax year. The proposed new rules provide that from 2023/24 onwards profits or losses will be apportioned to tax years where the period of account does not coincide with the tax year. This is intended to coincide with the start of Making Tax Digital for income tax.

The transitional rules proposed for the previous 2022/23 tax year could result in large tax bills for some sole traders and partners, particularly those with an existing 30 April year-end. The profits of the year ended 30 April 2021 will be taxed in 2021/22 under the current rules with 2023/24 taxing profits arising between 6 April 2023 and 5 April 2024 under the new rules. But what about 2022/23?

The profits taxed in 2022/23 will be those for the year ended 30 April 2022 plus the period 1 May 2022 to 5 April 2023 – in total 23 months profits!

The good news is that there will be a deduction for 11 months “overlap relief” which typically arose when profits were taxed twice at the start of the business – but those will usually be much lower than the extra 11 months being taxed in 2022/23!

The transitional provisions allow the taxpayer to elect to spread the excess profits over the next 5 tax years to smooth out the excessive tax bill.

Get in touch if you need help or advice on how much you need to set aside to cover these additional tax liabilities.

September Is The Last Month For CJRS “Furlough” Grants

The Government is pulling the plug on support to employers for furloughed staff at the end of September as they anticipate that the economy will be back to normal by October. The grant claims for employees furloughed in the month of September are 60% of the employee’s usual pay up to a maximum cap of £1,875. Make sure that you make your final claims for the month of September by 14 October and make any adjustments by 28 October 2021.

The end of furlough may trigger many businesses to assess their staffing levels going forward and many may be considering making the tough decision about which staff to make redundant.

Dealing With Redundancies Correctly

Remember that there are key steps that need to be followed as far as employment law is concerned. It is also important to treat any payments on termination of employment correctly for tax and national insurance purposes. In genuine redundancy situations, the first £30,000 paid on termination of employment is tax-free but many employers get this wrong.

The £30,000 includes statutory redundancy pay and any enhancement from the employer as well as continuing benefits such as private health insurance.

The excess is subject to income tax and employer’s national insurance.

5% VAT On Tourism And Hospitality Ends 30th September

The temporary 5% VAT rate that has applied to supplies made in the tourism and hospitality sector since the start of the pandemic comes to an end at the end of September. The rate then increases to 12.5% from 1 October until 31 March 2022 when it reverts to the standard rate.

For those businesses operating in this sector, this will mean an amendment to their accounting software and possibly prices. Note that the 20% rate continues to apply to the sales of alcohol.

Where deposits and other payments are taken before 30 September 2021 the 5% rate would apply to that supply as that would be the tax point for the supply.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.