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Get ready for end of tax year (5th April 2022) & new tax year

Get ready for end of tax year (5th April 2022) & new tax year, image of a calculator | Crunch

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    We’re fast approaching the end of the tax year on 5th April, and now is usually a good time to get to grips with any tax changes, so you can maximise your tax efficiency for the outgoing tax year and get your business prepared for the new tax year.

    You’ll also want to stay up-to-date with the relevant tax rates and thresholds

    Read on for help with getting ready for the end of the 2021/22 tax year and getting ready for the new tax year 2022/23 which starts on 6th April  – or you might want to watch our recent webinar, which covered everything you should be doing.

    End of Tax Year Masterclass 2021/22

    A huge thank you to all of you who attended the End of Tax Year Masterclass on Thursday 31st March 2022.

    The feedback has been incredible and it was our largest audience to date - so great to have lots of new members on board! Hosts Luke, Katie and Michael loved how busy it was and are very much looking forward to chatting to you all again soon.

    For those that couldn’t make it (or who want to revisit it), don’t sweat - we’ve got you covered! Here’s the full recording, the presentation and your questions and answers. We hope you find it helpful!

    You can download the presentation here in PDF format.

    We received a bucketload of great questions from our audience, and have put together some jargon-free answers in the Q&A section at the bottom of this article to put your mind at ease. Due to the incredible popularity of this session, there will be many more Q&As added in the coming days when our experts have had a chance to get through them all!

    Read on for more information about best practice going into the new tax year - the situation can be different depending on whether you’re a limited company director or a self-employed sole trader, we’ve covered both here.

    Make sure you take company dividends before 5th April 2022

    It’s vital that any dividends you wish to take from company profits are issued by your company before 5th April 2022 to be included in your personal Self Assessment with HMRC for the 2021/22 tax year. This will help maximise your tax-efficiency by fully utilising your personal tax-free allowances and HMRC tax thresholds when combined with any director salary you take.

    The tax-free Dividend Allowance of £2,000 has not changed for a number of years, but the Personal Allowance and tax thresholds affect the amount of tax you’ll pay on any dividends you take. The 2021/22 and 2022/23 rates and thresholds are shown below.

    Dividend tax free allowances and thresholds 2021/22 tax year 2022/23 tax year
    Dividend tax-free allowance £2,000 £2,000
    Personal Allowance £12,570 £12,570
    Dividend basic rate – The lowest rate of tax on dividends 7.5% on dividend income up to £37,700 8.75% on dividend income up to £37,700
    Dividend higher rate – The middle tier of tax on dividends. 32.5% on dividend income above the basic rate up to £150,000 33.75% on dividend income above the basic rate up to £150,000
    Dividend additional rate – The top rate of income tax for high earners. 38.1% on earnings above £150,000 39.35% on earnings above £150,000

    Note: The dividend basic and higher rate amounts assume all of the Personal Allowance is utilised.

    Speaking of income tax, you can check out our tax rates and thresholds article for more information on the income tax rates.

    How much can I take in dividends for the 2021/22 tax year?

    Tax-free dividends

    For the 2021/22 tax year, provided your only personal income before dividends is a salary of £8,840, which is the 2021/22 tax year National Insurance (NI) secondary threshold, then you can take up to £5,730 in dividends tax-free. This is calculated as follows and means your total tax-free income is £14,570 (£8,840 salary plus £5,730 in dividends).

    2021/22 tax year £
    Tax-Free Personal Allowance 12,570
    Less tax-free salary (paid at the NI threshold) (8,840)
    Remaining Tax-Free Personal Allowance 3,730
    Tax-Free Dividend Allowance 2,000
    Total Tax-Free Dividends £5,730

    Basic Rate threshold and tax - 2021/22 tax year

    The Basic Rate tax threshold for the 2021/22 tax year is £50,270. If you have taken £14,570 in a combination of tax-free salary and dividends (see above), you can issue further dividends of £35,700 and remain within the basic rate threshold of £50,270. These dividends will be taxed at 7.5%. The total dividends issued will be £41,430 (£5,730 tax-free plus £35,700 at the basic rate of tax).

    Higher Rate threshold and tax - 2021/22 tax year

    The Higher Rate tax threshold is £150,000. However, when your income is above £100,000, your personal tax-free allowance is reduced by £1 for each additional £2 you earn above £100,000. Your tax-free allowance is therefore removed completely when your income is £125,140. Having issued dividends of £41,430, to reach the basic rate threshold, you can issue further dividends of £100,000 and still remain within the higher rate threshold. These dividends will be taxed at 32.5%. The total dividends issued will be £141,430.

    Additional Rate of tax - 2021/22 tax year

    Once your total income is above £150,000 then further dividends will be taxed at 38.1%.

    If you have other sources of income, such as rental income or dividends from other companies, then you will reach the threshold limits more quickly and more tax may be due. You should speak to your Crunch client managers if you’re unsure about any of this.

    Make sure your records are up to date

    When issuing dividends, it’s important to make sure that your accounting records are up to date, so that you only issue dividends from company profits after Corporation Tax has been accounted for. For users of cloud software, such as Crunch, you need to make sure all your transactions have been uploaded from your business bank account and that you’ve reconciled your Crunch software, with all expenses, pension contributions, salaries, and sales invoices which have been issued to your clients. 

    Once your software, or records, are up to date  you’re able to make an accurate assessment of your company profits and any Corporation Tax due. You can then calculate the dividend you can pay yourself and other shareholders. Your Crunch software will automatically show this for you.

    Don’t forget that any dividends must be paid from available company profits. If you take more than is allowed, you could face penalties and interest as it’s treated as a Director Loan.

    Payroll deadlines and submissions

    If you’re running payroll, even if it’s just for you as a single director/employee, then you mustn’t forget to file your final Full Payment Submission (FPS). This is an HMRC Real Time Information (RTI) requirement and you could face a £100 fine if you don’t file your end of year Full Payroll Submission (FPS) by 5th April 2022.

    If you’re a Crunch client then further details on how to do this in the Crunch system can be found in our Final Payroll Submission Help Centre article.

    You should record a payroll run for March 2022 to maximise your tax-efficient salary, if you have no other sources of income, this would mean paying yourself up to the NI threshold of £8,840 for the 2021/22 tax year. It’s therefore worth checking the amount of salary you have been paid in the tax year to date (since 6th April 2021).

    For Crunch clients, from 6th March 2022, you can record your final payroll run for the tax year. You will receive full instructions on what to do in an email from your client managers, or you can read our FPS article in the Help Centre.

    Year End responsibilities for directors

    With many limited companies choosing to have 31st March as their financial year end, it can be a daunting undertaking for first-time limited company directors, but with our comprehensive year end checklist you’ll know exactly what you need to do.

    Getting ready for the end of tax year as a sole trader

    Sole traders have it slightly easier as they don’t need to worry about dividends or payroll and RTI filing (unless they have any employees). We’d still always recommend you make sure that you’ve issued all your invoices and recorded all your expenses, so that when it’s time to file your Self Assessment for the 2021/22 tax year everything is ready. 

    If you’re a Crunch Sole Trader Accountancy client this should be simple, and once the new tax year starts you could file your Self Assessment straight away, unless you need to wait for any paperwork for any other sources of income you may have.

    Whether you’re a limited company director, or a sole trader, there are a few more things you need to think about.

    Maximise your pension contributions

    If you want to make pension contributions this year, you need to make sure these payments are received by your pension provider by 5th April 2022.

    If you run a limited company then making payments through your limited company is usually more tax-efficient. You can also pay into your pension through your monthly payroll or make lump sum contributions periodically throughout the tax year.

    As a sole trader you just need to pay directly to your pension provider.

    The total amount that can be contributed per year and still be tax-free is £40,000. Up to that limit, the government provides tax relief at the basic rate of 20% and this is added to your contributions by your pension provider.

    If you are a higher rate taxpayer, you can claim further tax relief through your annual Self Assessment return. You are allowed to include the full £40,000 amount on your Self Assessment and the government will provide further tax relief of 20% (if you pay tax at the higher rate of 40%). So you claim back £8,000 from the government through your annual Self Assessment.

    Don’t miss out on Pension Tax relief

    If you’re a higher rate taxpayer, and you make contributions personally, your pension pot can be topped up by £1,000 and it would cost you £600 after tax relief. As a basic rate taxpayer, your pension pot can be topped by £1,000 and it costs you £800.

    Don’t forget your annual ISA allowance

    While you’re thinking of future investments, you may want to check if you could make any payments into an ISA or other tax-efficient savings which also have limits on what you can pay in each tax year.

    Please speak to your financial advisor for more information and bespoke advice. If you don’t have an advisor then we can help. Find out more about Investments and Pensions advice from our partner Hargreaves Lansdown.

    What changes will there be from 6th April 2022?

    The government is introducing some important changes to the following:

    We’ve put together an article with the highlights from the 23rd March 2022 Spring Statement.

    End of 2021/22 tax year and new tax year preparations Q&A

    Q: As a sole trader (new business, I used to be an IT contractor) who's got expenses and the payment has been from a personal account, I've got expenses that have no "payment" in Crunch to resolve them against. Does that matter?

    A: For expenses paid from a personal account, you'll need to add your personal bank account under the banking section and use this as the payment account when recording the expenses. When reconciling, you'll only need to account for items relating to the business and will be able to skip over the rest.

    Q: When I record expenses, is it important to attach receipts straight away? Or okay to provide it if asked later?

    A: You can add these later if you want to. Attaching a receipt is an optional feature.

    Q: Is the dividend for this year £2000 that I can take?

    A: Yes, you can take £2,000 in tax-free dividends in this tax year and also for the new tax year.

    Q: …And then another £2000 after the filing?

    A: £2,000 in tax-free dividends for this tax year and then £2,000 in tax-free dividends once the new tax year begins.

    Q: For expenses receipts - is digital ok (ie photo) for the 6 years, or do we need to keep the physical ones as well?

    A: Digital should be fine, providing it is clear and legible.

    Q: Can you explain expenses as it relates to claiming your element of meals for client lunches. Also, where you may not have a receipt but pay via bank transfer?

    A: If you are paying a portion of the bill at a business meeting you can claim for the amount you paid, however, you should ask for a copy of the receipt as your proof of purchase.

    Q: Can we claim PPE equipment and lateral flow tests for when we are out visiting clients?

    A: Yes if the expenditure was incurred solely because of work. This will satisfy the wholly and exclusive threshold required by HMRC.

    Q: Re changes from April, in a nutshell is it better to be in ST or Ltd?

    A: Being a sole trader vs a limited will really depend on how much you currently earn through your business and if your limited company will be impacted by IR35 if you made the switch. If IR35 is not an issue, then you should be looking to go limited if profits from your sole trader exceed £30,000 

    Q: What about backdating expenses - do you have to log these in Crunch with the year they relate to?

    A: That's correct. When recording your transactions in Crunch, please use the date they were actually incurred.

    Q: The snap app has captured the receipts, so do I need to still keep the physical receipt for HMRC?

    A: We would recommend holding on to these if possible. At the very least, wait until the expense shows up in your account so you can see the digital copy.

    Q: Is 6 April a hard deadline, or can I backdate salary or dividends?

    A: Ideally, everything should be declared by the end of the tax year. For salary, this must all be declared due to the FPS filing deadline. If you miss the deadline, an Earlier Year Correction can be filed to backdate salary. For dividends, it is possible to backdate them, though it is not the best practice.

    Q: Is there any benefit for pushing through expenses before this tax year-end versus allowing them to occur next year? e.g. a necessary business purchase

    A: This would probably be more relevant to the end of your business year, rather than the tax year, in terms of reducing profit and therefore corporation tax.

    Q: If I issue a dividend before the 6th but the withdrawal is created after the 6th, will this be taxed as 21/22 or 22/23?

    A: Dividends are taxed based on the date the dividend is issued. If you issued dividends today (21/22 tax year) but don't actually take the money until the next tax year (22/23), it still counts towards the year in which you declared it (21/22).

    Q: I operate a sole trader business but am also a co-director of my wife's limited company. How does this affect my Self Assessment filing, and when do I have to file? Do I file it all in my own Self Assessment next year or do I have to do anything prior to that?

    A: You'll file one Self Assessment (due by 31 January each year) that relates to all your income (sole trader and director income). As a co-director, you may have additional responsibilities to file such as P11Ds, P60s, company accounts or monthly payrolls.

    Q: April 7th is the new tax year, should I raise a new dividend before this date if I want it for 2021-2022? Obviously subject to funds of my limited company. 

    A: If you want a dividend to be taxed in this current tax year (2021/22) then it must be dated before 5th April 2022. If you have the profit available, you can declare the dividend now and pay the money to yourself anytime you're ready.

    Q: If I pay myself a salary of £8840, do I qualify for state pension entitlement?

    Yes, you'll still qualify.

    Q: So for next year we get a salary of up to £9100 and stay below NI (vs current £8440)?

    A: That is correct.

    Q: Can we upload receipts into crunch and link to expenses recorded?

    A: Yes, if you aren't using Snap to capture your expenses you can still attach a file while recording your expenses.

    Q: Can I roll my unused profit into the next tax year so I can continue to pay dividends and salary between contracts?

    A: Yes, that's correct. If you have profit in your business that you've not taken before the end of the tax year, it'll still be available in the next.

    Q: I thought only 2k was tax-free dividends? Where did the 3,730 figure come from?

    A: Every individual is entitled to personal allowance which is currently £12,570. If you are only taking a salary of £8,840, then you have not utilised all of your personal allowance and the unutilized bit is £3,730 (£12,570 minus £8,840). The remainder allows you to take additional dividends tax-free.

    Q: Is there a difference between expenses and CapEx? Eg. A computer which lasts several years. 

    A: Yes. Expenses are written off within the accounting year. So, they technically get used up within a year whereas capital expenditure are purchases made on things that have a longer life span in the business. So, ink for a printer will be an expense compared to a laptop that could last for around four years in the business. Capital expenditures also qualify for Capital Allowances as well.

    Q: Where do we enter in Crunch funds paid into a company pension? Do we add the pension provider as a payee? 

    A: You can set up pension payments as an expense in your Crunch account.

    Q: I'm still paying myself £736.63 per month, when did it change to £758.33 per month? 

    A: £758.33 will be the amount to pay in the new tax year beginning 6th April. 

    Q: If I'm using my personal vehicle for a business trip and I claim the mileage, can the company pay for the fuel on top of the claimed mileage or must I pay for the fuel personally?

    A: Fuel is only allowable if you have a company car. If you use a personal vehicle, pay for the fuel personally and claim mileage. 

    Q: I assumed the Self Assessment had to be filed from the 6th of April, is that in fact from the 31st of January? 

    A: The deadline is 31st Jan, but you can file any time from the end of the tax year (6th April) onward. If possible, file as soon as you can so you have time to plan for any tax payments. 

    Q: What happens if I pay myself dividends only and stay below the personal allowance threshold? 

    A: If you decide not to take a salary from your company and take only dividends, this means you can use your full personal allowance on tax-free dividends. However, there are benefits to taking a salary, such as qualifying for a state pension and receiving tax relief for your company. 

    Q: Does the company need to submit P11D anyway if no benefits have been taken?

    A: Yes, you'll still submit a nil P11D even if there have been no benefits. It'll just show £0.

    Q: Do I need to take all the advisable dividends before I submit FPS? 

    A: No, dividends are not declared on your FPS. This is only for your salary. 

    Q: For sole traders - I am running behind with bank statements' reconciliations. Must I have them reconciled by the 6th of April? 

    A: No, you can complete your bank reconciliation in your own time. We recommend trying to stay up to date if you can as it gives you an accurate overview of your account. Definitely make sure you're up to date before starting to file your Self Assessment. 

    Q: I am on a fixed-term contract for one client, and I issue invoices for other clients - would my full payroll submission need to include both? 

    A: If you receive a salary as an employee from one place and also take a salary from your limited company, the FPS would just be related to the payroll from your company. 

    Q: I am an IT contractor via Limited Company. Can I keep paying myself a salary and dividends even when I am in between contracts? I am guessing so. 

    A: Yes, you can continue to take salary and dividends even while you are between contracts. 

    Q: So provided I use Snap Crunch and photograph my receipts, I don't need to keep the paper version? 

    A: That's correct. Please wait until your Snap has processed and you can see the expense in your account, just in case there are any problems with it. 

    Q: You say here that the NI threshold is 8840, but my Crunch account says "£8,670 (NI Threshold for Tax Year Apr 2021  – Apr 2022)" and it has calculated my payrolls based on that. Is that an error or is there a reason for that? What should I do regarding that?

    A: When setting up your salary in Crunch we need to take into account any earnings you may have received elsewhere. This may mean that we adjust the total that you're able to take. I'd recommend checking in with your dedicated service team for more info on your specific salary. 

    Q: If you receive, say, £1000 in rental income - is it better to take less wage or less dividend or doesn't matter, just stay under the threshold?

    A: If you receive income from sources other than your limited company then it's likely that you'll need to adjust your salary/dividends to remain within certain tax brackets. For advice on your specific situation, I'd advise following up with our accountants. I'm assuming as a pro user that you will auto setup as it's done previously the best option for us When setting up your new payroll in Crunch, yes, this will default to our recommended monthly salary. 

    Q: How in the system do I log and thus claim "expenses" like the working from home allowance. Does it just work as adding a new expense? 

    A: That's correct. You can set up a supplier for use of the home. If you take a quick look in our help centre, we've got an article explaining how to do this step by step. 

    Q: I thought the change in NI should mean directors should take £12.5k per year in salary?

    A: The changes announced benefit the employees/directors but not the employer/limited company as the employer pays a higher NI from a lower threshold. So, what we have recommended is the most tax efficient option and the resource provided has the detailed analysis for a Crunch client based on the additional cost for payroll services and employers' NI tax payable. Please note that we recommend and you are free to choose whatever salary you wish to pay yourself.

    Q: What's the most tax-efficient way of paying yourself over the threshold? Salary or dividends? 

    A: For most people, the most efficient way to pay yourself is a low salary up to the NI threshold and then the rest as dividends. When over the basic rate threshold, you risk paying income tax at 40% or dividend tax at 33.75%. Dividend seems the most tax efficient and it has no added NI costs (for both employee and employer) compared with taking salary.

    Q) Further question to the sole trader expenses having been paid on a personal card....it's a credit card and doesn't seem to be able to be linked (Amex). Anything I can do there? Or do I need to not worry really, due to being a sole trader

    A: You're still able to claim expenses paid on a personal credit card, you'll just need to be extra careful about storing the receipts. You should add any cards being used for business purposes to your Crunch account, and that way you can still record the expense items and also upload a copy of the receipt alongside it.

    Q) Can I claim expenses (training related to the business) paid by the director in another currency?

    A: Expenses can be claimed regardless of the currency used, as long as they're exclusively for business purposes.

    Q) Is there any issue paying salary only once a year to a director? What about irregular payments (only a few months)?

    A: In theory, no. However, do bear in mind that as a Ltd Company you are required to file RTI Payroll Runs each month which reports your monthly salary (whether this is £0.00 or any other figure), however, you could, for example, file £0.00 RTY Payroll Runs for 11 months and then take the salary as a whole in the 12 month and report that final figure of your whole salary - the important thing here is the accuracy and consistency of filing the RTI each month with HMRC.

    Q) For this year, I have been a sole trader and then became a Ltd. Do I have to do 2 assessments or can it all be done in one form?

    A: All income, including sole trader, limited or even employment, could be reported on one Self Assessment form. You should not complete a self assessment "per business", but rather as an individual accounting for all income regardless of how it was earned.

    Q) As a Ltd - what happens if you've invoiced a client and they don't pay you before 6th April - is this accounted for in the new year or this year?

    A: For limited, invoices are accounted for during the "Company Year" and not the "Financial Tax Year. Your invoices will be subject to Corporation Tax for the year they were issued.

    Q) What if the expense receipt faded over time beyond readability?

    A: This is a tricky one, but not unheard of. Your best bet going forward would be to take a photo of the receipt and store it digitally somewhere on a hard drive or USB stick. Unfortunately if the receipt isn't clear enough to read there's a risk of the expense being rejected by HMRC should they investigate your expense claims.

    Q) Sole trader not subject to IR35?

    A: Sole traders are not subject to IR35, only limited companies.

    Q) My business is built on a freelancer network, often our jobs take days...Can I provide meals for freelancers?

    A: As long as the meals are within business hours and are reasonable (i.e. no 3-course dinners at The Ritz), yes you can claim for food and drink. Please note however that there are two categories for meals, subsistence and entertaining. Subsistence is providing meals for yourself and that is tax deductible, that is, reduces your profits so you pay less corporation or income tax. Entertaining is you buying meals or other things for clients or others who are not your employees (including Freelancers). This is not tax deductible so does not reduce how much tax you pay.

    Q) At what point does the dividend tax rate of 38.10% start being charged? 

    A: When your income in a tax year exceeds £150,000

    Q) If one pays voluntary NI, can you take the 12750 and 41430?

    A: There will be no need to make the voluntary NI if you take a salary of £12,750 as that salary will count towards a qualifying year for state pension. Dividend income (£41,430) does not count towards state pension entitlement. So, you only need to make a voluntary NI contribution if your income from salary or sole trader is so low it will not count towards a qualifying state pension year.

    Q) Whose responsibility is it to assess IR35 - ltd, client, or hmrc?

    A: It depends on the end client. If:

    • Public sector end client, then the end client decides
    • Private sector medium or large sized business, then end client decides
    • Private sector small sized client, your limited company (not the end client) will need to decide
    • Foreign client with no agent in the UK, you r limited company will decide
    • Foreign client with agent in the UK, foreign client needs to decide through the UK agent.

    Q) Do pension contributions by a ltd company act as corporation tax relief?

    A: Indeed, they do. It's one of the reasons it can be so beneficial.

    Q) Can you explain the legal obligation for the NI contribution - I thought if we were under the threshold we wouldn't have to pay the NI

    A: There are different thresholds for NI so it is worth clarifying that employees/directors pay NI when they earn above the Primary NI threshold. Primary NI threshold from April 2022 will start  at £823 per month. So if an employee earned £1,000.in April, the employee/director will suffer a deduction from their pay at £1,000 less £823 times NI rate at 13.25%.

    Employers pay NI (cost to the business, not the employee) if earned income for the employee is above the Secondary NI threshold which will be £758 per month. So, using the above illustration, the employer will pay an extra NI on top of what the employee has already suffered above computed at £1,000 less £758 times the NI rate at £15.05%.

    Q) The 40k pension allowance, is that per director?

    A: Indeed, this is per individual. 

    Q) Can we add alternative incomes to our self assessment i.e. personal income from abroad?

    A: Yes, and you should. Self assessments must show all personal income earned, regardless of source.

    Q) Do all expenses need to be settled in the same year?

    A: Your expenses should be settled at the point you make the purchase, so depending on whether you operate as Ltd or Sole Trader you want to be sure that you A) get them included in Ltd Company Accounts in the year they were claimed or B) claimed back as expenses on your Self Assessment for the tax year in which they were purchased.

    Q) What if your invoice is from the current tax year but you will only be paid in the next tax year. Will I still be charged at the new tax rates?

    A: Invoices are subject to Corporation Tax during the company year in which they're issued. So in this example, no you will not.

    Q) If I started as a sole trader mid-way through the tax year, does HMRC 'auto' calculate how much tax you've paid through PAYE?

    A: PAYE taxes are paid and deducted at source with any deductions shown on payslips and your P45/P60 for the year. This is automatic, so HMRC will have a record of how much tax has already been paid while working under a PAYE Scheme. When you come to file your self assessment, besides your sole trader income, you will also need to declare your PAYE income and the taxes already deducted by your employer.

    Q) What happens if I lose receipts but still have the transaction recorded in my business bank account statements?

    A: You can claim expenses even if you lose the receipt (try to avoid). Your bank statement provides a secondary source of evidence if the primary evidence (receipt) is not available. HMRC can attempt to disallow it but it will be difficult to disallow, especially if there are third parties (suppliers) who can corroborate your claim.

    Q) I thought IR35 status was the responsibility of the client now?

    A: It depends on the end client. If:

    • Public sector end client, then the end client decides
    • Private sector medium or large sized business, then end client decides
    • Private sector small sized client, your limited company (not the end client) will need to decide
    • Foreign client with no agent in the UK, you r limited company will decide
    • Foregn client with agent in the UK, foreign client needs to decide through the UK agent.

    Q) I only started trading on October 21...but haven't taken any money via the Ltd Company. I have had a normal P.A.Y.E job that covered tax, do i still need to do a self assessment for 20-21 ?

    A: It would be worth contacting HMRC's Self Assessment Department to make them aware of this. In situations like this, it's down to HMRC. They may well explain that due to no income received via the Ltd company you won't need to complete a Self Assessment.

    Q) If you go over the basic rate allowance for dividends, will you then be treated as a higher rate taxpayer for all purposes (such as saving interest allowance, BIK, etc)?

    A: No, only the amount taken above the Basic Rate Allowance for dividends will be charged at the higher rate.

    Q) The self assessment is something done by me only as an individual, independently of the company numbers? If so, do I have to do another equivalent "assessment" as a company?

    A: Yes, your self assessment is purely about personal income received and not the company's profit/turnover, etc. The company however may give you some salary and or dividends. If that is the case, then some of the numbers will also come from the company. 

    The company separately completes a set of Year End Accounts each year to report the profit, turnover, expenses, etc. instead.

    Q) What will be NI free threshold salary will be for 22/23

    A: For the 22/23 tax year, the recommended salary to take will be £9,100 for the year (£758.33 per month).

    Q) I became a sole trader last year in June, but until then I was PAYE from a previous employer. How will this need to be reflected in my self-assessment?

    A: PAYE taxes are paid and deducted at source with any deductions shown on payslips and your P45/P60 for the year. This is automatic, so HMRC will have a record of how much tax has already been paid while working under a PAYE Scheme. You will, however, need to complete a Self Assessment to make HMRC aware of any income you've received via your sole trader business and also detail the income from your PAYE job and the taxes that you have already paid.

    Q) What is the Basic Rate threshold? Salary? or something else?

    A: HMRC wants to tax every individual according to the level of income they earn. So, they have created brackets for income levels so that if you fall in bracket one, you pay tax at x% and if someone else falls in another bracket, they pay tax at y%. So, the Basic Rate Threshold refers to all income earned between £1 to £50,270. If someone earns between £50,271 to £150,000, they are on the Higher Rate threshold and if they earn above £150,000, they are on the Additional Rate threshold. There are different thresholds for those in Scotland.

    Q) When tax is calculated in advance of a year it assumes the income will be the same but due to fluctuation of turnover is there flexibility to challenge HMRC on demanding the tax which may not be accurate for the following year?

    A: If by tax in advance you are referring to payment on account, then the answer to your question is that when you come to file your next Self Assessment for which you have already made the payment on account, if it turns out you have overpaid, then you will be due a refund paid directly into your account. 

    If you were referring to salary, the tax is not paid in advance. It is deducted on whatever frequency you are paid and as such, any overdeduction based on tax codes can be rectified the following month. Your salary is also separate from the turnover of the company (unless you are under an IR35 contract). It may be best to call in to discuss your situation.

    Q) Is there a benefit in offshore accounting for tax relief?

    A: This is outside our field of expertise but generally, every business abides by the tax laws of the country it is resident so if for instance, a country had lower corporation and personal tax rates compared to the UK, then the answer will be yes. But we must caution you that this is a risky venture and HMRC is clamping down on schemes. So, it may be best to probably triple-check with an expert before engaging in such activities.

    Q) My ltd company is going to receive the payments of March services only in late April. Paying this amount as dividends will account for the next tax year personally, but to 21/22 tax year for the ltd company?

    A: Once the invoice was generated, the Crunch app does factor the invoice into the profits available for distribution so you could issue dividends by 5th April to account for the profit generated by that invoice as well.

    Q) My Ltd company was set up in May. Can the accounts date be changed to match the end of the tax year so all accounts can be done at the same time?

    A: Yes. You can change the company accounting year to match the tax year. Speak with a client manager if you wish to do so.

    Q) I have deemed limited contract using by a limited company (inside IR35), what are the expenses allowed? Just provide some guidance.

    A: If your end client is a public or a medium or large-sized private sector client, then, unfortunately, they are unlikely to allow any expenses to be claimed. If your end client is small so your IR35 payroll is being done by yourself, then the expenses you could put through prior to payroll deductions may include pensions, and direct costs incurred specifically for the role such as extra insurance, professional subscription or equipment. 

    If the expense would have been incurred irrespective of the IR35 contract, then you cannot claim that. Generally, travel and subsistence cannot be claimed but if you are sent to a different location, then that can be claimed as well.

    Q) Re: tax breaks, pension was mentioned as well as ISA - for the latter surely this doesn't need to get recorded?

    A: No it doesn't need to be recorded but, still a tax break/incentive.

    Q) If ST changes to Ltd can you transfer previous sales income (unpaid invoices at this point) into a new c/o?

    A: No. Each business is different and has its own clients. So, you cannot expect the limited company to receive the payment due to the sole trade business unless the sole trade business has been acquired by the limited company so that all the debts and the liabilities of the sole trade pass onto the limited. This will require specialist input.

    Q) When is CGT due when selling a Buy To Let home? Do I have it on my Self Assessment?

    A: When you dispose of property, the new rules state that CGT is due within 60 days of the disposal. You need to speak with your solicitor when disposing to help with the filing. When you come to file your Self Assessment, the previously filed information will be included on the return.

    Q) If you make use of this Allowance, and decide to take Salary for the later part of the year, would you still benefit partially from this tax efficiently?

    A: Taking a salary utilizes your allowances so depending on how much you take in salary, some or all of your allowances will be used.

    Q) If however, you are a s/e sole trader working as a tutor, turnover over the VAT threshold doesn't incur VAT chargablility. AFAIK it's the only (or one of few) trades that has this benefit.

    A: Private tuition provided by a sole proprietor is exempt. HMRC guidance can be found at https://www.gov.uk/guidance/vat-on-education-and-vocational-training-notice-70130

    Q) I've invested in some startups personally over the past year - assume these should be registered on the Self Assessment?

    A: There are different types of investment so it is difficult to advise without knowing what type of investment it is. It may be best to contact us for tailored advice.

    Q) What about income coming from IR35 contracts, where the client deducts the taxes before paying? Should they be mentioned in the Self Assessment?

    A: Income from IR35 contracts form part of the income recorded on the P60 and the income from P60s are to be included when completing your self assessment tax reurn

    Q) Is it more tax-efficient to accumulate any cash above the £41k over time and take one big capital withdrawal later on? Or to just take the hit and pay the 32.5% each year?

    A: If you have no immediate need of the cash, then it may be prudent to simply leave it in the company and take a capital distribution at some future point when the company is being closed, as the distribution will qualify for relief and be taxed at 10%. Also, if not closing, the funds can be drawn out at some future point through dividends by either yourself or a partner when turnover is low.

    Q) What is the Tax Efficient way to use the Bounce Back Loan through my Business Account? Can the Bounce Back Loan be used for personal use as well?

    A: The Bounce Back Loan was given to support businesses through the pandemic. As the business owner, you are best placed to determine how to use it even if for personal purposes.

    Q) Also, I wanted to ask what are the Tax Rules for Digital Nomads working remotely in different countries, i.e. through their Limited company based in the UK?

    A: This is a complex area and you may need specialist advice on it.

    Q) How do I set up salary sacrifice scheme for Pension contributions to employees?

    A: See https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye - this gives a clear run through of what should be complied with regarding NIC and salary sacrifice.

    Q) I worked as an umbrella and did not raise any invoice in ltd company but I have hefty profit from last years. Can I invest in pension for this year?

    A: Yes you can. If you were under umbrella, then I suspect your company accounts may have been dormant. If that was the case, speak with an accountant as it may mean bringing your company out of dormancy.

    Q) I also have a client that pays me via a separate salary and another that I raise invoices for - as this makes me a 'higher rate' taxpayer from that income, do my dividends count as part of my income, and will they be taxed twice? Or will it just be taxed at 32.5%?

    A: If you are a higher rate taxpayer, your dividends will not be taxed twice. They will simply be taxed at the higher rate threshold of either 32.5% (2021/22) or 33.75% (2022/23).

    Q) The practical implementation of the NI threshold in June/July is the main question I had at this point. I'm very confused how this will actually be calculated. I appreciate Michael may cover that in his documents, how can we access that? Thanks.

    A: We have uploaded the relevant resources on the NI changes. If you wish to discuss further, please do call.

    Q) Is the student loan repayment (the 9%) payable on salary or total income? For clarity, if I take the £9,100 salary + the full dividend amount, are student loan payments still due?

    A: Student loan is based on total income, not just salary.

    Q) I have 2 contracts. One is IR35 and one is outside. I’m paying more in tax than I’d like. Do you have any advice for those of us in this position?

    A: Being under IR35 means that the IR35 income is treated as your personal income and taxed at the Income Tax rates instead of the Corporation Tax rates. This means from a company point of view, the IR35 contract should either be breaking even or loss-making. The loss-making of the IR35 contract can be used to reduce the profits of the outside of IR35 contract. 

    Losses can also be carried back or forward against profits. Also, depending on the type of IR35 contract (if you are processing your own payroll or it is being done by the end client) you could look to using pensions to reduce the tax burden but it means you don't get the cash which will be going to a retirement plan.

    Q) What is super deduction compared to asset depreciation?

    A: Depreciation is an accounting treatment of spreading the cost of an asset over its useful life in the company accounts. So, a laptop bought for a business with a useful lifespan of 4 years to the business will have a quarter of its life depreciated in the first year and the same in the second until it is fully used up in the fourth year. The depreciation reduces the accounting profit. 

    Depreciation is, however, an accounting treatment but HMRC does not like that so they disallow it but instead give what is called Capital Allowance which is effectively the same as depreciation but it is HMRC's version. In most cases, capital allowances are given in the first year, so unlike the accounting treatment, where it is spread over four years, HMRC gives it all in the first year.

    The Super Deduction is a type of Capital Allowance but instead of just giving you 100% of the value of the laptop you bought, HMRC/government gives you 130% of the value of the laptop. So the Super Deduction is a government incentive to limited company clients to invest in capital expenditure.

    Q) I bought an electric car through the company - it owns it not me by salary sacrifice - as director this year only have 8440 in salary and dividends. Do I still incur a benefit in kind charge?

    A: Yes. The car would still be liable under the car tax tables - Electric cars are BIK based on mileage range - see table at https://www.fleetnews.co.uk/fleet-faq/how-will-bik-company-car-tax-bands-be-calculated-for-electric-and-plug-in-hybrid-vehicles-from-2020

    Q) What is the importance of National Insurance class 1?

    A: Class 1 National Insurance determines when employees/directors and employers have to pay National Insurance contributions. Individuals (employees/directors) pay Class 1 NI when their earnings go above the Primary threshold and employers pay Class 1 NI when the salary they pay employees goes above the Secondary threshold.

    Q) To qualify for Maternity allowance, how much NIC do I need to pay over the secondary threshold to qualify?

    A: You can get Maternity Allowance for 39 weeks if in the 66 weeks before your baby’s due, you’ve been: employed or registered as self-employed for at least 26 weeks or have been earning (or classed as earning) £30 a week or more in at least 13 weeks - the weeks do not have to be together - the PT and ST do not come into the criteria

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