Welcome to our latest monthly tax newswire. We hope you enjoy reading this newsletter and find it useful. Please contact us if you wish to discuss any issues further.
Table of Contents
Will the Spring Budget Boost Economic Growth in the UK?
With the UK’s economy remaining stagnant, the Chancellor is facing mounting pressure to announce measures that will stimulate economic growth. There are even calls for the Chancellor to reduce corporation tax, which is set to increase from 1 April 2023. Additionally, there is a possibility that he may extend the 130% super-deduction for investment in new plant and machinery, which is set to expire on 31 March.
Although the Government’s primary focus is on reducing inflation, the Chancellor may have some unexpected announcements during the Budget presentation on 15 March. One issue that he may address is the significant number of medical professionals over the age of 50 opting for early retirement. The Chancellor could consider raising the current £1,073,100 lifetime cap on pension savings as a tax change that may encourage them to continue working.
While it is yet to be seen what will be said in the Spring Budget, it is highly anticipated that it will contain announcements aimed at stimulating economic growth. It is recommended that you keep an eye out for our Budget Newsletter, which will be released the day after the Budget presentation.
HMRC Sends “Nudge” Letters to Companies Regarding R&D Claims
In response to alleged abuse of Research and Development (R&D) tax relief schemes, particularly the SME tax credit scheme, HM Revenue and Customs (HMRC) has issued “nudge” letters to the directors of over 2,000 claimant companies, requesting them to review their R&D claims. An extract from the letter reads as follows:
“As a Company Director, it is imperative that you submit accurate claims for the appropriate amount of tax relief. If we examine a claim and find it to be incorrect, your company may be required to pay back the entire amount.
This letter is not a compliance check into your Company Tax Return. It is intended to assist you in ensuring that your claims are complete and accurate.
What you need to do now:
Please review your previous R&D claim using the checklist below to ensure that all of the information provided is complete and accurate.
- Have you read and understood the HMRC guidance on R&D?
- Have you considered the conditions for making an R&D claim? Are you satisfied that the project is seeking an advancement in the field of science and technology?
- Do you understand what you are claiming for?
- Who has assisted with the supporting R&D report, and are they qualified to do so?
- Have you read the R&D report, and do you agree with its contents?
- If you are working with a third party to make a claim, have they answered your questions satisfactorily?
- Does this claim seem too good to be true?
If you are uncertain about the answers to these questions, you should contact HMRC
In some instances, we may need to initiate an enquiry into your claim. This could result in a delay in the payment of any tax relief due. Additionally, it may result in us rejecting your claim if we determine that it is incorrect, and we may impose a penalty. The most effective way to prevent delays, rejection of your claim, or penalties is to check your previous and future claims online now.”
We urge all R&D claimants to consider questions 1-7 above and to contact HMRC if they have any questions or concerns.
Penalties for inaccuracies in tax returns due to carelessness or deliberate actions.
HM Revenue & Customs (HMRC) has the authority to impose penalties for errors made in tax returns, in addition to charging interest on late tax payments. These penalties are determined based on whether the error was deemed careless or deliberate, and the severity of the penalty is contingent upon factors such as whether the taxpayer made unprompted disclosures to correct the error, whether the error was concealed from HMRC, and whether the error was intentional.
The recent dismissal of Nadeem Zahawi, former Chancellor of the Exchequer and Chairman of the Conservative Party, highlights the importance of being diligent when reporting capital gains. Zahawi was reportedly found to have been careless in his reporting, resulting in a 30% penalty being imposed on him.
The penalty amount is determined by calculating the Potential Lost Revenue (PLR) caused by the error, and a table outlining the range of possible penalties is provided by HMRC. It is crucial for taxpayers to take care when preparing their tax returns and to disclose any errors promptly to avoid incurring penalties.
|Behaviour||Disclosure by taxpayer||Penalty range|
|Careless||Unprompted||0% to 30%|
|Careless||Prompted||15% to 30%|
|Deliberate but not concealed||Unprompted||20% to 70%|
|Deliberate but not concealed||Prompted||35% to 70%|
|Deliberate and concealed||Unprompted||30% to 100%|
|Deliberate and concealed||Prompted||50% to 100%|
In cases where offshore matters are involved, higher maximum penalties may be applied by HM Revenue & Customs (HMRC). When a taxpayer receives a “nudge” letter from HMRC, this may be regarded as a prompt from the department and could potentially increase the level of penalty that may be imposed.
According to the law, “careless” is defined as a failure to take reasonable care and must take into account the taxpayer’s abilities and circumstances. HMRC expects a person encountering an unfamiliar transaction or event to take care to find out about the correct tax treatment or seek appropriate advice. A taxpayer who acted on professional advice from a person with the appropriate expertise can demonstrate that they took reasonable care.
The penalty imposed by HMRC may be reduced or mitigated depending on the quality of the disclosure, but such a reduction will not take the penalty percentage below the bottom of the stated range. The quality of the disclosure is based on three factors: “telling,” “helping,” and “allowing access to records.”
In some cases, HMRC may suspend a penalty if controls can and will be implemented to prevent a similar issue from arising in the future. It is important for taxpayers to take care when preparing their tax returns and to seek professional advice if necessary to avoid incurring penalties.
Year-End Tax Planning: Maximising Tax Benefits Before the Fiscal Year Ends
As the end of the tax year approaches, there are a number of important considerations for individuals and businesses alike. Taking action before the 5th of April 2023 can help maximise tax savings and ensure that you are well-prepared for the coming fiscal year.
One key area of focus is maximising your £20,000 ISA allowances for the 2022/23 tax year, particularly if you have available funds. This can help minimise your tax liability and improve your long-term financial position.
Another important strategy is to consider increasing your pension savings. By doing so before the end of the fiscal year, you may be able to obtain tax relief for any additional contributions. The pension annual allowance includes any unused elements from the previous three tax years, providing a valuable opportunity for maximising tax benefits.
Under current rules, the government adds to your pension contributions at the 20% basic rate. For instance, if you save £4,000 in a personal pension, the government tops this up to £5,000. For higher rate (40%) taxpayers, there is a further £1,000 tax relief given when your tax liability is calculated, resulting in a reduced net cost of £3,000. This can be particularly effective for individuals with incomes between £100,000 and £125,140, where the effective tax rate is 60% due to the restriction of personal allowances.
In addition, making capital disposals and accelerating capital gains into the current fiscal year can also provide significant tax benefits. This is especially true if you have yet to use your £12,300 capital gains tax annual exempt amount. It is important to note that this annual exemption will reduce to just £6,000 for gains made in 2023/24.
Beyond these key strategies, there are other useful tax planning points to consider, such as profit extraction from owner-managed businesses and gifting inheritances. If you would like to discuss the best strategies for your individual circumstances, please do not hesitate to book a free meeting. Our Tax expert team is here to provide tailored advice and support to help you maximise your tax benefits and achieve your financial goals.”
Advisory Fuel Rates for Company Cars: HMRC Guidelines for Private Mileage Reimbursement
For companies providing employees with company cars, it is important to follow the HM Revenue and Customs (HMRC) advisory reimbursement rates for private mileage. These rates are designed to ensure fair reimbursement for fuel expenses and prevent any taxable fuel benefits.
Effective from 1st March 2023, the table below outlines the current HMRC advisory fuel rates for private mileage reimbursement. If full reimbursement is made using these rates, there will be no taxable fuel benefit for the employee. The rates for the previous quarter, if they differ from the current rates, are shown in brackets for reference.
It is essential for businesses to comply with these guidelines to avoid any potential legal or financial implications. By staying up-to-date with the current advisory fuel rates, companies can ensure that their employees are fairly reimbursed for their fuel expenses while also maintaining compliance with HMRC regulations.”
|1400cc or less||13p (14p)|
|1401cc to 2000cc||15p (17p)||11p (12p)|
|1601 to 2000cc||15p (17p)|
|Over 2000cc||23p (26p)||20p (22p)||17p (18p)|
Important Information Regarding Hybrid and Electric Cars Advisory Fuel Rates
When it comes to reimbursing employees for private mileage in hybrid or electric cars, it is important to follow specific guidelines set out by HM Revenue and Customs (HMRC).
For hybrid cars, the advisory reimbursement rate to be used is the same as the petrol or diesel rate. However, for fully electric cars, the current rate is 9p per mile, as of 1st March 2023 (previously 8p per mile until 28th February 2023).
It is worth noting that businesses are permitted to continue using the previous rates for up to one month from the date the new rates apply. After this grace period, the updated advisory rates must be used to ensure compliance with HMRC regulations.
By adhering to these guidelines, companies can ensure that their employees receive fair reimbursement for their private mileage in hybrid and electric cars while also avoiding any potential legal or financial issues.
Diary of Main Tax Events for March/April 2023
|01/03||Corporation tax payment for year to 31/05/22 (unless quarterly instalments apply)|
|19/03||PAYE & NIC deductions, and CIS return and tax, for month to 05/03/23 (due 22/03 if you pay electronically)|
|01/04||Corporation tax payment for year to 30/6/22 (unless quarterly instalments apply)|
|05/04||End of 2022/23 tax year – many tax planning actions need to have been done by this date.|
|06/04||Start of the 2023/24 tax year.|
|19/04||PAYE & NIC deductions, and CIS return and tax, for month to 5/04/23 (due 22/04 if you pay electronically).|