CHARTERED ACCOUNTANTS (ICAEW)

Back to Blog

Will paying voluntary NICs boost your pension?

To qualify for a full state pension, you need 35 qualifying years. You can earn these through paying National Insurance contributions or being awarded National Insurance credits. If you will not have sufficient qualifying years for a full state pension when you reach state pension age, you can ‘buy’ additional qualifying years through the payment of voluntary contributions.Employed earners earn a qualifying year for each year that their earnings exceed the lower earnings limit for the year, ...

Investing the proceeds from the sale of the family home and the IHT gifts from income exemption

For many people, there will come a time when it becomes sensible or necessary to sell the family home, either to downsize or because of a move to live with a relative or into care. This may result in funds being released, which may be considerable. Thoughts may turn to whether now is the time to pass wealth down to subsequent generations. However, this must be balanced against the needs of retaining sufficient funds to meet one’s own lifestyle and also to meet any current and future care costs...

Do you now need to pay tax on your dividend income?

The fall in the dividend allowance in recent years may mean that you now need to pay tax on your dividend income for the first time.The dividend allowanceThe dividend allowance was introduced from 6 April 2016. It is available to all taxpayers regardless of the rate at which they pay tax and in addition to any other allowances that they may receive (such as the personal allowance or the personal savings allowance). Dividends sheltered by the allowance are taxed at a zero rate. However, they use ...

The SDLT supplement and changing your main residence

In most cases, a higher rate of stamp duty land tax (SDLT) applies to the purchase of second and subsequent residential properties in England and Northern Ireland where the consideration is at least £40,000. The supplement increases the residential rates by 3%.However, even where a person owns two or more properties, they can replace their ‘main residence’ without having to pay the supplement.The ‘main’ residenceIt will usually be clear which property is a person’s main residence. For...

VAT and DIY housebuilders

A person who buys a new home from a property developer does not have to pay VAT on it as the sale is zero-rated. However, a person who builds their own home does not benefit from the zero rating. The VAT DIY housebuilders scheme aims to level the playing field by allowing people who build their own houses to claim back VAT on building materials purchased in the course of the build.A DIY housebuilder can benefit from the scheme if they have planning permission to:·     &...

Which home is the main residence?

Private residence relief is a valuable capital gains tax relief which means that a person does not have to pay capital gains tax on any gain arising on a property while it was their only or main residence. Where a property has at some point been the taxpayer’s only or main home, the last nine months of ownership are also exempt from capital gains tax (increased to 36 months where the taxpayer leaves their home to go into care). Certain other periods of absence may also qualify for the relief.I...

Do you have to take a dividend? Reasons why not to

Many directors believe they have an absolute right to monies deposited in a company's bank accounts. However, payment cannot just be withdrawn as there are set procedures to follow to be legally compliant.'Illegal' dividendA dividend is a distribution of post-tax profits and it can only be paid if the company has sufficient retained profits from which to make payment. Therefore, before declaring a dividend, it is necessary to check this. If a dividend is paid without a sufficient amount of profi...

Tax implications of company failure

With interest rates falling, business growth should follow. While this is waiting to happen, companies continue to close. The latest statistics published by the Insolvency Service state that 'After seasonal adjustment, the number of registered company insolvencies in England and Wales in April 2024 was 2,177, 18% higher than in March 2024 (1,838) and 18% higher than the same month in the previous year (1,838 in April 2023)'.As with anything to do with business, there are tax implications when a ...

Retiring an employee tax efficiently

Just because an employee receives a lump sum on leaving does not necessarily mean the payment is exempt from tax under the £30,000 exemption for termination payments rules.The exemption generally only applies if the payment is compensation for the termination of employment or a change in the duties of a person's employment. It does not apply for any other reason including for or in anticipation of retirement. Therefore, to be exempt, the payment must not be made under any obligation on the part...

Advantages of filing your 2023/24 tax return early

The deadline for filing your 2023/24 Self Assessment tax return online is 31 January 2025. An earlier deadline of 30 December 2024 applies if you owe £3,000 or less and wish to pay the tax that you owe through an adjustment to your PAYE code. While these dates are some way off, there can be advantages of filing your 2023/24 tax return early.Self-employed taxpayersIf you are self-employed and you prepare your accounts other than to 31 March, 5 April or a date in between, there will be more work ...

IHT transferable nil rate bands

The nil rate band is the amount that a person may leave free of inheritance tax. Each person has their own nil rate band, which for 2024/25 is set at £325,000. A person’s estate may also benefit from a further nil rate band – the residence nil rate band (RNRB) – where they leave a residence to a direct descendant or descendants.The nil rate band is available regardless of the amount of a person’s estate. However, the RNRB is reduced where the value of the estate exceeds £2 million, bei...

Five common capital gains tax errors

HMRC have revealed that every year lots of simple errors are made in tax returns in relation to capital gains tax which result in the taxpayer suffering additional tax, interest and penalties. Here are some common mistakes, and how to avoid them.1.     Using the correct annual exempt amountWhen calculating how much capital gains tax you need to pay, it is important to make sure that you use the annual exempt amount for the correct tax year. This is the capital gains tax equiv...

Tax-free savings income in 2024/25

Up to certain limits, it is possible to enjoy some savings income tax-free. The extent to which this is possible depends on the rate at which you pay tax; not all routes are open to all.Personal allowanceIf you do not fully use your personal allowance elsewhere, any balance not otherwise used can be set against your savings income, allowing it to be received tax-free.Savings allowanceBasic and higher rate taxpayers are entitled to a savings allowance. This is in addition to their personal allowa...

Cash basis by default

For 2024/25 and later tax years, unless they elect otherwise, unincorporated businesses must prepare their accounts and calculate their taxable profit using the cash basis. This is a reversal of the position applying for 2023/24 and earlier tax years, where the accruals basis was the default, but traders who were eligible to use the cash basis could elect to do so if they preferred. To enable the cash basis to operate by default, the restrictions which applied previously have been lifted.Cash ba...

Taxation of company cars in 2024/25

A taxable benefit arises where an employee has the private use of a company car. Unless the car is an electric car, a further benefit arises if the employer meets the cost of fuel for private travel.Car benefit chargeThe amount that is charged to tax depends predominantly on the list price of the car and the car’s CO2 emissions. The charge is an ‘appropriate percentage’ of the list price, as adjusted for employee contributions and periods of unavailability.The list price of the car is...

VAT records – What do you need to keep?

If you are registered for VAT, you will need to keep normal business records. The records must be complete, up to date and sufficient to enable you to calculate the VAT due to or due from HMRC. You will also need to maintain a VAT account and keep copies of your VAT invoices.Business recordsHMRC take a wide view of what constitutes ‘business records’ and their list includes:·         annual accounts, including a profit and loss account;·  &...

New VAT thresholds – When must you register and when can you deregister?

The VAT registration threshold rose from £85,000 to £90,000 from 1 April 2024. The deregistration threshold increased from £83,000 to £88,000 from the same date. The changes in the thresholds change the trigger points for compulsory registration and optional deregistration.When must you register?You must register for VAT if your taxable turnover in the last 12 months was more than the VAT registration threshold of £90,000 or if you expect your turnover to go over £90,000 in the next 30 day...

Small earnings from self-employment – Tax and National Insurance implications

Many people earn small amounts of money from self-employment, often as a side hustle. For example, this may be from craft or baking activities, tuition or the provision of services, such as babysitting. If you earn money in this way, it is important to understand the associated tax and National Insurance implications.Tax consequencesA separate trading allowance of £1,000 allows you to earn up to £1,000 of self-employed profits tax-free. If your profits from all self-employments in a tax year a...

Extracting profits in 2024/25

If you run your business as a personal or family company, you will need to extract your profits in order to use them personally outside your company, for example, to meet your living expenses. There are various ways of doing this, some more tax efficient than others. Although there is no ‘one size fits all’ and your optimal profit extraction strategy will depend on your personal circumstances, a popular approach is to pay a small salary and to extract further profits as dividends.SalaryThere...

Should I sell before the end of the FHL regime?

Furnished holiday lettings (FHLs) enjoy tax advantages not available to landlords letting residential property on long-term lets. The advantages are particularly beneficial when it comes to capital gains tax as landlords disposing of an FHL are able to benefit from a range of reliefs, including business asset rollover relief, business asset disposal relief and gift-holdover relief. However, the special tax regime for FHLs is to come to an end on 5 April 2025. From 6 April 2025 onwards, FHLs will...

Relief for replacement domestic items

Landlords letting residential property are not entitled to a deduction for the cost of the domestic items that they provide in the property. They are not able to claim capital allowances for the cost of those items either. However, relief is available when they replace the items, allowing the landlord to deduct the cost of the replacement, as long as the associated conditions are met. The relief is available regardless of whether the property business is an unincorporated property business or op...

HMRC revise stance on replacement boilers

In 2023, HMRC wrote to some taxpayers with property income asking them to check that the information provided in the property pages of their 2021/22 Self Assessment tax return was correct. The letter advised that the cost of ‘upgrading a central heating boiler from an older, less efficient model’ was not allowable in calculating the profits of the property business.However, HMRC have now revised their position and sent a correction letter to taxpayers who were sent the original letter admitt...

Post-cessation expenses – When and how are they allowable?

When an unincorporated business stops trading, accounts are prepared to the date of cessation. Where a limited company ceases trading, it is either registered as dormant or its directors can apply for the company to be struck off or go into liquidation, if the company is unlikely to be required again in the future. HMRC states that a business ends when it ‘permanently ceases to carry on a trade’.Sometimes a business that has stopped operations receives income and incurs expenses after cessat...

HMRC informers – How important are they in reducing the 'tax gap'?

The 'tax gap' is a phrase that has been around for almost twenty years and refers to the difference between HMRC’s expected tax revenue and the total tax received from all taxpayers. Notably, it is an estimated figure compiled on an annual basis and, although there has been a decline in the 'tax gap' amount since first recorded in 2005, when it stood at 7.5%, the reduction to 4.8% in 2021/22 still equates to £35.8 billion in absolute terms.HMRC uses various methods to compile information on t...

Partnerships – Cessation on death of a partner

Partnerships exist in either ordinary format or as limited liability partnerships (LLP).An ordinary partnership is legally defined by the Partnership Act 1890 and is commonly chosen to set up a business to be owned by two or more sole traders. The partners share all the risks, costs and responsibilities, as well as the profits. The most important consequence is that each partner is jointly liable for the debts and obligations of the partnership as a whole without limit. Liability is joint in the...