from A newsletter for proactive planning... In this edition... How to claim a tax refund Claim the Employment Allowance for 2023/24 Is an alphabet share structure still worthwhile? New corporation tax regime NIC landscape for 2023/24 Client Focus- Marine Concepts March 2023 Issue www.compassaccountants.co.uk
PAGE 2 How to claim a tax refund If you have paid too much tax, you will be able to get a refund from HMRC. The mechanics for obtaining your refund depending on how the overpayment arose. Claims must be made within four years from the end of the tax year to which the refund relates. Self-assessment overpayment If you pay tax under a self-assessment tax return, you may be due a refund if your income has fallen and the payments that you made on account are more than your actual tax liability for the tax year. You can claim a refund when you complete your tax return. You will need to complete the ‘If you have paid too much tax’ section of the return. If you want the refund to go to you, you will need to provide details of your bank or building society account into which you want the refund to be made. Taxpayers without a bank or building society account can opt for a cheque to be sent to them or to a nominee whose details must be provided on the return. Where tax was originally paid by card, HMRC will attempt to pay the refund back to that card before making the payment to a bank or building society account. HMRC ask taxpayers to allow four weeks to receive the payment before contacting them. You can also claim a refund by signing into your self-assessment account online and selecting the ‘request a repayment’ option. Where a claim has been made in the tax return, it is not necessary to claim online. If you have outstanding tax liabilities, any overpayment will first be set against these liabilities before a refund is made. PAYE overpayment If you pay tax under PAYE, for example, on income from employment or a pension, an overpayment may arise if your tax code is incorrect if you worked at the start of the tax year but did not work for the full tax year. If you have paid too much (or too little) tax, HMRC will send you a tax calculation letter (P800). If the letter indicates that you are owed a tax refund, you will be to claim the refund either online via the Gov.uk website or through the HMRC app. A claim can be made online by signing into your personal tax account, selecting ‘Claim a refund’ and following the instructions. A refund can also be claimed via the HMRC app. To do this log into the app and select PAYE, which will show a summary of your tax position. If you are due a tax refund, the summary will show the amount of tax that HMRC owes you. You can make a refund claim by clicking the ‘Claim a refund’ button and following the instructions. The repayment should be made within two weeks. However, if you have not received it in this time frame, HMRC asks that you wait four weeks before contacting them. Interest HMRC will pay interest on the overpaid tax from the date of payment to the date of refund. The rate is set at the base rate of less than 1% (subject to a minimum rate of 0.5%). From 21 February 2023, the repayment interest rate is 3%. Beware of refund scams Fraudsters may send scam texts or emails that promise tax rebates to trick people into providing their bank details. HMRC does not contact taxpayers by text or email to advise them that they are due a refund. If you think you are due a refund, check either your personal tax account or the app, and where one is due, claim through the correct channels.
PAGE 3 Claim the Employment Allowance for 2023/24 The Employment Allowance is an allowance that eligible will need to pay the secondary Class 1 National Insurance employers can claim to set against their secondary (employer’s) Class 1 National Insurance liability. The employment allowance is set at £5,000 for 2023/24, capped at the employer’s secondary Class 1 National Insurance for the year where this is less. It is not given automatically and must be claimed. Eligible employers The National Insurance Employment Allowance is only available to eligible employers. An employer can claim the allowance for 2023/24 if their employer’s Class 1 National Insurance liabilities in 2022/23 were less than £100,000, provided that the employer is not otherwise excluded. Where the employer is part of a group, the £100,000 limit applies to the group as a whole. Likewise, where the employer runs more than one payroll, the total employer’s Class 1 National Insurance liabilities across all the payrolls must be less than £100,000 for 2022/23. Certain categories of employers are not able to claim the Employment Allowance even if their employer’s Class 1 National Insurance bill for 2022/23 was less than £100,000. This includes companies where the sole employee is also a director (ruling out most personal companies) and public bodies. Making a claim The employment allowance is not given automatically, and employers must claim it. The claim is made through the employer’s payroll software. If the employer uses HMRC’s Basic PAYE Tools package or a claim cannot be made through the employer’s payroll package, this can be used to make the claim. The claim is made in an Employer Payment Summary (EPS) by selecting ‘yes’ for the ‘Employment Allowance indicator’ field. If an employer is no longer eligible for the allowance or a claim has been made in error, the employer should enter ‘no’ in the ‘Employer Allowance indicator’ field when submitting their next EPS. If a claim is stopped before the end of the tax year, any Employment Allowance that has already been given will be clawed back, and the employer previously sheltered by the allowance. Claims can be made for the previous four tax years. Using the allowance Once the allowance has been claimed it will be set against the employer’s secondary Class 1 National Insurance liability until it is used up, reducing the amount that the employer has to pay. Where the allowance has not been fully utilised by the end of the tax year because the employer’s Class 1 National Insurance liability for the year is less than £5,000, the remaining allowance is lost; it cannot be carried forward to the next tax year or set against Class 1A or Class 1B liabilities.
PAGE 4 Is an alphabet share structure still worthwhile? In an alphabet share structure, each shareholder has a different class of share. For example, one shareholder may have A ordinary shares, another B ordinary shares, another C ordinary shares, and so on. The benefit of an alphabet share structure is that it provides the flexibility to tailor dividends to take account of the shareholder’s personal circumstances. Under company law, dividends must be paid in proportion to shareholdings. Having an alphabet share structure overcomes this restriction and is popular in family companies. Utilising the dividend allowance One advantage of an alphabet share structure is that it allows dividends to be paid to a shareholder who may work outside the family company but who has not fully used their dividend allowance for the tax year. The available dividend allowances can be utilised to increase the profits that can be extracted tax-free. However, the dividend allowance is being reduced, curtailing the opportunities to extract tax-free profits in this manner. The dividend allowance was set at £2,000 for 2022/23. It is reduced to £1,000 for 2023/24 and to £500 for 2024/25. Thus, in a family company with four shareholders, it was possible to extract £8,000 of profit tax-free by making use of the shareholders’ dividend allowance in 2022/23. By 2024/25, it will only be possible to extract £2,000 of profit tax-free in this way. Using lower tax bands Although the reduction in the dividend allowance reduces the potential to extract profit free of further tax, having an alphabet share structure in place may still be beneficial if the shareholders have different marginal rates of tax, allowing dividends to be tailored so that they are taxed at the lowest possible rate. For 2023/24 dividends are taxed at 8.75% where they fall in the basic rate band, at 33.75% where they fall in the higher rate band and at 39.35% where they fall in the additional rate band. Example Albert, Betty, and Charlotte are shareholders in ABC Ltd. Albert has 100 A ordinary shares, Betty has 100 B ordinary shares and Charlotte has 100 C ordinary shares. For 2023/24 the company has profits of £45,000 that they wish to extract. Albert has another job and is an additional rate taxpayer. Betty has an income from property of £35,270 a year and Charlotte has an income of £20,270 from her part-time job. They all have their dividend allowance available. To minimise the tax payable, the company declares a dividend of £10 per share for A ordinary shares, a dividend of £150 per share for B ordinary shares and a dividend of £290 per share for C ordinary shares. Albert receives a dividend of £1,000. This is sheltered by his dividend allowance and is tax-free. Betty receives a dividend of £15,000 of which £1,000 is sheltered by her dividend allowance and is tax-free. The remaining £14,000 is taxable at the dividend ordinary rate of 8.75% (a tax bill of £1,225), which uses up her remaining basic rate band. Charlotte receives a dividend of £29,000 of which £1,000 is sheltered by her dividend allowance and received taxfree. The remaining £28,000 falls within her basic rate band and is taxed at 8.75% (a tax bill of £2,450). The total tax bill is £3,675. Had each taxpayer received a dividend of £15,000, the total tax bill would have been £7,959. Albert would pay tax on £14,000 of his dividend at 39.35% and Betty and Charlotte would each pay tax at 8.75% on £14,000 of their dividend. The remaining £1,000 of each dividend would be sheltered by the dividend allowance. By having an alphabet share structure, they can tailor the dividends to reduce the total tax bill by £4,284.
PAGE 4 PAGE 5 New corporation tax regime Changes to the corporation tax regime come into effect from 1 April 2023 – the start of the financial year (FY) 2023. From that date there will no longer be a single rate of corporation tax; rather, the rate at which a company pays tax on its profits will depend on the level of those profits. Small profits rate the same), the formula can be simplified to: F x (U – N) Example A company prepares accounts to 31 March each year. For the year to 31 March 2024, it has taxable profits of £120,000. It did not receive any qualifying exempt distributions. Companies whose taxable profits are below the lower limit continue to pay tax on those profits at the rate of 19%. The lower limit is set at £50,000 for a stand-alone company. It must pay tax of £30,000 (£120,000 @ 25%) less marginal relief. As the company has no qualifying exempt distributions, the simplified marginal relief calculation can be used. Main rate The marginal relief is therefore 3/200 (£250,000 £120,000) = £1,950. The company’s corporation tax bill is therefore £28,050 (£30,000 – £1,950), an effective rate of 23.375%. Companies with profits above the upper profits limit will from 1 April 2023 pay corporation tax at the main rate of 25% on those profits. The upper limit is set at £250,000 for a stand-alone company. Availability of marginal relief Where a company’s profits fall between the lower and upper limits (£50,000 and £250,000 for a stand-alone company), corporation tax is charged at the rate of 25% as reduced by marginal relief. This gives an effective rate of between 19% and 25% depending on where in the band the profits fall. Marginal relief is calculated by the following formula: F X (U – A) x N/A Where: F is the standard marginal relief fraction U is the upper limit A is the amount of augmented profits N is the amount of the taxable profits. For the financial year 2023, the marginal relief fraction is 3/200. Augmented profits are total taxable profits plus qualifying exempt distributions that are received from companies that are not 51% subsidiaries or owned through a consortium. Where the company has no qualifying exempt distributions (so that A and N in the above formula are Associated companies and short accounting periods If a company has associated companies, the lower and upper limits are divided by the number of associated companies plus one. The following table shows the lower and upper limits for companies with between zero and five associates. Number of associates 0 1 2 3 4 5 Lower profits limit £50,000 £25,000 £16,667 £12,500 £10,000 £8,333 Upper profits limit £250,000 £125,000 £83,333 £62,500 £50,000 £41,667 The limits are also proportionately reduced if the accounting period is less than 12 months. Accounting period straddling 1 April 2023 Where the accounting period straddles 1 April 2023, the profits must be apportioned. Those relating to the period before 1 April 2023 are taxed at 19%, whereas those relating to the period on or after 1 April 2023 are taxed according to the rules set out above, prorating the limits accordingly.
PAGE 6 NIC landscape for 2023/24 As far as National Insurance was concerned, the 2022/23 tax year was a tricky one featuring in-year changes to the primary threshold and in-year changes to the Class 1, 1A, 1B and 4 rates. This resulted in some strange numbers, with average rates applying for the purposes of Class 1A, Class 1B and Class 4 contributions. Average rates are also applied for Class 1 purposes to company directors who have annual earnings periods. Hopefully, 2023/24 will be more straightforward. At the moment, the NIC landscape for 2023/24 looks as follows. Employees and employers: Class 1 The Class 1 thresholds remain unchanged for 2023/24 and are as shown in the table below. National Insurance thresholds for 2023/24 Threshold Lower earnings limit Primary threshold Secondary threshold Upper earnings limit Upper secondary threshold for under 21s Apprentice upper secondary threshold Veterans’ upper secondary threshold Freeport upper secondary threshold Weekly £123 £242 £175 £967 £967 £967 £967 £481 Monthly £533 £1,048 £758 £4,189 £4,189 £4,189 £4,189 £2,083 Annual £6,396 £12,570 £9,100 £50,270 £50,270 £50,270 £50,270 £25,000 Employees will pay contributions at the main rate of 12% on earnings between the primary threshold and the upper earnings limit and at the additional primary rate of 2% on earnings above the upper earnings limit. Employees with earnings between the lower earnings limit and the primary threshold are treated as paying contributions at a notional zero rate, giving them a qualifying year for state pension purposes for zero contribution cost. The employer pays secondary contributions at the secondary rate of 13.8% on the employee’s earnings where these exceed the secondary threshold or, as appropriate, the relevant upper secondary threshold. The Employment Allowance remains at £5,000 for 2023/24. Employers: Class 1A Class 1A National Insurance contributions are payable by employers only on most taxable benefits in kind, and also on taxable termination payments over the £30,000 threshold and taxable sporting testimonials over the £100,000 threshold. The Class 1A rate is aligned with the secondary Class 1 rate and is set at 13.8% for 2023/24. CONT ON PG 7
PAGE 7 Employers: Class 1B Class 1B National Insurance contributions are also employee-only. They are payable on items included in a PAYE Settlement Agreement (PSA) in place of Class 1 or Class 1A liabilities that would otherwise arise, and also on the tax due under the PSA. As with Class 1A, the Class 1B rate is aligned with the secondary Class 1 rate, set at 13.8% for 2023/24. Self-employed: Class 2 Class 2 contributions are how the self-employed build up entitlement to the state pension. For 2023/24, Class 2 contributions are payable at £3.45 per week where profits exceed the lower profits threshold of £12,570. Where contributions are between the small profits threshold of £6,725 and the lower profits threshold, the selfemployed earner is treated as making contributions at a zero rate, securing a qualifying year for zero contribution cost. Where profits are below the small profit’s threshold, Class 2 contributions can be paid voluntarily. This is a cheaper option than making Class 3 contributions. Self-employed: Class 4 The self-employed also pay Class 4 contributions on their profits. These contributions do not secure any benefit entitlement and are more akin to a tax. For 2023/24, Class 4 contributions are payable at the main rate of 9% where profits are between the lower profits limit of £12,570 and the upper profits limit of £50,270, and at the additional Class 4 rate of 2% on profits over the upper profits limit. Voluntary contributions: Class 3 An individual can pay voluntary Class 3 contributions to make up for gaps in their National Insurance record. For 2023/24, the Class 3 rate is £17.45 per week.
PAGE 8 Client Focus- Marine Concepts Add a heading In this Client Focus feature, we catch up with Jason Stubington the Managing Director of Marine Concepts… Marine Concepts is a manufacturing company that produces fibre glass and carbon fibre components for luxury yachts. As one of the most respected, large capacity, full-service providers in the industry, the business creates quality solutions that range from pattern and mould making, to component build and finish. The company boasts a range of clients, but the largest and most prominent is Sunseeker – the world’s leading brand for luxury performance yachts. Where it all began ... The business began back in 1998, when founding partners Terry Stubington and Peter Hill launched from a small workshop. The high standard of quality in their work was soon widely recognised, and although much has changed over the years, these underlying principles remain. Now, operating from two sites – (the main one being the Dunning Building, a 60,000 sq. ft refurbished aircraft hangar in Lee on Solent)- the business continues to expand, currently employing as many as 90 people across two premises. Very much a family business¸ Peter and Terry’s family are now operating at the helm, with the two founders taking a back seat, whilst allowing the second generation to take the business forward. Jason Stubington, (son of Terry), joined the company back in 2011. “After studying, my dad asked me if I’d like to join the company- it seemed too good an opportunity to pass up,” said Jason, who now leads the company as it’s Managing Director. “We are very much a family business, as my brother Lewis also joined from school and is now the Plug & Mould Production Manager. Peter’s son Mike also works the firm as the Project Manager. We all bring our different skills, attributes, and backgrounds to the business, which is great.” Humble beginnings- the first premises in 1998 The facilities The nature of Marine Concepts’ work demands a very large facilities to create and store the moulds that may be used over again to make hundreds of parts. “We need to ensure that the moulds are really well maintained and safely stored to guarantee that imperfections and rework are kept to a minimum.” said Jason. “Once a component is de-moulded, we also need the space to finish the part which involves a lot of sanding and polishing to take it up to the superior finish that you would expect to see on a superyacht. We usually keep each mould for the lifespan of the particular boat model, so you can imagine the size requirements we need, in terms of our premises.” Creating the mould is also labour intensive, but via sister company, MCS Ltd the company owns and operates two CONT ON PAGE 9
PAGE 9 large 5 axis CNC milling machines, the biggest of which has a volumetric cutting space of 1,260 meters cubed – the largest of its type in the UK. “In 2020 we bought and refurbished the Dunning Building, and it is perfect for our needs as well as securing our long-term future. And, as an old aircraft hangar active in World War II, it’s also quite a historical landmark in Lee on Solent. We are very proud of the history and as a nod to its heritage we kept the original building name." The Dunning Building "Its proximity is also a great asset to us as we have a dedicated slipway straight down to the sea. Some of our products are too big to be transported by road, and so we have previously loaded products onto a barge with a crane. Using the sea means there’s no limit on the size of the moulds we can create, and this is a huge USP for us as a business.” A sustainable future As Marine Concepts approaches its 25th anniversary, the company continues to build on its premises. “The Overlord Hanger adjacent to the Dunning Building has recently been The Dunning Building in 1943 demolished and we have planning permission to put up a new building.” said Jason. “This new building will provide improved conditions and allow us to change many of our manufacturing methods. This will, not only enhance our production techniques, but most importantly, it will allow us to become a lot more sustainable in our practice. When it comes to sustainability, the marine industry has some catching up to do, but it is happening gradually. We want to be ahead in terms of our sustainable approach and are looking at cleaner manufacturing methods. We are already working with our customers to drive these new sustainable methods forward and will be one of the leading companies to do this in the UK. The new facilities will allow us to do this.” Marine Concepts is planning a staff and family celebration in July on the Dunning premises to mark 25 years in business.
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