from A newsletter for proactive planning... In this edition... May 2023 Issue Pension changes Mileage allowances – What can you pay tax-free? Capital gains tax on separation and divorce Full expensing for companies Beware of gift aid clawback www.compassaccountants.co.uk
PAGE 2 Pension Changes In his March Budget, the Chancellor announced a number of changes to the pension tax rules, including an increase in the annual allowance and the abolition of the lifetime allowance. Lifetime allowance The lifetime allowance places a cap on lifetime taxrelieved pension savings. It is set at £1,073,100. If taxrelieved pension savings exceeded the lifetime allowance, a tax charge applied for 2022/23 and earlier tax years. The Annual allowance charge was set at 55% of the excess where this was taken The annual allowance places a cap on tax-relieved pension as a lump sum and at 25% of the excess where it was taken savings. Individuals can obtain tax relief on contributions to as a pension. The lifetime allowance charges are abolished a registered pension scheme of up to 100% of their from 6 April 2023. Legislation in a future Finance Bill will earnings or, if greater, £3,600 as long as their available abolish the lifetime allowance. This paves the way for annual allowance is sufficient to cover their contributions. individuals whose pension pot has reached £1,073,100 to Employer contributions are not subject to the earnings start making pension contributions again. limit, but they do count towards the annual allowance. The annual allowance is increased to £60,000 from As a result of these changes, a cap is placed on the amount £40,000 for the 2023/24 tax year. that can be taken as a tax-free lump sum. This is now 25% of the pension pot or, where lower, £268,275. The figure Unused allowances can be carried forward for up to three of £268,275 is 25% of the lifetime allowance of years. However, the current year’s allowance must be used £1,073,100. before utilising unused allowances from earlier years. Money purchase annual allowance The money purchase annual allowance (MPAA) is a lower Annual allowance taper annual allowance that applies where a person has flexibly High earners have a reduced annual allowance. The taper accessed their pension pot having reached the age of 55. applies where threshold income exceeds £200,000 and adjusted net income exceeds £260,000. Threshold income The MPAA is set at £10,000 for 2023/24. is, broadly, income excluding pension contributions, whereas adjusted net income includes pension contributions. The taper reduces the annual allowance by £1 for every £2 by which adjusted net income exceeds £260,000 until the minimum amount of the allowance is reached. For 2023/24, this is set at £10,000. Consequently, individuals with threshold income of at least £200,000 and adjusted net income of at least £360,000 will only receive the minimum allowance of £10,000 for 2023/24. For 2020/21 to 2022/23 inclusive, the taper applied where adjusted net income exceeded £240,000 and threshold income exceeded £200,000, reducing the allowance by £1 for every £2 by which adjusted net income exceeded £240,000 until the minimum allowance of £4,000 was reached.
PAGE 3 Mileage allowances – What can you pay tax-free? Employees often need to undertake business trips and it is common practice to reimburse the employee’s fuel costs by means of a mileage allowance. The tax rules allow mileage payments to be made tax-free up to certain limits. However, the rules are different depending on whether the employee is driving their own car or a company car. Employees using their own cars If an employee uses their own car for business, you can pay mileage allowances tax-free up to the ‘approved amount’. This is set for the tax year, rather than for each individual journey, and is found by multiplying the business mileage in the tax year by the approved mileage rate. For cars and vans, the approved mileage rate is set at 45p per mile for the first 10,000 business miles in the tax year and at 25p per mile for any further business miles. For motorcycles, the rate is 24p per mile and for cycles the rate is 20p per mile. The approved amount is the maximum amount that can be paid tax-free, even if the actual cost exceeds the approved amount. Example An employee drives 12,000 business miles in the tax year using his own car. The maximum that can be paid tax-free is £5,000 (10,000 miles @ 45p per mile plus 2,000 miles @ 25p per mile). If the amount that is paid is less than the approved amount, the employee can claim tax relief for the difference between the approved amount and the mileage allowance paid, if any. If the employee gives a lift to one or more colleagues, you can also make a tax-free passenger payment of 5p per passenger per business mile. There is no corresponding relief if you choose not to make passenger payments. Company car drivers If an employee has a company car but pays for the fuel, you can meet the cost of business mileage tax-free, as long as the amount paid does not exceed the current advisory fuel rate. The advisory fuel rates are set by HMRC and are updated quarterly. They are lower than the approved mileage rates because the approved rates also reflect depreciation and running costs, as well as the cost of the fuel. By contrast, the advisory rates are fuel-only rates. The advisory rates applying from 1 March to 31 May 2023 are as shown in the table below. Engine size 1,400cc or less 1,401cc to 2,000cc Over 2,000cc Engine size 1,600cc or less 1,601cc to 2,000cc Over 2,000cc Petrol - Rate per mile 13p 15p 23p LPG Rate per mile 10p 11p 17p Diesel - Rate per mile 13p 15p 20p If the employee drives an electric company car, you can pay a mileage rate of 9 pence per mile tax-free.
PAGE 4 Capital gains tax on separation and divorce Spouses and civil partners enjoy certain tax breaks, including the ability to transfer assets between them at a value that gives rise to neither a gain nor a loss. Prior to 6 April 2023, a couple are only able to benefit from no gain/no loss transfers until the end of the tax year in which they separate. However, from 6 April 2023, the rules are relaxed in certain situations. New three-year rule The window during which separating and divorcing couples are able to transfer assets between them at a value that gives rise to neither a gain nor a loss is extended. From 6 April 2023, separating and divorcing couples will have up to three years from the tax year in which they cease to live together to make no gain/no loss transfers. The no gain/no loss rule will continue to apply until the earlier of: ·the end of the third tax year following that in which the couple cease to live together; or ·the day on which the court grants an order or decree for their divorce, the annulment of their marriage, the dissolution or annulment of their civil partnership, their judicial separation or a separation in accordance with a separation order. It should be noted that while making a no gain/no loss transfer prevents a chargeable gain arising on the transferor spouse/civil partner, the transferee assumes the transferor’s base cost. The gain at the date of disposal is effectively transferred to the transferee spouse/civil partner and will crystallise when they dispose of the asset. This may not be what they want. Assets forming part of a formal divorce agreement From 6 April 2023, assets that form part of a formal divorce agreement can be transferred between the former spouses/civil partners on a no gain/no loss basis without time limit. Matrimonial home and private residence relief The rules on the availability of private residence relief where a person disposes of a retained interest in their former main home in which their former spouse or civil partner continues to live have been amended. From 6 April 2023, where one partner transfers their share of the former matrimonial home to their former spouse/civil partner but under an agreement is entitled to receive a share of the profit made on the eventual disposal of the property, they will be entitled to private residence relief in the same proportion that qualified for relief on the original disposal to their former partner. Where the original disposal was made on a no gain/no loss basis, private residence relief is available for the proportion of the gain that qualified for the no gain/no loss treatment.
PAGE 5 Full expensing for companies The super-deduction, which allowed companies to claim an immediate deduction of 130% of their qualifying expenditure, came to an end on 31 March 2023. It was replaced with full expensing. As with the super-deduction, unincorporated businesses cannot benefit from full expensing (although the Annual Investment Allowance (AIA) will secure a 100% deduction for qualifying expenditure up to the annual AIA limit of £1 million). Nature of full expensing Full expensing allows companies to claim, in the form of a capital allowance, immediate relief for the full amount of qualifying capital expenditure. Although at a rate of 100% of qualifying expenditure, the rate of relief is the same as under the AIA, unlike the AIA, there is no cap on the amount of the expenditure which can benefit. As with its predecessor, the availability of full expensing is time-limited – it only applies to qualifying expenditure which is incurred in the three-year period from 1 April 2023 to 31 March 2026. Expenditure is eligible for full expensing if it would otherwise qualify for main rate writing down allowances and is not excluded expenditure. The main category of excluded expenditure is that on cars (although a 100% first-year allowance is available for expenditure on new zero emission cars). Full expensing will benefit companies making significant capital investment in excess of the £1 million limit applying under the AIA. It can be used instead of the AIA to leave the AIA limit free for use against qualifying expenditure that would otherwise qualify for special rate writing down allowances. As with other capital allowances, full expensing is optional and must be claimed. Balancing charges will apply if the asset is sold, the disposal proceeds being brought into account. Consequently, if the intention is only to keep the asset for a short time and to dispose of it before it has lost much of its value, it may be preferable to claim writing down allowances instead to avoid a clawback of the relief in the not-too-distant future. 50% first-year allowance A 50% first-year allowance was introduced alongside the super-deduction. It allowed companies to claim an immediate 50% deduction for expenditure that would otherwise qualify for special rate writing-down allowances (such as that on thermal insulation). The 50% first-year allowance has been extended and is now available without limit for qualifying expenditure incurred in the three-year period from 1 April 2023 to 31 March 2026. As with full expensing, the 50% first-year allowance is not available to unincorporated businesses. The 50% first-year allowance will be useful where the AIA limit of £1 million has already been used up. If some or all of the AIA limit remains available, this should be used first as it will provide a higher rate of relief. Claims for the 50% first-year allowance are optional. Where the allowance is claimed, the balance of the expenditure is allocated to the special rate pool and relieved by writing down allowances (at the rate of 6% on a reducing balance basis) in subsequent years. Annual Investment Allowance The AIA limit of £1 million has now been made permanent.
PAGE 6 Beware of gift aid clawback Changing personal circumstances may mean that individuals who were previously taxpayers find that they are now non-taxpayers. If they are in the habit of making charitable donations under gift aid, they need to tread carefully to avoid an unwanted bill from HMRC. Nature of gift aid Donations made by individuals to charities or to community amateur sports clubs qualify for tax relief. Where the donation is made under gift aid, the amount donated by the individual is treated as made net of basic rate tax; the charity claims the associated tax back from HMRC. This means that every £1 donated by an individual under gift aid is worth £1.25 to the charity – the charity receives £1 from the individual and claims 25p from HMRC. If the individual is a higher or additional rate taxpayer, they can claim additional tax relief (equal to the difference between their marginal rate of tax and the basic rate) through their personal tax return. For example, for every £1 donated by a higher rate taxpayer (equivalent to a gross donation of £1.25), a higher rate taxpayer can claim an additional 25p of relief through their tax return, while an additional rate taxpayer can claim further relief of 31.25p for every £1 donated. When making a gift aid declaration, the individual must confirm that they are a UK taxpayer. Have you paid enough tax? Your donations will qualify for gift aid as long as the donation is not more than four times the tax that you have paid in the tax year in question. Both income tax and capital gains tax count. The amount reclaimed by the charity is funded from the tax that you have paid. If you have not paid sufficient tax to cover the tax reclaimed by the charity under gift aid, HMRC may seek to recover the amount due from you. This will mean that each £1 donation wrongly made under gift aid will cost you £1.25. Review declarations If you have gift aid declarations in force covering ongoing donations, you should review these if your income falls to ensure that you are paying sufficient tax to cover that reclaimed on your donations. If you cease to be a UK taxpayer, you should cancel all gift aid declarations and remember not to add gift aid to any future donations.
PAGE 7 TAX DIARY MAY 2023 1 May 2023- Payment of corporation tax liabilities for accounting periods ended 31 July 2022 for small and medium-sized companies not liable to pay by instalments. & -New VAT fuel scale charges apply. 3 May 2023- Filing date for printed form P46 (Car) for quarter ended 5 April 2023. 7 May 2023- Electronic filing and payment of VAT liability for quarter ended 31 March 2023. 14 May 2023- Quarterly corporation tax instalment for large companies (depending on accounting year end). 19 May 2023- Payment of PAYE/National Insurance contributions/construction industry scheme/student loan payment liabilities for month ended 5 May 2023 if not paying electronically. & -File monthly construction industry scheme return. 21 May 2023 - File online monthly EC sales list – only relevant for a business based in Northern Ireland selling goods. Submit supplementary intrastat declarations for April 2023 – arrivals only for a GB business, arrivals and despatch for a business in Northern Ireland. 22 May 2023- PAYE, NIC, CIS and student loan should have cleared HMRC’s bank account. 31 May 2023- Employees at 5 April 2023 and from whose pay tax was deducted should have received form P60 from their employers. Companies House should have received accounts of private companies with a 31 August 2022 year end and public limited companies with a 31 November 2022 year end. HMRC should have received corporation tax self-assessment returns for companies with accounting periods ended 31 May 2022. For further information on any of the stories in this month’s newsletter, or for any other matter that Compass Accountants can assist you with, please contact us on 01329 844145 or contact@compassaccountants.co.uk To subscribe to the newsletter, so that each edition is delivered to your inbox, go to www.compassaccountants.co.uk and add your contact details. Compass Accountants, Venture House, The Tanneries, East Street, Titchfield Hampshire. PO14 4AR
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