Category: Uncategorised

MTD for Income Tax – A reminder of what’s to come

Due to a lack of updates from HMRC, you would be forgiven for thinking that the brakes had been applied to the rollout of MTD for Income Tax. You would be wrong!

Despite the uncertainty surrounding the implementation of this new digital scheme, HMRC is still pressing ahead. This is what we know so far:

The scheme will apply to self-employed individuals and property landlords.
Phase 1 – from April 2026 – applies to those with an annual income of £50,000 a year or more.
Phase 2 – from April 2027 – applies to those with an annual income between £30,000 and £50,000.
The tax year dates remain unchanged.
MTD for Income Tax also applies to self-employed individuals who must comply with MTD for VAT.

Regardless of which date the taxpayer enters the scheme, the compliance process is as follows:

All income and expense information must be recorded and submitted digitally every quarter using HMRC approved MTD for Income Tax compatible software.

Taxpayers must make any accounting adjustments or allowances to their digital records.
The Final Declaration, which replaces the Self Assessment part of the return, must be filed, and any tax due should be paid by 31 January after the end of the tax year.

No announcements have been made regarding how or when individuals earning less than £30,000 a year or partnerships will be required to join the scheme.

We will let you know if any changes are made to the timings or the eligibility criteria.

Pension tax – what to expect from the new government

It seems likely that the new government will target pension savings in its first Budget. The media is rife with speculation and scaremongering. But what’s really likely to change and how might it affect you?

What are the likely changes?

There have been a number of hints that the Chancellor will announce higher taxes on pension savings in her 30 October Budget. The main targets appear to be: legacy funds in money purchase (MP) schemes (where you or someone else, e.g. your employer, pay into a fund which you can draw from age 55) which haven’t been undrawn when you die; reintroduction of the lifetime allowance (LTA) which caps the amount of funds qualifying for tax relief; and she might also look at reducing tax relief on pension contributions. We’re confident, despite suggestions to the contrary, that she won’t increase the tax rate on pension income.

Pension contribution relief

If you pay into an MP scheme for yourself, you’re entitled to tax relief on the contributions according to the rate of income tax you pay. If you pay higher rate tax (40%) on some of your income, you’re entitled to tax relief equal to 40% of the contributions you pay.

Example.Jack pays £15,000 into his pension in 2024/25. His income for the year is £60,000, of which £50,270 (the standard amount) is either not taxable or is taxable at the basic rate (20%). The balance of £9,730 is taxable at 40%. Jack is entitled to 40% relief on the £9,730 and 20% on £5,270. The net cost of the contribution to Jack is therefore £10,054 ((£9,730 – 40%) + £5,270 – 20%).

Possible change.The suggestion is that the government might change the rate of tax relief to a flat rate of 30%. This would be especially good news for lower earners who don’t pay higher or additional rate tax as they would get extra tax relief, but generally bad news for those who do. Those who only pay higher rate tax on a small amount of their income might still be better off with a 30% flat rate of tax relief.

Tip.Get more tax relief while you can. If you pay higher or additional rate tax on a significant part of your income, consider making a one-off pension contribution before the next tax year, perhaps even before the next Budget.

Reintroduction of the LTA

We think a return of the LTA is unlikely. The list of reasons for this are lengthy and the rules involved tricky. In our view, it wouldn’t bring in a significant enough tax haul for the complications involved.

IHT on legacy funds

The basic principle of a change to inheritance tax (IHT) on legacy funds would be to make any money left in an individual’s MP pension fund when they die liable to IHT. Currently, virtually all such sums are outside a person’s estate and so are not subject to IHT. Changing this might sound like an easy target for the Chancellor, but the tax haul is not as large as you might imagine. Estimates range between £2bn and £4bn over the next few years. One reason for the relatively low tax haul is that currently legacy funds are usually liable to income tax at up to 45% when paid to the deceased’s beneficiaries. This tax would have to be scrapped to prevent double taxation. Also, complex trust laws would have to be overcome. Lastly, the change would also be a disincentive for people to save into pensions, which no government wants. Therefore, we don’t expect anything more than the launch of a consultation in the next Budget.

Higher and additional rate taxpayers could face a reduction in the rate of tax relief they receive on their contributions into money purchase pension schemes. Consider maximising the higher rates of tax relief while you can by making extra contributions before the 2025/26 tax year.

Spring Budget 2024

Chancellor Jeremy Hunt delivered his ‘Budget for Long Term Growth’ on Wednesday 6 March 2024. His speech promised ‘more investment, more jobs, better public services and lower taxes’.

Lowering taxes
The Chancellor made further changes to National Insurance contributions (NICs), following the cuts made in the Autumn Statement 2023. The rates for NICs will be cut further for both employees and the self-employed from 6 April 2024.

We are pleased to enclose a copy of our Spring Budget 2024 which summarises the main points relating to taxation in the Chancellor’s speech.

We hope the summary will provide you with a useful update and allow you to get to grips with the changes. If you have any questions in understanding how the changes to tax affect you, please do get in touch.

The Autumn Statement 2023

On 22 November 2023, Jeremy Hunt delivered the ‘Autumn Statement for Growth’. Against an improving economic backdrop, the Chancellor is keen to stimulate economic growth and highlighted 110 measures for businesses. In addition, there were significant statements relating to National Insurance changes and also the reform of work-related state benefits.

We are pleased to enclose a copy of our The Autumn Statement 2023 which summarises the main points relating to taxation in the Chancellor’s speech.

Spring Budget 2023

Chancellor Jeremy Hunt delivered a ‘Budget for Growth’ after the Office for Budget Responsibility forecast a stronger than expected performance from the UK economy this year with inflation continuing to fall.

Driving business investment

The Chancellor announced a £27 billion transformation of capital allowances from April this year, which will include the Full Expensing of investment in qualifying plant and machinery. There was also a £500 million package for research and development intensive businesses. In addition, Mr Hunt announced 12 Investment Zones across the UK with funding for skills and support.

We are pleased to enclose a copy of our Spring Budget 2023 which summarises the main points relating to taxation in the Chancellor’s speech.

The Autumn Statement 2022

On 17 November 2022, the government undertook the third fiscal statement in as many months, against a backdrop of rising inflation and economic recession. The Chancellor laid out three core priorities of stability, growth and public services. The government sought a balanced path to support the economy and return to growth, partially through public spending restraint and partially through tax rises.

We are pleased to enclose a copy of our The Autumn Statement 2022 which summarises the main points relating to taxation in the Chancellor’s speech.