Eight updates on tax matters from HMRC
HMRC’s Agent Update 89 provides guidance on tax matters covering eight different topics.
1. Employment status guidance for associate dentists to be withdrawn with effect from 6 April 2023.
Where a contract runs either from or over 6 April 2023, associate dentists and their engagers will not be able to rely on ESM4030 to determine the employment status for tax of that contract.
Updates to general Employment Status Manual, and the availability of the Check Employment Status for Tax (CEST) tool have removed the need for much of the traditional occupation specific guidance.
There has been no change in the rules, and removing ESM4030 does not mean HMRC has changed their view on the employment status of associate dentists. Associate dentists, or those who engage with associate dentists, will need to assess employment status in the same way as other customers in the dental sector and elsewhere. Customers can continue to use ESM4030 until it is withdrawn on 6 April 2023. HMRC will not be using the withdrawal of the guidance as a reason to open retrospective enquiries into periods prior to 6 April 2023.
2. Tax avoidance
Anyone employed through agencies and umbrella companies should be careful they’re not getting drawn into tax avoidance. Many umbrella companies are compliant with the tax rules but some use tax avoidance schemes.
Most tax avoidance schemes simply do not work, including those that may claim to be tax efficient or offer to increase your take-home pay. They sometimes carry high, non-refundable fees and are often provided by, or through, offshore promoters.
HMRC launched a tax avoidance don’t get caught out campaign to help agency workers and contractors understand the risks of using tax avoidance schemes and how they could be sold to them.
3. Tax changes for health and social care
National Insurance contributions (NICs) will increase by 1.25% for one year only for employees, employers and the self-employed from April 2022. This will cover both Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) National Insurance Contributions.
From April 2023, a new ringfenced Health and Social Care Levy of 1.25% will be introduced which will apply to those who pay Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) National Insurance Contributions and will also be extended to those over state pension age who are in work. When the new levy comes into effect, National Insurance rates will revert back to current levels.
The levy will also apply to individuals above state pension age with employment income or profits from self-employment above £9,568. The levy will not be charged on pension income, and those over the state pension age who are neither in work nor self-employed.
The levy will be administered by HMRC and collected through the current reporting and collection procedures for National Insurance Contributions, Pay As You Earn and Income Tax Self-Assessment.
Like National Insurance, levy contributions will apply UK-wide: people will pay the same in England, Scotland, Wales and Northern Ireland.
From 2023-24, levy contributions will appear as a separate item on payslips. A generic message may also appear on some payslips in the next tax year (2022-23). For those self-employed individuals who pay National Insurance through the annual Self-Assessment process, the rate increase will first be reported through the 2022-23 tax return in January 2024.
The new levy will first be reported through the 2023-24 tax return in January 2025. The government will also increase by 1.25% from April 2022 the rate of income tax which is paid by people who receive dividend income from shares.
A typical basic rate taxpayer (earning £24,100) will contribute £180 a year. A typical higher rate taxpayer (earning £67,100) will contribute £715 a year.
4. Non-resident Capital Gains Tax (NRCGT) transparency election and partnership returns
Schedule 5AAA Taxation of Chargeable Gains Act (TCGA) 1992 sets out the rules relating to ‘UK property rich’ Collective Investment Vehicles (CIVs) and their investors.
The schedule allows a CIV manager to make a transparency election on behalf of a relevant CIV. Once made, the CIV must file an annual partnership returnin line with paragraph 8(4) of Schedule 5AAA TCGA 1992.
HMRC is aware that, due to the need to include a Self-Assessment Unique Tax Reference number for each partner, several CIVs were unable to file a partnership return for the 2019-20 tax year. HMRC will introduce a temporary process to allow those CIVs to submit the 2019-20 partnership return by the filing deadline.
5. Completing 2021-22 Self-Assessment tax returns for student or postgraduate loan borrowers
In April 2021, the Scottish government launched a new loan product known as Scottish Student Loan (Plan 4). This new plan applies to new and existing borrowers paying back loans from the Student Award Agency for Scotland.
Student and postgraduate loan borrowers who are due to make repayments should include the cumulative amount of deductions from all employments in the appropriate box of their 2021-22 Self-Assessment tax return. The Self-Assessment system will then calculate the student or postgraduate loan deductions using the correct plan or loan type threshold and rate supplied by the Student Loans Company. HMRC is working with software developers to finalise the technical specifications. More information on this product will be included in future updates.
6. Plastic packaging tax: update to guidance
To help businesses prepare for the new plastic packaging tax, the guidance has been updated. It provides more information about:
· the definition of packaging, including examples of items in scope of the tax
· when packaging becomes taxable.
7. Extended Loss Carry Back – claims information for companies
This is a reminder of the availability of the Extended Loss Carry Back measure announced at Spring Budget 2021, enabling companies to make claims to carry back losses for a further two years, than current rules allow.
This temporary extension applies for losses arising in accounting periods ending between 1 April 2020 and 31 March 2022.
Claims that exceed a de minimis of £200,000 must be made in a company tax return. Box 45 (claim or relief affecting an earlier period) on the CT600 should be completed, with details of the carry-back claims included in the computations that accompany the CT600 and accounts.
There is no need to submit amended returns for the earlier periods to which the extended relief applies, as the claims will be treated as amendments to those returns. Amended returns for these periods will be rejected for online submission as, in most cases, they will be out of time for amendment.
A quicker process is now available for claims below the de minimis limit of £200,000 which may be made outside of the company tax return.
VAT reverse charge on construction and building services
VAT registered construction businesses should note that this reverse charge came in on 1 March 2021. In January 2021, a letter was sent to every VAT-registered construction business. This followed letters previously sent out in February and September 2020, advising them to check if they’re liable for the reverse charge. If they’re liable, they need to apply these rules now. The key aspects are:
· it applies to standard and reduced-rated supplies of building and construction services made to VAT registered businesses, who in turn also make onward supplies of those building and construction services
· the contractor is responsible for paying the output VAT due rather than the sub-contractor, and can continue to reclaim this amount as input tax
· the scope of supplies affected is closely aligned to the supplies required to be reported under the Construction Industry Scheme (CIS), but does not include supplies of staff or workers for use by the customer
· the legislation introduces the concept of ‘end users’ and ‘intermediary suppliers’.
This covers businesses or groups of associated businesses that do not make supplies of building and construction services to third parties and, as such, are excluded from the scope of the reverse charge if they receive such supplies. Examples include:
· property developers
· public bodies who are deemed contractors for CIS purposes.
In order to be treated as end users and intermediary suppliers, the customer needs to notify the supplier in writing. This can be done by correspondence or as part of terms and conditions.
HMRC provides opportunities for agents to raise queries about HMRC systems and to report issues that are affecting taxpayers and their clients via the agent forum. Agents can join the agent forum by registering here
Read the full issue of Agent Update 89 now.