Ashraf and Co

Tax Year-End Tips – Act Before 5 April!
The 2024–25 tax year ends Saturday, 5 April. It’s your last chance to use up allowances and save on tax.
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Top 5 Year-End Planning Tips

1. Use Your Pension Allowance
• You can put up to £60,000 (or your earnings, whichever is lower) into your pension and get tax relief.
• High earners: £60k pension contribution could cost only £36k after tax relief.
• Carry forward unused allowances from the last 3 years — up to £200,000 total if you qualify.

2. Pay into a Partner’s or Child’s Pension
• Put up to £2,880 into a spouse’s or child’s pension — the government tops it up to £3,600.
• Great for non-working spouses or starting early for kids (via a Junior SIPP).

3. Check for Extra Pension Tax Relief
• You might need to claim extra tax relief if you're a higher or additional rate taxpayer.
• Use self-assessment to get it back if it’s not done automatically.
• Depends on how your pension is set up (e.g. relief at source, salary sacrifice).

4. Max Out Your ISA
• You can save up to £20,000 in an ISA — all income and gains are tax-free.
• ISAs can help reduce your retirement tax bill and give flexible access.

5. Top Up National Insurance (NI) for Full State Pension
• If you're eligible, you can fill gaps in your NI record back to 2006 — but only until 5 April 2025.
• After that, you can only go back 6 years.
• Check your State Pension forecast online, then speak to the Future Pension Centre if needed.

Starting in the 2027-28 tax year, up to 300,000 people who earn money from side hustles (like selling clothes online, dog-walking, or content creation) will no longer need to file a self-assessment tax return. This is because the UK government is raising the annual tax reporting threshold from £1,000 to £3,000.

However, tax will still be due on earnings above £1,000, but HMRC is developing a new online system to make it easier to report and pay.

At the same time, HMRC is launching a dedicated service for accountants and tax agents to help resolve tax queries that have been stuck for over four weeks.

This change aims to simplify tax filing for small earners and reduce the number of people needing to complete tax returns, though some experts believe further reforms are needed.

Summary of the Tribunal Decision (Case TC09443)
Case Overview:
Sammy Garden Limited (SGL) appealed against HMRC’s decision on VAT liability. The main dispute was whether SGL should pay VAT from its Effective Date of Registration (EDR) (9 March 2021) or from the date it received its VAT Registration Number (27 July 2021).

Key Facts:

SGL was incorporated on 9 March 2021, taking over a landscape gardening business.
The VAT registration application (VAT1 form) submitted on 20 May 2021 indicated 9 March 2021 as the EDR.
HMRC processed the application and issued the VAT Registration Number (VRN) on 27 July 2021.
Between 9 March 2021 and 31 August 2021, SGL made taxable sales of £176,070.
SGL’s first VAT return (submitted in January 2022) claimed a VAT credit of £2,183.16, but HMRC assessed an additional £19,400.84 VAT due.
Tribunal Decision:

VAT liability starts from the EDR (9 March 2021), not from when the VRN was issued.
Businesses cannot issue VAT invoices before receiving a VRN, but they must still account for VAT on sales from the EDR.
HMRC’s actions were legally correct, and SGL’s claim that backdating VAT invoices is unlawful was incorrect.
The tribunal dismissed SGL’s appeal, meaning the company remains liable for £19,400.84 in VAT.

Inheritance tax

–The IHT threshold of £325k to remain until 2030.

–From April 2027, inherited pensions are subject to IHT.

–From April 2026, agricultural property relief and business property relief will be reformed, with the highest rate of relief remaining at 100% for the first £1m of combined business and agricultural assets on top of the existing nil-rate bands. The rate of relief will reduce to 50% after the first £1m.

–Offshore trusts will no longer be able to shelter assets from IHT, and there will be transitional arrangements for people who have made plans based on current rules.

Capital gains tax

–CGT rates will increase from 10% to 18% for basic rate taxpayers, and from 20% to 24% for higher rate taxpayers, matching existing rates for property which stay the same. Rates on chargeable gains from selling additional property remain unchanged at 18% and 24%, respectively.

–Business asset disposal relief will remain at 10%, before rising to 14% on 6 April 2025, and 18% from 6 April 2026.

–The tax treatment of carried interest will be reformed by increasing CGT rates on carried interest to 32% and then, from April 2026, moving to a revised regime.

Stamp duty land tax

–The higher rate for additional dwellings surcharge of SDLT in England and Northern Ireland will rise from 3% to 5%, from 31 October 2024.

Budget update: Income tax and National Insurance

–The income tax and NIC thresholds in England and Wales will remain frozen until the end of 2027–28, when they will begin to rise in line with inflation.

–Rates of income tax and NICs paid by employees will remain unchanged.

–Employers’ NICs will rise from 13.8% to 15% on a worker's earnings above £175 from April 2025, and the threshold at which employers start paying the tax on each employee’s salary will be reduced from £9,100 a year to £5k.

–The employment allowance will increase from £5k to £10,500.

HMRC is warning companies against using a tax avoidance scheme involving limited liability partnerships (LLPs). The scheme, known as "The Partnership Model," aims to reduce taxes by disguising employees' wages as payments through an LLP, instead of paying standard employment taxes.

Here's how it works: an employee's contract is changed, and they are paid through a newly created LLP. Although the setup makes it seem like they’re no longer employed in the traditional sense, the employee's pay and role remain essentially the same. This arrangement avoids paying income tax and National Insurance, which HMRC considers tax avoidance.

HMRC advises companies to avoid these schemes, as they don't work legally and can lead to penalties, unpaid taxes, and potential legal issues. Employees should seek independent tax advice if involved and exit the scheme as soon as possible to minimize financial risks.

HMRC has identified a tax avoidance scheme called "The Partnership Model," aimed at companies with employees to reduce tax and National Insurance payments. The scheme claims to work by setting up a Limited Liability Partnership (LLP) for employees, disguising their earnings as partnership income instead of employment income to lower the company’s tax liability.

How the Scheme Works:

Employees sign various agreements that may change or end their employment in exchange for compensation.
An LLP is formed, and the compensation is considered a capital contribution to the LLP.
Employees supposedly receive the same pay as before, but through the LLP.
However, tax and National Insurance contributions are not actually paid to HMRC, even if payslips suggest otherwise.
HMRC considers this scheme ineffective; it treats payments from the LLP as taxable employment income. Users of the scheme should exit it and resolve their tax obligations to avoid interest, penalties, and investigation costs.

For Promoters: Those who market or enable the scheme face penalties for non-disclosure and potential legal actions under tax avoidance regulations.

If you suspect involvement in such schemes, you can report it anonymously to HMRC.

VAT Changes for Private Schools:

Starting from 30 October 2024, private schools will need to charge VAT (20%) on school and boarding fees for terms beginning on or after 1 January 2025. This guide explains how VAT will apply to various fees, goods, and services in private schools.

Key Points:
School Fees: VAT will be added to the total amount paid for a student's education, including payments from parents and any external bursaries.

Supplies with Other Services: If the school charges for education and other services (like meals or transport) as a single package, VAT will apply to the whole package. Separate charges for additional services may have different VAT treatments.

Welfare Services: If education is the primary service, any related welfare (like care during school) will be treated as a single educational service for VAT purposes.

Bursaries and Grants: VAT will apply to the entire fee amount even if part of it is covered by a bursary. Grants that are not linked to specific pupils may not be subject to VAT.

Boarding Fees: Fees for living in school accommodation will also be subject to VAT.

Exemptions: Some items, such as classroom supplies necessary for education, remain VAT-exempt. Nursery classes with only young children may also be exempt.

Local Authority Placements: When a local authority funds a student's place, VAT will be due on the fees, but local authorities can reclaim the VAT.

Reclaiming VAT: Schools can reclaim VAT on purchases related to taxable supplies but will need to calculate how much VAT can be reclaimed due to partial exemptions.

Personal Allowances: adjusted net income:
What is Adjusted Net Income?
Adjusted net income is your total income before any tax-free allowances, minus certain deductions. These deductions can include things like donations to charity through Gift Aid, trading losses, and certain pension contributions.
When does it matter?
Your adjusted net income can impact your taxes in two main cases:
1. If your adjusted net income is over £100,000, your tax-free Personal Allowance starts to reduce.
2. If it’s over £60,000, you may have to pay the High Income Child Benefit Charge.
How to calculate it:
1. Start with your net income: This includes income from jobs, pensions, rental properties, savings interest, and self-employment, minus any allowable deductions.
2. Subtract Gift Aid donations: If you donated through Gift Aid, reduce your net income by the donation amount plus basic rate tax (e.g., £1.25 for every £1 donated).
3. Subtract certain pension contributions: If you made pension contributions where basic tax relief was already applied, subtract the contribution plus basic tax (again, £1.25 for every £1 contributed).
4. Add back tax relief for some union or police payments: If you received tax relief on these payments, add it back in.
Examples:
• Bill earns £115,000, contributes £10,000 to a pension, resulting in an adjusted net income of £105,000, which affects his Personal Allowance.
• Clara earns £70,000, donates £1,000 through Gift Aid, and has an adjusted net income of £64,000, which affects her Child Benefit tax charge.
Essentially, adjusted net income is used to figure out if you lose some tax benefits once your income hits certain levels.

HMRC briefing – evidence required to claim PAYE (P87) employment expenses:

If you have work expenses that your employer doesn’t reimburse, you might be able to claim tax relief from HMRC. However, HMRC has found that some people are making ineligible claims for these expenses, so they’re tightening the rules.
Starting October 14, 2024, if you want to claim tax relief for work expenses through the PAYE system, you’ll need to fill out a form (P87) and provide proof of your expenses, like receipts or mileage logs. The aim is to make sure people get the right tax relief and stop incorrect payments.
For now, you can’t submit these claims online or by phone—everything has to be sent by post. But from October 31, 2024, you’ll be able to claim online for things like work uniforms and tools, with other online claims becoming available by April 2025.
HMRC is also cracking down on dishonest claims and reminding people to make sure they’re eligible before claiming tax relief.

tarting in early 2025, Companies House will gradually introduce identity checks for company directors and persons with significant control (PSCs) to combat fraud. Here's the key timeline:

Early 2025: Accountants and lawyers will start verifying identities.
Autumn 2025: New directors and PSCs must verify their identities when setting up a company.
Autumn 2026: Existing companies must complete verification within a year.
By 2027: All filings will be digital, ending paper submissions.
These changes are part of reforms aimed at increasing transparency and preventing abuse in company registrations.