Earnings included in a business’ accounts where payment is yet to be received, or expenses where that are yet to be paid.
In Capital Gains Tax rules, this means obtaining an item/asset (purchasing or any other means)
Allowances are the standard tax-free limits set by the government – they are usually reviewed every year but can also be frozen for a period. The allowance is given to all UK & Commonwealth citizens and some others who may qualify. The Personal Allowance is given to everyone resident in the United Kingdom and can also be available to some Non-UK Residents. From 6th April 2010 the allowance has been subject to an income limit of £100,000. An individual whose income exceeds that will have the allowance withdrawn at £1 for every £2 of income over £100,000.
The Married Couples Allowance has been restricted to those over 65 at 6th April 2000.
You can pass on some agricultural property free of Inheritance Tax, either during your lifetime or as part of your will.
Agricultural property that qualifies for Agricultural Relief is land or pasture that is used to grow crops or to rear animals intensively. There are other qualifying and non-qualifying activities which need to be considered.
Agricultural Relief can be given at 100% or 50% if the qualifying criteria is met.
Annual Investment Allowance
The Annual Investment Allowance (AIA) can be used against new equipment (except cars) during a tax year and up to £1,000,000 until 31 March 2023. If the total cost of all equipment is £1,000,000 or under, you can claim all of it as your AIA against business income.
The period for which the businesses profits are taxable; this is typically the same period as the actual accounting period because tax is paid on the profit shown on the accounts.
Special rules apply in:
- The first three years of a business
- When the business comes to an end
- If the accounting date changes
These rules mean that the profit against which you are taxed will not always be calculated from a single set of accounts; the basis period might be different than the accounting period in some cases.
From 6 April 2023, substantial changes are being made to the basis period rules and all basis periods will have to be either 31 March or 5 April following the changes.
Business Asset Disposal Relief
You may be able to pay less Capital Gains Tax when you sell (or ‘dispose of’) all or part of your business.
Business Asset Disposal Relief means you’ll pay tax at 10% on all gains on qualifying assets.
Business Relief reduces the value of a business or its assets when working out how much Inheritance Tax has to be paid.
Any ownership of a business, or share of a business, is included in the estate for Inheritance Tax purposes.
You can get Business Relief of either 50% or 100% on some of an estate’s business assets assuming the qualifying criteria is met.
The purchase cost of an asset is not normally permitted as an expense. This is because the asset retains a value which will decrease over time. Businesses can claim an allowance to reflect the depreciation. The Annual Investment Allowance, First Year Allowances and Super Deduction can be considered.
Capital Gains Tax
If you own a chargeable asset that goes up in value and you sell it for a profit, you may be charged Capital Gains Tax (CGT). CGT is a tax payable on the increased value of an asset.
The first £12,300 (2022/23 tax year) is not taxable as it is covered by the annual exempt amount (AEA). A charge of 10%/18% applies at any amount above that up to the individual’s unused basic rate tax band (at £34,970) and then at 20%/28% once this threshold has been passed, depending on the asset disposed of.
From 6 April 2023 the following proposed changes are being made:
- For the tax year 2023 to 2024 the AEA will be £6,000 for individuals and personal representatives, and £3,000 for most trustees.
- For the tax year 2024 to 2025 and subsequent tax years the AEA will be permanently fixed at £3,000 for individuals and personal representatives, and £1,500 for most trustees.
The measure also fixes the CGT proceeds reporting limit at £50,000. Therefore, any assets disposed of with gross proceeds in excess of this amount will need reporting to HMRC irrespective of CGT liability.
Construction Industry Scheme (CIS)
CIS is a tax scheme that regulates payments to subcontractors in the Construction Industry. An individual subcontractor should register if they do not want deductions to be made at a higher rate; the contractor must deduct tax at source before making a payment – this is presently 20%. All payment and tax deduction details must be recorded on the tax deduction voucher.
Deferment – National Insurance
If you have a job and are also self-employed then you will be liable for Class 1, 2 & 4 NI (National Insurance). However, contributions will be refunded over and above a certain figure. If your NI contribution for a given tax year will exceed the maximum, it is advisable to apply to defer payment. Seek advice from HMRC or whoever advises you on tax liability to calculate your eligibility for this
Life Insurance policies: It is possible to receive taxable income from a Life Insurance Policy during the period it is held. Termination of the policy should result in more being paid out than what has been paid in. If the amount paid out is less than the value of tax paid out, then too much tax has been paid. If this is the case, then you may claim Corresponding Deficiency Relief
Individuals with dividend income below £2,000 in a tax year currently benefit from the dividend allowance which taxes dividend income up to £2,000 at 0%.
It is proposed that from 6 April 2023, the dividend allowance is reduced to £1,000 and then to £50 from 6 April 2024.
First Year Allowances (FYA)
If you buy an asset that qualifies for 100% first year allowances you can deduct the full cost from your profits before tax.
You can claim 100% first year allowances in addition to annual investment allowance (AIA), as long as you do not claim both for the same expenditure.
You can claim ‘enhanced capital allowances’ (a type of 100% first year allowance) for the following equipment, which must be new and unused:
- electric cars and cars with zero CO2 emissions
- plant and machinery for gas refuelling stations, for example storage tanks, pumps
- gas, biogas and hydrogen refuelling equipment
- zero-emission goods vehicles
- equipment for electric vehicle charging points
- plant and machinery for use in a freeport tax site, if you’re a company
This is also known as the “Authorising your agent” form. A taxpayer permits the tax office to communicate with their agent and to deal with them regarding matters that concern HMRC.
Free Standing Additional Voluntary contributions (FSAVCs)
These are payments by an employee into a private scheme that is separate from any company scheme. The rules about maximum contributions differ slightly from personal pension schemes
Income tax is paid by individuals, personal representatives and trustees on a wide range of income types and at various rates. Each will have different allowances.
Where a tax code contains “K”, it means the deductions are greater than the allowances
Lower Rate Tax
This was a tax rate that applied to bank and building society interest. It was 20% but has been replaced with the 10% the Starting Rate for savings. If non-savings related income is above the limit then the 10% starting rate will not apply to savings. Interest on your savings will be taxed at 20% (basic rate)
Personal Savings Allowance (PSA)
The Personal Savings Allowance was introduced for savings income (such as interest) paid to individuals. Broadly, this means that basic rate taxpayers will be able to receive up to £1,000 of savings income, and higher rate taxpayers can receive up to £500 of savings income, without any tax being due. The PSA will not be available to any saver with additional rate income. Alongside the introduction of the PSA, banks, building societies and NS&I have ceased to deduct tax from account interest they pay to customers.
The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property as long as the conditions are met.
Rent a Room scheme
The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else.
Super Deduction and 50% special rate first year allowance
There are 2 types of temporary first year allowances:
- the super-deduction
- 50% special rate first year allowance (also known as SR allowance)
Only companies can claim them both against the cost of certain new and unused plant and machinery you buy for your business from 1 April 2021 up to and including 31 March 2023.
The super-deduction lets you deduct up to 130% of the cost from your profits before tax.
50% special rate first year allowance lets you deduct 50% of the cost from your profits before tax.
The trading allowance is a tax exemption of up to £1,000 a year for individuals with trading income from:
- casual services, for example, babysitting or gardening
- hiring personal equipment, for example, power tools
This allowance does not apply to trading income from a partnership.