Tax reforms include new reliefs for creative industries.
During the IFA’s quarterly tax series, Craig Hughes, Head of Tax at Brown Butler, highlights the stand-out tax reforms that members need to be across to help their clients understand their tax obligations.
These include:
- An increase in the VAT registration threshold from a taxable turnover of £85,000 to £90,000 from April 1, 2024.
- New tax reliefs for creative industries, including an Independent Film Tax Credit at a rate of 53 per cent on their qualifying expenditure from April 1, 2024. Hughes adds, however, that from April 1, 2025, visual effect costs for films and high-end television will be subject to an increased tax rate of up to 39 per cent from 34 per cent.
- An extension of The Enterprise Investment Scheme and Venture Capital Trusts Scheme from April 2025 to April 2035 to foster growth capital for early-stage innovative companies.
- A permanent capital allowance “full expensing” – accountant speak for 100 per cent capital allowance tax deductions – for corporations and full expensing of leased assets “when affordable to do so” from April 2023 to March 2026. This allows companies to write off the cost of investment in one go.
Cash basis reforms
Other tax changes now introduced include a restriction of reliefs to UK charities and the expansion and simplification of cash basis for those who are self-employed and in partnerships. From April 6, 2024, cash basis will be the default method of calculating trading profits for eligible businesses with the hope of reducing the complexity of tax returns.
Basis period reform
When exactly clients report their tax obligations is also something that needs reconsideration so that accountants can help clients review their future tax liabilities and when and how they will become payable.
Ryan Conlon and Martin Denniss (corr) of RPG Chartered Accountants say basis period reforms mark major changes in how the trading profits of unincorporated businesses are calculated.
“They will impact businesses that draw up accounts other than March 31 or April 5 or a date in between,” they say. “HMRC estimates that 528,000 sole traders and partners will be impacted by the changes.”
From the 2024/25 tax year, all unincorporated businesses will use the UK tax year of 6 April to 5 April as their basis period for income tax assessment.
Research and development tax relief
Tax concessions on R&D help many small and medium businesses on their path to success.
The good news is that ‘pure mathematics’ in engineering, computing and software, healthcare and pharmaceuticals for accounting periods starting after April 1, 2023 now qualify for tax relief, says Romane Reeves, an Associate Director in the Innovation Taxes team at BDO.
Additionally, as of April 1, 2024, the two separate RDEC and SME tax credit schemes will be merged to streamline the relief and help control its overall cost.
For profitable companies, the headline rate is now 20 per cent – a post tax rate between 14.7 per cent and 16.2 per cent. Loss making companies will be eligible for a 16.2 per cent subsidy.
Stricter reporting, including a separate narrative for each project, has also come into force, says Reeves. “Advanced notifications and a two-year time limit to make an R&D claim are also being enforced to clamp down on speculative claims close to deadline.”
Stricter rules for ‘side hustles’
Accountants who have clients making money in sectors such as taxi hire, food delivery, selling handmade items or second-hand clothing, or renting out properties for short-term accommodation, need to exercise extra diligence.
“From next year, platforms such as Amazon and eBay will be required to report how much individuals are earning with any amount over £1000 pounds liable to tax and the seller required to register as self-employed,” says Hughes.
HMRC will have dedicated inspectors on the side hustle tax trail.
Dealing with HMRC
For clients who get into trouble with HMRC, by accident or deliberately, specialist assistance is often required.
Accountant Paul Malin, who has been resolving tax issues for 30 years, says income tax is the leading cause of problems, with VAT and corporation tax also in the top five.
Crucially, practitioners need to be aware of the difference between a Code of Practice 8 and 9 enquiry, he says.
Issued by HMRC’s Fraud Investigation Service (or FIS), a COP8 usually takes the form of a leaflet and it explains that no criminal misconduct is expected. If, however, a taxpayer is deemed to have taken part in any kind of activity that could be tantamount to fraud, a COP9 is issued.
“Some people may say a CoP 8 is a fishing exercise,” says Malin. “What HMRC is doing is asking for a few more facts regarding how entries have been arrived at before they make a decision.”
While a CoP 9 is a civil, not a criminal matter, tactically you may want to consider involving a solicitor to support the case so that your work is protected under legal professional privilege, he says.
The IFA tax series features expert speakers discussing tax matters in two-hour webinars. Find out more.
