Self-employed? Plan now to avoid additional tax

Rebecca Jones BA (Hons), ACA, CTA is a Director at D.R.E. & Co. Chartered Accountants and Chartered Tax Advisers in Oswestry

From6th April 2024 HMRC is changing the way income tax is calculated, replacing the ‘current year basis’ with the ‘tax year basis’. In short, if you are a business – either self-employed or a partner in a partnership – and draw up your accounts to a date that does not coincide with the tax year, these new rules are likely to impact you and could result in you paying more tax.

A fundamental shake-up of the rules dictating when profits are subject to income tax will mean any businesses not operating with a year end of 31st March or 5th April will face ongoing administrative burdens. This includes, in some cases, providing HMRC with provisional figures and having to re-file tax returns at a later date.

2023/24 is the ‘transitional year’ where these new rules are being phased in. Some businesses will see a temporary and unwanted increase in tax liability. For example, if your business operates a 31st December 2023 year end you will be taxed on profits to 31st December 2023 but also profits from 1st January-5th April 2024 on your 2023/24 Self Assessment tax return, ie more than 12 months’ worth of profits.

It is not all bad news however. There are planning measures that can be carried out now that will alleviate and spread the additional tax burdens, such as changing your year end. With the rollout of Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) from 2026, getting your affairs in order now will pay dividends. Communication and support on the above from HMRC is currently very minimal. Guidance has not yet been published for tax payers, although HMRC has said it is planning to produce guidance in the near future. Many taxpayers are worried about having to pay additional tax. HMRC has indicated that any businesses facing financial difficulties can call them to agree a time-to-pay arrangement, which although it will result in interest being charged may alleviate some of the pressures.

It is important to speak with an accountant or advisor if you believe you may be impacted by these changes. Taxpayers operating through partnerships or those with historical overlap profits are most at risk.

If you would like to arrange a free tax consultation with one of our team please contact us at tax@dre.co.uk or on 01691 654 353 www.dre.co.uk

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Top 10 tips to save on inheritance tax

1 Make a will – and if you’ve already made one, ensure it’s valid and up to date. A will allows you to plan and structure your estate in a tax-efficient manner.

2 Understand the Nil Rate Band – this is the amount of your estate that is exempt from inheritance tax (IHT). Stay informed about the current threshold and utilise it effectively.

3 Utilise the Residence Nil Rate Band or RNRB – an additional allowance for individuals leaving their main residence to direct descendants. Make sure you understand and maximise this additional relief.

4 Take advantage of annual exemptions such as the annual gift allowance and small gifts exemption. Additionally, consider making regular gifts out of surplus income, which can be exempt from IHT.

5 Consider making lifetime gifts to reduce the value of your estate. Gifts to individuals, charities and certain trusts can be exempt from IHT if structured correctly.

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6 Establish trusts – these can be a useful tool for estate planning and IHT mitigation. Seek professional advice to determine if a trust is appropriate for your circumstances.

7 Invest in Business Relief for qualifying assets. Certain investments, such as shares in qualifying unlisted companies or holdings in an alternative investment market (AIM) portfolio, may qualify for Business Relief and be exempt from IHT.

8 Consider placing life insurance policies under trust to ensure the pay-out does not form part of your estate and is exempt from IHT.

9 Charitable donations are exempt from IHT. If you leave at least 10 per cent of your estate to charity, the overall rate may decrease.

10 Seek professional advice. Estate planning and IHT can be complex. Engage the services of a qualified professional, such as a financial planner or tax adviser who specialises in estate planning and IHT mitigation to provide tailored advice based on your situation.

For more information, or to arrange a viewing please call Anna Hamblett on 01492 533 724 or email abbeyfieldcolwynbay@gmail.com

The above was provided by Hartey Wealth Management Ltd. Registered office: Hilliards Court, Chester Business Park, Chester CH4 9QP. Tel: 0808 168 5866 www.harteywm.co.uk Hartey Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority.