A budget in all but name!

So, Boris Johnson has finally announced his plan for Social Care funding.

From April 2022 National Insurance contributions and dividend tax rates will increase by 1.25 percent, with the projected £12bn annual income to be ring fenced to pay for health and social care.

The increase will apply to employed (including deemed employees) and self-employed individuals and partners earning above the class 1 primary threshold / class 4 lower profits limit (currently £9,568 in 2021/22).

Employers will pay the additional 1.25% for employees earning above the class 1 secondary threshold (currently £8,840 in 2021/22).

All existing reliefs and allowances from employer’s secondary class 1 NIC will apply to the levy including the £4,000 employment allowance, reliefs for employers of apprentices, newly employed veterans and new employees in freeports.

From April 2023:

The increases will be legislated separately as a “health and social care levy” and NIC rates will return to 2021/22 levels. The levy will be hypothecated in law, meaning that the revenues will be ringfenced for health and social care. From that date, the legislation will also extend the revenue raising measure to individuals over state pension age in employment, who are currently exempt from paying NIC.

Alongside the levy,

which will be paid by employees, the self-employed and businesses, the government has announced a 1.25% increase in dividend tax rates from 1 April 2022, taking rates to: 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. The £2,000 dividend allowance will remain.

Review

The Chancellor has also announced the date for the spending review to be published with the 21st October 2021 as the release date and a budget to follow on the 27th October 2021, so watch this space!!!

I hope you have found this useful, however please get in touch if you have any questions!

Can I claim [insert random cost here] through my business to save tax?

Each year, accountants get asked all kinds of questions about what expenses can get put through their business. This year was no different for Kilby Fox!

I thought it would be useful to give some examples of the kind of questions I’ve been asked, and their answers. In the hope that it helps other business owners to gain an understanding of the type of thing they can, and can’t, put through their business.

Can I claim the cost of my wife’s Master’s Degree?

In most cases, no. Put simply, the cost of keeping your current skills updated is tax-deductible, however, the costs of training to acquire new skills are not tax-deductible.

In most cases, obtaining a Master’s Degree would come under the ‘acquisition of new skills’ rule and so you wouldn’t be able to get tax relief.

This is all assuming the Master’s degree is not actually “wholly and exclusively” for the purposes of the trade; a phrase that HMRC likes to use.

If the skill being learned/updated isn’t relevant to the business, it won’t be tax-deductible.

As an example:

My client was an IT consultant and their wife’s Masters Degree was in dentistry. I mean there’s pushing it, and then there’s this…

Can I claim my personal car insurance as a business cost, as I use my car for business?

Fair question.

You use your car for business so why can’t you put through at least a percentage of your car insurance? The answer is that you probably already are claiming this, although you perhaps don’t realise it:

If you are charging your business for business mileage traveled in your personal car, then the 45p/25p allowance set by HMRC is designed to cover, in addition to fuel, the wear, tear, and other costs of running your car. The ‘other running costs’ bit includes the insurance costs, as well as MOTs, etc.

Can I claim the costs of lunch, coffees, etc?

Again, another good question.

It’s perhaps not as straightforward as you would like though. HMRC says “everyone must eat in order to live and such costs are normal costs of living incurred by all and not incurred for the purpose of trading”.

So, because you need to eat and drink to stay alive, it cannot be “wholly and exclusively” for the business, therefore, not tax-deductible.

There are some instances where it can be claimed, however. These are:

  • If you’re staying away overnight for business. In this instance, you can claim ‘reasonable’ costs for the evening meal and breakfast.
  • If you make a journey that is outside your normal pattern of business activity. So let’s say you work from home but needed to travel several hours to attend a course, the cost of your lunch would an allowable expense.
  • Or, if your business, by its nature, has lots of temporary workplaces. Like a party entertainer, everyone loves clowns right? 🤡

If you have any questions about what expenses you can put through your business, please get in touch!

Just call on 01604 662670 or email martincrooke@kilbyfox.co.uk

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