News & Insights

The latest tax developments and VAT round-up for the month.

Silverthrone tax digest covers the developments most likely to affect individuals, trusts, estates and businesses. If you would like to discuss anything here in more detail, please get in touch with your usual contact.

1. Private client

1.1 Supreme Court limits the transfer of assets abroad rules

The Supreme Court has ruled that shareholders are not treated as having transferred assets overseas simply because the company they own made the transfer.

The Fisher family’s UK company moved its online betting business to a Gibraltar company, and HMRC sought to tax the family members personally on the Gibraltar income under the transfer of assets abroad rules. The court found in the family’s favour: only the company itself was the transferor, so the individual shareholders could not be charged on that basis. Anyone who has received an HMRC enquiry or assessment built on a similar argument should ask us to review it in the light of this judgment.

HMRC v Fisher and another [2023] UKSC 44

1.2 National Insurance cuts for the self-employed

The Autumn Statement on 22 November confirmed that, from 6 April 2024, self-employed people will no longer be required to pay Class 2 contributions and the main Class 4 rate will fall from 9% to 8%.

Those with profits above £12,570 will keep their access to the state pension and contributory benefits without paying Class 2, and those with profits between £6,725 and £12,570 will receive National Insurance credits. People with profits below £6,725 who want to protect their contribution record can still choose to pay Class 2 voluntarily. Sole traders and partners should allow for the lower Class 4 rate when planning cash for the 2024/25 tax year.

1.3 ISA rules to be simplified

The government announced a package of ISA reforms, mostly taking effect from April 2024, while keeping the annual subscription limits unchanged at £20,000 for adults and £9,000 for Junior ISAs.

The changes are designed to make ISAs easier to use and to widen the range of investments they can hold, for example by allowing savers to pay into more than one ISA of the same type in a tax year. The ten-year extension of the Enterprise Investment Scheme and Venture Capital Trust reliefs, to April 2035, was also confirmed. Clients who use their allowances each year may want to review which providers they use once the new rules start.

1.4 Making Tax Digital for income tax: changes after the review

The government has kept the planned start dates for Making Tax Digital for Income Tax Self Assessment but simplified some of the reporting requirements.

Sole traders and landlords with qualifying income over £50,000 will join from April 2026, and those over £30,000 from April 2027, while those below £30,000 stay outside the regime for now and no date has been set for partnerships. Quarterly updates will show cumulative figures for the year so far, and the separate end of period statement has been dropped. If you are likely to be caught, now is a sensible time to talk to us about moving your records to suitable software.

2. PAYE and employment

2.1 Employee National Insurance falls to 10% from 6 January

The main rate of employee Class 1 National Insurance will be cut from 12% to 10% part-way through the tax year, on 6 January 2024.

Legislation to make the change was taken through its remaining Commons stages on 30 November. The cut applies to employees’ contributions only; the employer rate is unchanged. Employers should make sure their payroll software is updated in time for the first pay day on or after 6 January and should expect questions from staff about the change in their take-home pay.

2.2 National Living Wage to rise to £11.44

From April 2024 the National Living Wage will increase to £11.44 an hour and will apply to workers aged 21 and over, rather than 23 and over.

This brings 21 and 22 year olds onto the top rate for the first time, so the cost increase for some employers will be larger than the headline rise suggests. Employers should check pay rates across their workforce, including salary sacrifice arrangements and deductions that can push pay below the minimum, before the new rates take effect.

2.3 Off-payroll working: credit for tax the worker has paid

From 6 April 2024, HMRC will be able to reduce a deemed employer’s PAYE bill under the off-payroll working rules to reflect tax and National Insurance already paid by the worker and their company.

Until now, an organisation that wrongly treated a contractor as outside the rules could face the full PAYE liability even though the worker had already paid tax on the same income. The new offset should make these errors less costly, but it does not remove the need to make careful status decisions and keep good records of how they were reached.

3. Business tax

3.1 Full expensing made permanent

Full expensing for companies’ spending on qualifying new plant and machinery will no longer end on 31 March 2026 and is now permanent.

Companies can continue to deduct the full cost of most qualifying new main pool equipment from profits in the year of purchase, with a 50% first-year allowance for special rate assets. Because the relief no longer has an end date, companies can plan larger investment programmes without rushing spending into a particular year. Unincorporated businesses are not covered, although they can still use the annual investment allowance.

3.2 R&D reliefs to merge from April 2024

The SME and RDEC research and development schemes will be combined into a single scheme for accounting periods beginning on or after 1 April 2024.

The notional tax rate applied to loss-making companies in the merged scheme will be 19% rather than 25%, and the R&D intensity threshold for the extra support given to loss-making intensive SMEs will drop from 40% to 30%. The government also confirmed that, in most cases, companies will no longer be able to nominate a third party to receive their R&D payments. Companies that claim R&D relief should review how the new rules affect them before their first affected period begins.

3.3 Cash basis to become the default

From 6 April 2024 the cash basis will be the default way for self-employed people and partnerships to work out their trading profits.

The turnover limit for entry and some of the restrictions on loss relief and interest deductions will be removed, and businesses that prefer traditional accruals accounting will be able to opt out. Accruals accounting often gives a fairer picture for businesses that hold stock or give credit, so we recommend that clients talk to us before deciding which basis to use for 2024/25.

3.4 Share exchange anti-avoidance test: look at the whole picture

The Court of Appeal has held that, when deciding whether tax avoidance was a main purpose of a share exchange, the whole of the arrangements must be considered rather than one part of them.

Euromoney sold a subsidiary in exchange for shares in the buyer, including preference shares, and HMRC argued that the preference share element was driven by a wish to avoid tax so that the capital gains deferral should be denied. The court disagreed and dismissed HMRC’s appeal, finding that the arrangements as a whole did not have tax avoidance as a main purpose. Owners planning a sale for shares should still seek advance clearance where it is available, but the decision gives helpful support where a deal has a clear commercial rationale.

Delinian Ltd (formerly Euromoney Institutional Investor plc) v HMRC [2023] EWCA Civ 1281

4. VAT and indirect taxes

4.1 Zero rate extended for energy-saving materials

From 1 February 2024 the VAT zero rate for installing energy-saving materials will cover more technologies and certain charity buildings.

The relief will be extended to further technologies, such as water-source heat pumps, and to installations in buildings used solely for a relevant charitable purpose. The zero rate is currently due to run until 31 March 2027, after which the reduced rate applies again. Installers, homeowners and charities planning energy efficiency work should check whether their projects will now qualify.

4.2 VAT compliance added to the CIS gross payment test

From 6 April 2024, a business’s VAT record will be taken into account when deciding whether it can receive payments under the Construction Industry Scheme without deduction.

HMRC will also be given stronger powers to remove gross payment status straight away in serious cases of non-compliance. Construction businesses that rely on gross payment status for their cash flow should make sure their VAT returns and payments are always on time.

4.3 More time for DIY housebuilders to claim

People building or converting their own homes will be able to make their VAT refund claims online and will have six months, rather than three, to submit them.

The DIY housebuilders scheme lets individuals recover VAT on building materials for a new home or a qualifying conversion. Self-builders should still keep all invoices and completion evidence together throughout the project, as claims without proper paperwork are often reduced or refused.

4.4 Alcohol duty freeze extended

Alcohol duty rates will stay frozen until 1 August 2024, with a decision on future rates deferred to the Spring Budget.

The Autumn Statement also extended 75% business rates relief for retail, hospitality and leisure properties in England for 2024/25, subject to a £110,000 cap per business, and froze the small business multiplier. Pubs, restaurants and shops should factor both measures into their budgets for next year.

5. Key dates

These are the main tax deadlines and events from November 2023 to the end of January 2024.

6. And finally

6.1 A 10% rate with a long history

Income tax was first introduced in Great Britain by William Pitt the Younger in his budget of December 1798, taking effect in 1799, to help pay for the war against Revolutionary France. It was graduated, starting at a small rate on incomes above £60 and reaching a top rate of 10% on incomes over £200.

Two centuries later, 10% is back in the headlines as the new main rate of employee National Insurance from January. Pitt’s tax was meant to be temporary too, which is worth remembering whenever a Chancellor describes a change as permanent.