The High-Income Child Benefit Charge (HICBC) is a tax charge that claws back child benefit where the claimant or his or her partner have adjusted net income of at least £50,000. Where both parties have income in excess of this, the charge is levied on the partner with the highest income.

The charge is equal to 1% of the child benefit paid for the tax year for every £100 by which adjusted net income exceeds £50,000. Once adjusted net income reaches £60,000, the charge is equal to the child benefit for the tax year.

To avoid receiving a benefit that has to be paid back, a couple may elect not to receive the benefit. However, it is important to claim it to access the associated National Insurance credits, particularly where the claimant’s income is not sufficient for the year to be a qualifying year for state pension purposes.

Check who is the claimant

For child benefit purposes, the claimant may not be the person who actually receives the child benefit – HMRC regard the claimant as the person who signs the claim form. The claimant can elect for the benefit to be paid to someone else, for example, a husband may complete the form and sign it, but elect for the child benefit in respect of their child to be paid to his wife. While a couple remain together, this may not matter. However, if a couple separate, it is important to be clear which partner is the claimant to avoid unnecessary and unexpected tax charges.

The Meades case

A recent case highlighted the importance of checking child benefit claims on separation.

In 2021, HMRC issued Mr Meades with an amendment to his 2019/20 tax return on the basis that he was liable for the HICBC for that year.

Mr Meades married his former wife in 2010. In 2012, he claimed child benefit in respect of their child, electing for the benefit to be paid to his ex-wife (the child’s mother). The couple separated in July 2017 and the marriage was dissolved on 4 April 2019. Mr Meades provided financial support to his former wife and met household bills. Mr Meades remarried in November 2019. He lived with his new wife as a married couple throughout 2019/20.

The couple did not revise their child benefit claim on separation. Consequently, Mr Meades remained the claimant. As he provided financial support for his child, he was entitled to claim the benefit. The tribunal found that HMRC were right to assess him for the HICBC for 2019/20 as he was the claimant and his income exceeded £50,000. It did not matter that the benefit was paid to his ex-wife.

Lessons

On separation, it is advisable to review child benefit claims to check who is the claimant. Mr Meades would not have been liable for the HICBC after he separated from his ex-wife had she been the claimant as he would have been neither the claimant nor the claimant’s partner. Had the couple reviewed their claim and realised this, Mr Meades could have ended his claim and a new claim could have been made by the child’s mother. This would have prevented him from being liable to the charge. It would also have prevented Mr Meades’ new partner from a potential liability to the charge in respect of the benefit paid to his ex-wife, which would have been the case had her income been both more than £50,000 and higher than that of Mr Meades – as they lived together as a married couple throughout 2019/20, she was potentially liable for the charge as the claimant’s partner.

Workers are entitled to be paid the National Living Wage (NLW) or Minimum Wage (NMW) for their age. Employers who fail to do this run the risk of financial penalties and of being ‘named and shamed’. To help employers avoid mistakes, HMRC have produced a checklist of 18 common errors. These are listed below.

Common error 1

Making deductions or taking payments from workers for items or expenses connected with their job which reduce the worker’s pay below the statutory minimum.

Common error 2

Making wage deductions or taking payments from workers for the employer’s own use or benefit where the employer is free to use the money for their own benefit, and making the deduction or taking the benefit reduces the worker’s pay below the statutory minimum.

Common error 3

Failure to pay for additional time added on to a worker’s shift, for example, team handovers between shifts or time spent passing through security checks on entry and exit.

Common error 4

Failure to pay a worker for any time during their shift when they are at the workplace and are required to be available for work, even if no work is being provided at that time.

Common error 5

Failure to pay a worker for travelling time.

Common error 6

Failure to pay the worker for time spent training

Common error 7

Failure to pay the worker sufficient money for time worked during a sleep-in shift.

Common error 8

Incorrectly applying the minimum wage accommodation offset when living accommodation is provided to the worker by the employer.

Common error 9

Paying the NMW apprentice rate to a worker who is not a genuine apprentice.

Common error 10

Paying the NMW apprentice rate before a worker starts their apprenticeship or after it ends.

Common error 11

Continuing to pay the NMW apprentice rate to an apprentice who is aged 19 or over or when they have completed the first year of their apprenticeship.

Common error 12

Failing to pay an apprentice for the time that they have spent training or studying as part of their apprenticeship.

Common error 13

Failure to apply the annual increases to the NLW and NMW which take effect from 1 April each year.

Common error 14

Failing to increase the rate paid when a worker moves into the NLW or a higher NMW age bracket. Age-related increases apply when a worker turns 18, 21 or 23.

Common error 15

Including an element of pay that does not count towards the NMW (such as tips) when checking whether workers have been paid at least the NLW/NMW for their age.

Common error 16

Failing to pay the NLW/NMW to a person on work experience or to an intern when they are entitled to it.

Common error 17

Failing to take account of excess hours worked by salaried staff which reduce the worker’s pay below the statutory minimum.

Common error 18

Failure to distinguish between different types of worker (e.g., salaried, time, output or unmeasured) and to calculate the NLW/NMW accordingly.

The end of a business will not necessarily mean that no further expenses are incurred. Where expenses are incurred after the business has ceased, tax relief may be available.

Allowable post-cessation expenses

An expense will be an allowable post-cessation expense if:

• the business has ceased; and
• the expense would have been deductible in calculating the trading profits had it been incurred prior to cessation.

This means that the ‘wholly and exclusively’ test must be met and, unless the cash basis is used and the expense is a capital expense for which a deduction is allowed under the cash basis, revenue in nature.

If the expense only partially relates to the business, a deduction is available for the business portion if that can be determined. If apportionment is not possible, no deduction is forthcoming.

Relief is not available for expenses that relate to the cessation itself.

Examples of post-cessation expenses include the cost of remedying defective work and associated legal and professional costs and the cost of collecting debts relating to the trade.

Method of relief

There are four ways in which a post-cessation expense can be relieved:

• as a deduction from post-cessation receipts;
• as a loss set against total income;
• as a loss deducted from chargeable gains; or
• against future post-cessation receipts.

Relief is given in the above order.

Method 1 – deduction from post-cessation receipts

Where there are post-cessation receipts in the same period from the same trade, relief for allowable post-cessation expenses must be given as a deduction from those receipts before considering other methods of relief.

Method 2 – against total income

Where there are no post-cessation receipts in the same period, if the post-cessation expenses are incurred by someone subject to income tax (i.e., by an unincorporated business rather than by a company), the post-cessation expenses can be set against the total income of the same tax year.

Method 3 – against capital gains

To the extent that the post-cessation expenses exceed the individual’s total income, they can be set against any chargeable gains of the same tax year.

Method 4 – against future post-cessation receipts

If it is not possible to relieve the post-cessation receipts under methods 1 to 3, they can be carried forward and set against any future post-cessation receipts from the same trade.

Post-cessation expenses incurred by persons subject to income tax cannot be set against bad or doubtful debts paid after cessation or against a trading receipt that relates to post-cessation expenditure.

Post-cessation receipts

Receipts received after the business ceased are taxable if they would have been taxable had they been received when the business was trading.

An election can be made to carry back receipts received within six years of cessation to the date of cessation. Where such an election is made, the receipts are treated as if they were received on the date of cessation.

If you have a company that is dormant and you have filed your company tax return showing that no tax is due, you may think that there is nothing further you need to do as regards the lack of corporation tax due. After all, you have filed a return which shows that you have nothing to pay.

However, that may not be the end of the story. You may receive a letter from HMRC reminding you when the corporation tax for the period is due. The letter will also inform you that if you do not owe any corporation tax, you should tell HMRC as soon as possible. Arguably, you have already done this by filing your return and corporation tax computation. The letter advises that if you do not tell HMRC that no corporation tax is due, you will continue to receive reminders about paying.

To tell HMRC that no corporation tax is due, and put a stop to payment reminder letters, you need to visit the Gov.uk website at www.gov.uk/pay-corporation-tax and select ‘tell HMRC no amount is due’. It is then simply a case of clicking on the ‘nil to pay form’ and entering your 17-digit corporation tax reference, which can be found on the letter. This will be your 10-digit unique taxpayer reference for your company, plus additional digits and letters which indicate the period in question, for example, 1234005678A00101A. It is important that this is entered correctly.

When is a company dormant?

Your company may be dormant if it is not trading and has no other income, for example, from investments. It may also be dormant if it is a new company which has yet to start trading. If you think your company is dormant, you can tell HMRC online (see www.gov.uk/tell-hmrc-your-company-is-dormant-for-corporation-tax). If you cannot use the online form, you can also tell HMRC by post or by phone.

If you have had a notice to deliver a company tax return, you will need to do this. This will show HMRC that your company is dormant. Once you have told HMRC that your company is dormant, you will not need to file further company tax returns unless you receive a notice to file.

HMRC may also write to you to tell you that they have decided to treat your company as dormant and that you don’t have to pay corporation tax or file company tax returns.

However, you must continue to file confirmation statements and accounts with Companies House. If your company qualifies as ‘small’, you can file dormant company accounts. A company is regarded as dormant by Companies House if there are no significant financial transactions in the year. Filing fees paid to Companies House, penalties for late filing of accounts or money paid for shares when the company was incorporated do not count as significant transactions.

Owners of personal and family companies frequently pay themselves a small salary and extract further profits as dividends. To utilise the unused personal and dividend allowances of other family members, an alphabet share structure (whereby each shareholder has their own class of shares, e.g. A ordinary shares, B ordinary shares, etc.) provides the flexibility to tailor dividend payments to the circumstances of the shareholder.

Minor children also benefit from a personal allowance (set at £12,570 for 2023/24) and a dividend allowance (set at £1,000 for 2023/24). On the face of it, it can be beneficial to pay dividends to minor children to utilise their allowances. However, where shares are gifted by a parent to a child, the associated dividends are treated for tax purposes as dividend income of the parent rather than the child where they exceed £100 a year.

HMRC have recently become aware of a dividend diversion scheme which is marketed as a tax planning option to fund education fees. HMRC are of the view that the arrangements do not work.

The scheme

The scheme in question seeks to avoid tax by allowing the director shareholders to divert dividend income from themselves to their minor children. In a bid to avoid being caught by the settlements legislation, the arrangement works as follows.

1. A company issues a new class of shares which usually entitles the owner of the shares to certain dividends and voting rights.
2. A person other than the company owner, such as a grandparent of the minor child or a sibling of the company owner, purchases the new shares for an amount significantly below their market value.
3. That person gifts the shares to a trust or declares a trust over the shares for the benefit of the company owner’s children.
4. The purchaser of the new shares or the company owner votes for a substantial dividend payment in respect of the new class of shares.
5. The dividend is paid to the trustees of the trust.
6. As beneficiaries of the trust, the company owner’s children are entitled to the dividend.

HMRC are of the view that the arrangements are caught by the settlements legislation and do not work. The effect of the arrangements is to divert dividend income from the company owner to his/her minor children and as such the income will be taxed as that of the company owner rather than as that of the minor child.

Similar arrangements may also fall foul of the settlements legislation.

As an employer, you can pay your employees tax-free mileage payments where they use either their own car or a company car for business journeys. However, the rates that you can pay tax-free depend on whether the car is the employee’s own or a company car and, where the employee drives a company car, the engine size of the car and the fuel that it uses. It is important that you use the correct rates to avoid landing the employee with an unwanted tax bill.

Employees using their own cars

Where an employee uses their own car for business journeys, you can pay mileage payments tax-free up to the approved amount. For tax (but not National Insurance), the approved amount is calculated for the tax year as a whole by multiplying the employee’s business mileage for the year by the approved rate set by HMRC. For cars and vans, the approved rate is 45p per mile for the first 10,000 business miles and 25p per mile for any subsequent business miles. This means that if an employee drives 12,000 business miles in the tax year, you can make mileage payments of up to £5,000 tax-free.

If you pay less than this, or do not make mileage payments, the employee can claim a tax deduction for the difference between the approved amount and the amount you pay, if any.

You can also make tax-free mileage payments if an employee uses a motorbike or bicycle for business journeys. The approved rates are set at 24p per mile for motorcycles and at 20p per mile for bicycles.

For National Insurance purposes, the 45p rate for cars and vans is NIC-free regardless of the employee’s annual business mileage.

The approved rates are the maximum you can pay tax-free, even if the actual costs are higher. Anything in excess of the approved rates is taxable.

Employees driving company cars

Where an employee has a company car but meets the costs of their own fuel, the mileage payments that can be made tax-free are lower than for employees using their own car for business.

HMRC publish advisory fuel rates quarterly which are the maximum amounts that can be paid tax-free where an employee uses a company car for business journeys. The rates change on 1 March, 1 June, 1 September and 1 December. Different rates are set for diesel cars, petrol cars and cars running on LPG. The correct rate also depends on the engine size of the car. HMRC also set an advisory fuel rate for electric cars.

The following rates apply from 1 September 2023.

Engine size	Petrol – rate per mile	LPG – rate per mile
1,400cc or less	13p	10p
1,401cc to 2,000cc	16p	12p
Over 2,000cc	25p	19p

Engine size	Diesel – rate per mile
1,600cc or less	12p
1,601cc to 2,000cc	14p
Over 2,000cc	19p

From 1 September 2023, you can also make a payment of 10p per mile where the employee drives a fully electric company car.

The tax legislation contains a number of exemptions which allow benefits in kind to be provided to employees without a tax charge arising. Some of the exemptions are more useful than others. One of the more valuable ones is that for mobile telephones.

The exemption enables you to provide one mobile phone to an employee for their use. However, it only applies if there is no transfer of property – you must retain ownership of the phone. The exemption covers the provision of the phone for the employee’s use, plus the cost of private calls and data usage.

More than one phone

The exemption is limited to the provision of one phone per employee. If the employee is provided with second or further phones for private use, or if phones are provided to members of their family for private use, the additional phones represent a taxable benefit. The tax charge is calculated in accordance with the rules for making an asset available for an employee’s private use.

Business use exemption

If an employee is provided with a second phone for business use only, and the employee does not use that phone for private use, there will no tax charge in respect of that phone. Consequently, the employee can be provided with one phone for private use (or business and private use) and one phone for business use without a tax liability arising. However, if the employee is provided with two phones both of which can be used for business and private use, the exemption will only apply to one of them, whereas the other will be taxable. Thus, if the employee is to be given the use of two phones, it is beneficial from a tax perspective to restrict the use of one of them to business use only. Any incidental private use of a business-only phone is disregarded.

Beware salary sacrifice

Do not be tempted to use a salary sacrifice arrangement to provide an employee with the use of a mobile phone for private use as this will result in the exemption being lost. Instead, the employee will be taxed by reference to the amount of salary given up in exchange for the phone.

For some time, taxpayers within Self Assessment have been able to set up a Time to Pay arrangement online, allowing them to pay their tax bill in instalments if they cannot pay it in full and on time. The facility to set up their own Time to Pay arrangement has now been extended to VAT-registered businesses.

Setting up a VAT payment plan online

If you operate a VAT-registered business and you are struggling to pay the VAT that you owe, rather than having to contact HMRC to set up a Time to Pay agreement, you may now be able to do it yourself online. A Time to Pay agreement will enable you to pay the VAT that you owe in instalments. Payments are collected via direct debit.

You will be able to use the online self-serve facility if the following conditions are met:

• you have filed your last VAT return;
• the amount that you owe is £20,000 or less;
• you are within 28 days of the payment deadline;
• you do not have any other payment plans or debts with HMRC; and
• you plan to pay what you owe within six months.

However, you cannot use the online service if you use the VAT cash accounting scheme or if you use the VAT annual accounting scheme. You are also unable to use the online service if you make VAT payments on account.

To set up a payment plan online, you will need to sign into your Government Gateway account. As you need to set up a direct debit to collect the payments, this is something you must do yourself. While an adviser can guide you, they cannot do it on your behalf.

Unable to self-serve

If you are not eligible to use the online service and are struggling to pay your VAT bill, you may still be able to agree an instalment plan with HMRC. However, to do so you will need to contact HMRC by calling the VAT payment service on 0300 200 3831.

If you are self-employed, the way in which your profits are taxed is changing. As a result of this, you only have a limited window in which to claim relief for any profits which have been taxed twice.

Basis period reform

For 2022/23 and earlier tax years, self-employed individuals, whether sole traders or partners in a partnership, were taxed on a current year basis. This meant that you were taxed on the profits for the accounting period that ended in the tax year. However, from 2024/25, you will be taxed on the profits for the tax year. If you prepare your accounts to 31 March or 1 to 5 April, this is deemed to be equivalent to the tax year. However, if you prepare your accounts to another date, you will need to apportion the profits from two accounting periods to arrive at the profits for the tax year.

To move from the current year basis to the tax year basis, the 2023/24 tax year is a transition year. If your accounting date does not correspond to the tax year (or is not treated as corresponding to the tax year), you will be taxed on more than 12 months’ profits in 2023/24. The profits taxed are those for the 12 months from the end of your 2022/23 basis period, plus those for the remainder of the 2023/24 tax year, less any overlap relief. For example, if your prepare your accounts to 30 September, in 2023/24 you will be assessed on the profits for the year to 30 September 2023 plus the profits from 1 October 2023 to 5 April 2024, less any overlap relief. The profits from 1 October 2023 to 5 April 2024 are the transition profits. These profits, less any overlap relief, are spread over five tax years from 2023/24, unless you elect otherwise.

Overlap relief

Overlap profits are profits that are taxed twice. This may occur either in the early years of a business or on a change of accounting date. Under the current year basis, relief for overlap profits (overlap relief) was given on cessation or in a tax year in which there was a change of accounting date and as a result more than 12 months’ profits were taxed in that year.

If you have overlap profits in respect of which relief has not been claimed, the last chance to do this is for the 2023/24 tax year. Relief will normally be claimed against the transition profits for that year.

Overlap relief must be claimed in your 2023/24 tax return, which must be filed by 31 January 2025.

Determining your overlap profits

To claim overlap relief, you will need to know what your overlap profits are. This may not be a number that you have easily to hand, particularly if you started your business many years ago.

HMRC are launching an online form which can be used to submit requests for details about overlap relief.  At the time of writing, it was expected that the service would be available from 11 September 2023. They will only be able to provide information on overlap relief if the figures are recorded in their systems, taken from tax returns that you submitted previously. If the information was not provided to HMRC in your tax returns, HMRC will be unable to provide it. When making a request for overlap relief information, you need to supply some details about your business to HMRC.

You can make a request for information on your overlap profits ahead of the launch of the online form. If you choose to do this, you will need to supply the following information:

• your name;
• your National Insurance number or your Unique Taxpayer Reference (UTR);
• a name or description of your business, or both;
• whether you operate as a sole trader or are in a partnership;
• the date that you commenced as a sole trader or the date of commencement of the partnership, as applicable;
• the start and end date of the most recent accounting period; and
• the year(s) in which the accounting date changed, if relevant.

Relief for overlap profits that is not claimed in 2023/24 will be lost.

If you need to file a Self Assessment tax return for 2022/23, you have until midnight on 31 January 2024 in which to do this, as long as you file online. However, HMRC have been encouraging taxpayers to file their tax return early. Is this worthwhile and what are the benefits?

Due a tax refund?

If you think you might have paid too much tax in 2022/23, filing your tax return early will enable you to claim a refund sooner – you do not need to wait until January 2024. The money is arguably better in your bank account than in HMRC’s.

Better budgeting

Filing your tax return early will help you budget, and if you have tax to pay, give you more time to put funds aside to meet your tax bill. If your tax and Class 4 National Insurance bill for 2022/23 is more than £1,000, unless 80% of it is deducted at source, for example under PAYE, you will need to make payments on account for 2023/24. The first payment on account for 2023/24 is due by 31 January 2024, along with any balance remaining due for 2022/23 and any Class 2 National Insurance for that year. The second payment on account for 2023/24 is due by 31 July 2024. Each payment is 50% of your 2022/23 tax and Class 4 National Insurance liability.

Struggling to pay?

By filing your tax return early, you will know in advance what you owe. If you know you will struggle to meet your tax bills, you can set up a Time to Pay agreement to allow you to pay your bill in manageable instalments. You may be able to do this online.

Easier access to help

Although HMRC closed their Self Assessment helpline during the summer, it reopened on 4 September. HMRC helplines become very busy during January as the deadline approaches. Filing your return early will make it easier to access help from HMRC if you need it.

Peace of mind

Filing your tax return early will give you the peace of mind that comes from knowing that the job has been done. It also means that you won’t risk a late filing fee of £100 for missing the filing deadline.