Penalty Reprieve Ends and Interest Rate Hike
Any taxpayer that was relying on the relaxation of the late payment penalty rules must have either paid their tax bill or agreed a time to pay arrangement before 1 April. Unless there is a reasonable excuse, a 5% penalty will shortly be levied.
Additionally, from 5 April the penalty interest rate on late payments of tax will increase to 3.25%, following the latest rise in the Bank of England base rate. This applies even where a payment arrangement is agreed.
The official rate of interest (used to work out the taxable benefit in kind on cheap employer loans) remains at 2%. The repayment rate is unchanged at 0.5%.
Clarification on VAT Treatment of Termination Payments
From 1 April, HMRC’s new interpretation of the rules for early termination fees and compensation payments take effect. Broadly, the effect is that the VAT treatment of such payments will follow that of the underlying supply. So, if a business pays an early termination fee to cancel a mobile phone contract, VAT will apply to the fee because the payments under the original contract would have been taxable.
HMRC’s Brief (available here) makes clear that it is the substance of the payment that is important, not the legal form. So, receiving an invoice described as a “bill for damages” for example would not take the payment outside the scope of VAT.
Following the original decision to change practice following two CJEU cases, it was initially thought that dilapidation payments for damages to property would be included. However, that has now been abandoned so landlords should not apply VAT to bills for damages at the end of a lease.
Removal of Option for Employment Expense Claims
From 6 May, it will no longer be possible to make a claim for employment expenses via writing a letter or using a makeshift claim form, e.g. by preparing something in a spreadsheet. Instead, HMRC will insist on the use of a tax return, form P87, a claim via the personal tax account, or (in limited cases) a phone call. The P87 has been improved to permit claims for multiple years to be made on a single form.
Spring Statement Brief Summary
The Chancellor cut Fuel Duty by 5p per litre until March 2023. The cut was effective from 6pm on 23 March. There was also a reclassification of certain energy saving materials for VAT purposes, from the reduced rate to the zero rate, for a period of five years.
The Health and Social Care Levy was not abolished, as some had called for. However, as had been rumoured, the Primary Class 1 NI threshold was increased – to £12,570. This doesn’t take place until July, so the previously announced £9,880 applies until then. For company directors, this gives an effective threshold of £11,908 for 2022/23. This level also applies for both Class 2 and Class 4 NI contributions.
The Employment Allowance for Secondary Class 1 NI was also increased, from £4,000 to £5,000 from April 2022.
The Chancellor’s traditional trump card (usually the last announcement) was that the basic rate of income tax will be cut from 20% to 19% from 2024.