HMRC has welcomed a recent Court of Appeal decision concerning a disguised remuneration case. These types of schemes provide employees with the bulk of their earnings in the form of loans that are used to try and avoid paying Income Tax and National Insurance contributions (NICs).

In the case in question, an IT contractor used a disguised remuneration tax avoidance scheme, entering into an arrangement whereby he worked through an umbrella company based outside the UK to provide his services to UK-based financial service companies.

He received most of his earnings in the form of loans, organised by the umbrella company, which were initially claimed not to be taxable. The taxpayer eventually accepted that he had received taxable income, but he claimed he should not have to pay anything because he was entitled to a notional PAYE credit.  

The Court of Appeal’s agreed with HMRC’s assertion that the taxpayer was not entitled to a PAYE credit. The taxpayers appeal (and cross-appeals) was rejected and HMRC’s right to collect unpaid Income Tax was allowed, without any setoff for a notional PAYE credit. 

HMRC is reminding other taxpayers with similar arrangements that they can still make a settlement under the Disguised remuneration settlement terms 2020. This includes individuals who received loans before 9 December 2010, where HMRC still has open enquiries or assessments.

A reminder that the 1.25% increase in NIC contributions that came into effect on 6 April 2022 are reflected in a similar increase in the tax charge on dividends. 

This means that the dividend tax rates for 2022-23 are as follows (all rates having increased by 1.25% over the 2021-22 rates):

• Basic rate taxpayers will pay tax on dividends at 8.75%.
• Higher rate taxpayers will pay tax on dividends at 33.75%.
• Additional rate taxpayers will pay tax on dividends at 39.35%.

This change applies UK-wide. The dividend tax allowance was first introduced in 2016 and replaced the old dividend tax credit with an annual £5,000 dividend allowance with tax payable on dividends received over this amount. The tax-free dividend allowance was reduced to £2,000 with effect from 6 April 2018 and has remain fixed at that level ever since.

The dividend tax is charged on taxable dividend income an individual receives that falls outside of the personal allowance and that exceeds the dividend allowance. Taxable dividend income excludes, for example, dividends on assets held in ISAs.

According to government figures, around 59% of individuals with taxable dividend income are not expected to pay any dividend tax in 2022-23. The average loss of those affected is around £335 although there will be additional and higher-rate taxpayers who will owe significantly more tax.

The basis period reforms will change the way trading income is allocated to tax years. The reforms will change the basis period from a ‘current year basis’ to a ‘tax year basis’. Under the current rules there can be overlapping basis periods, which charge tax on profits twice and generate corresponding ‘overlap relief’ which is usually given on cessation of the business. The new method of using a ‘tax year basis’ will remove the basis period rules and prevent the creation of further overlap relief. 

The new rules are set to come into effect in the 2024-25 tax year with 2023-24 being a transitional year. During the transitional year, all businesses’ basis periods will be aligned to the tax year and all outstanding overlap relief given.

The changes will affect businesses which draw up annual accounts to a date different to 31 March or 5 April (mainly seasonal businesses and large partnerships), and businesses that commence from 6 April 2024. Affected businesses should ensure they are prepared for the changes as there may be implications on cashflow by accelerating profits into an earlier tax year as well as increased compliance costs.

HMRC offers taxpayers the ability to check their Income Tax for the current tax year. The online portal has been updated for the new 2022-23 tax year from 6 April 2022 to 5 April 2023. The service is not available to taxpayers who only pay Income Tax using Self-Assessment.

The service can be used to:

• check your tax code and Personal Allowance
• see if your tax code has changed
• tell HMRC about changes that affect your tax code
• update your employer or pension provider details
• see an estimate of how much tax you will pay over the whole tax year
• check and change the estimates of how much income you will get from your jobs, pensions or bank and building society savings interest

In order to use this service, taxpayers must prove their identity using a Government Gateway user ID. If you have not used this service before, you can register online.

The portal used to be available for those using the GOV.UK Verify service. However, this alternative sign-in method for a limited number of HMRC online services was removed from 1 April 2022.

There are a number of reasons why you might need to complete a Self-Assessment return. This includes if you are self-employed, a company director, have an annual income over £100,000 and / or have income from savings, investment or property.

Taxpayers that need to complete a Self-Assessment return for the first time should inform HMRC as soon as possible. The latest date that HMRC should be notified is by 5 October following the end of the tax year for which a Self-Assessment return needs to be filed. If you required to submit a Self-Assessment return for 2021-22, you should ensure that you file your tax return electronically and pay any tax due by 31 January 2023.

HMRC has an online tool www.gov.uk/check-if-you-need-tax-return/ that can help you check if you are required to submit a Self-Assessment return.

The list of taxpayers that are usually required to submit a Self-Assessment return includes:

• The self-employed (earning more than £1,000);
• Taxpayers who had £2,500 or more in untaxed income;
• Those with savings or investment income of £10,000 or more before tax;
• Taxpayers who made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax;
• Company directors – unless it was for a non-profit organisation (such as a charity) and you did not get any pay or benefits, like a company car;
• Taxpayers whose income (or that of their partner’s) was over £50,000 and one of you claimed Child Benefit;
• Taxpayers who had income from abroad that they needed to pay tax on;
• Taxpayers who lived abroad and had a UK income;
• Income over £100,000.