The Finance Act 2022 included legislation to reform the way trading profits are allocated and taxed. The purpose of the legislation is so that profits are time apportioned to the tax year instead of the accounting date. This reform affects individuals who are self-employed, including partners in trading partnerships, if their accounting periods are not aligned to the tax year (dates from 31 March to 5 April inclusive are treated as aligned to the tax year for this purpose). The changes will take effect from the 2024/25 tax year, with transitional rules applying in 2023/24.

Special rules apply for the first year of a trade – where the individual will be allocated profits from when the trade commenced up to the end of the tax year.

Individuals and partnerships may consider if changing their accounting period to align with the tax year is beneficial. This may help to save on additional accounting and associated costs.

Where additional liabilities are generated in the transitional year, there is potential relief by spreading the additional profit over a 5 year period.

The Upper Tribunal has overturned a First-tier Tribunal decision that allowed a taxpayer to utilize the “exceptional circumstances” provision regarding the UK’s Statutory Residence Test. Last year, a case (A Taxpayer v HMRC) saw the taxpayer argue that certain days spent in the UK during a tax year should be disregarded due to exceptional circumstances. However, the Upper Tribunal ruled that the circumstances were not truly “exceptional,” making the taxpayer a UK tax resident for that year.

The “exceptional circumstances” provision allows ignoring up to 60 days for SRT purposes under specific conditions. The recent judgment clarified that this provision must be objectively verified, emphasizing that circumstances must truly prevent the taxpayer from leaving the UK, not merely hinder them. Additionally, moral or conscientious inhibitions don’t qualify as exceptional circumstances.

The ruling raises questions about when moral obligations may constitute exceptional circumstances, creating a challenge for taxpayers dealing with circumstances affecting family members. The Tribunal’s decision suggests a stringent interpretation of exceptional circumstances, requiring clear evidence for each day a taxpayer seeks to discount. Practitioners should warn clients that HMRC may challenge claims based on moral obligations, emphasizing the importance of comprehensive record-keeping for substantiating exceptional circumstances claims. Despite the judgment’s implications, further discussions and debates are expected to reconcile tensions between the Tribunal’s remarks and existing legislation or HMRC guidance. Taxpayers and advisors should be prepared for thorough scrutiny of exceptional circumstances claims by HMRC.

This is a link to an article written by Nomaan Ilyas, published in the American Magazine in July 2023

The IRS recently released guidance on ‘non-fungible tokens’ (NFTs) and published their intent to issue guidance related to the taxation of certain NFTs as ‘collectibles’ in order to determine whether a gain from a sale of an NFT is taxed at the maximum capital gains tax rate of 28% or at a rate more favourable to assets that are not collectibles.

The IRS are looking to implement the ‘look-through rule’ to determine whether an NFT classifies as a collectible for US federal income tax purposes by looking through to the underlying associated right or asset, and use the results to state whether such ‘associated right or asset’ constitutes as a collectible; and therefore be taxed at a maximum of 28% if a capital gain were to be made at a sale.

If the IRS were to find, via the look-through rule, that an NFT does not classify as a collectible by analysing it’s underlying associated right or asset then the proceeds from the sale of such NFT will be subject to a maximum 20% long-term capital gain tax rate.

Please contact our team if you require further information.

For those of you who have considered renouncing your US citizenship may know that it has become ever more difficult to do so. A process that used to take a few months is now taking well over a year. Post covid, the US Embassy in London had only started to take requests for the renunciation interview last summer. There is no given time frame of when you will receive your appointment date, but we know it is taking longer than a year for the interview confirmation to come through. Due to this many who had considered renouncing their citizenship have since changed their mind. Others who are desperate to give up their citizenship have even considered travelling abroad to make an appointment with a US consular service that have a quicker turnaround.

There has however been some positive news for those still considering renunciation. Following the ongoing case against the US Department of State by the Paris based Association of Accidental Americans, the US state Department announced that it intends to reduce the fee is charges for renunciation to $450. The current fee is $2,350 and is the highest fee charged by any nation for the voluntary renunciation of citizenship, with some countries charging nothing for the right to expatriate. It is not yet clear when the change of fee will be implemented. Fabien Lehagre, founder, and president of the Association of Accidental Americans commented: “The State Department’s statement is extremely encouraging and tacitly acknowledges that this legal challenge has and will accomplish what it set out to do. By lowering the fee to $450, the U.S. government is showing that the right of voluntary expatriation is not to be trifled with and deserves the utmost protection. Time will tell how the government will formulate and develop the new fee and my organization intends to continue to campaign against any fee or restriction on this sacred right of renunciation.”

On 29 November 2022, Brazil and the UK signed a Double Taxation Agreement (DTA) which will enter into force when the relevant legislative procedures are completed. The DTA will establish the following withholding tax rates or source country taxation..

Dividends (Article 10):

10% of the gross number of dividends paid to a company (the beneficial owner) that holds directly at least 10% of the capital of the payer company throughout a period of 365 days. In all other cases, the rate will be 15%.

Interest (Article 11):

7% of the gross amount of interest paid to a bank or insurance company on a loan that was granted for at least a five-year period to finance infrastructure projects and public utilities.

10% of the gross amount of interest from: loans granted by banks, bonds that are regularly traded on a qualified stock exchange and a sale on credit paid by the purchaser of equipment to the seller.

For all other cases, the rate will be 15%.

In 2021, The Office of Tax Simplification (OTS) reviewed the current CGT rules relating to separating couples or civil partners and proposed a number of recommendations which have been accepted by the Government, although is yet to be progressed through Parliament.

This proposal has come into light as at present, no capital gains tax (CGT) is charged on a transfer of assets between a married couple or civil partners who live together. However, if the couple separate or divorce, this tax relief does not necessarily apply.

The new rules intend to enable a couple to separate and divorce without undue pressure to reach a financial agreement due to CGT consequences.

The Chancellor of the Exchequer, Jeremy Hunt, announced significant changes to the personal tax code for pensions.

The Changes taking place from April 6th, 2023:

Annual Allowance (AA) – will rise from £40,000 to £60,000 annually.

Money Purchase Annual Allowance (MPAA) and Tapers Annual Allowance (TAA) will rise from £4,000 to £10,000 per year.

Lifetime Allowance (LTA). LTA will be completely abolished in a future finance Bill.

Pensions Commencement Lump Sum (PCLS). The maximum PCLS for individuals without protections will remain at 25% of the current LTA (£268,275) and will then be frozen.

What are the effects of the changes on individuals?

In its most recent Pension Schemes Newsletter, HMRC clarified the situation, stating that participants with active enhanced or fixed safeguards will be able to accrue new benefits, join other programmes, or move without losing such protections if the application was made by 15 March 2023. Members who have a protected right to a higher PCLS will continue to have that privilege. Despite this, there are still a lot of unanswered concerns, especially around what a Labour government might accomplish.

What are the effects of the changes on employers and trustees?

While the announcements of the Chancellor’s reforms will be welcome news for some, the unanswered questions will leave many wary. Pensions is a long-term financial planning tool, so individuals need reliable and consistent rules in order to plan effectively. Ultimately, the devil will be in the detail. Some (but not all) of that will be introduced in future Finance Bills, and (relative) certainty may not be achieved until after the next general election.

HMRC has increased the interest rate it charges on unpaid income tax, national insurance, capital gains tax, stamp duty, corporation tax and inheritance tax to 6.75% following last month’s Bank of England base rate rise. The rate now stands at a 14-year high and is more than double what it was last January, when it was 2.75%.

However, those owed money by HMRC will receive just 3.25% interest, up more than two percentage points since January last year. The interest rate on late paid tax has doubled in less than a year therefore delaying paying HMRC has a real cost to it. Therefore, If you are going to struggle to pay your bill on time, agreeing a formal time to pay arrangement with HMRC before the penalty is charged will mean as long as you stick to the instalment payments agreed, the penalty won’t be charged. However, interest will be applied.

Chancellor Jeremy Hunt presented a “Budget for Growth”, after the Office for Budget Responsibility predicted that the UK economy will perform better than expected this year with inflation continuing to fall. We have summarised the changes that were outlined and we hope this will help you to better understand the UK’s current position. Here are some key points to note:

• Tax on dividends, where taxable, will increase by 1.25% from 6 April 2023.

• The Annual Allowance for pensions has increased from £40,000 to £60,000.

• The pensions Lifetime Allowance charge abolished.

• Limitations to the maximum an individual can claim as a Pension Commencement Lump Sum to 25% of the current Lifetime Allowance (£268,275), except where previous protections apply.

• The expected increase in the rate of corporation tax for many companies from April 2023 to 25% will go ahead.

• From April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, a two-thirds increase.

• The annual investor limit will be doubled to £200,000 for SEIS.

• No changes to the current rates of CGT have been announced.

• Inheritance Tax nil-rate bands will remain fixed until April 2028.

You can view our summary HERE and if you have any questions feel free to contact us.