Self employed help for childminders in autumn statement

The autumn statement announcements should help small business owners in the shape of a national insurance abolition for class 2 and a reduction for class 4.

The abolition (although not immediate as there still exists voluntary contributions) of class 2 means anyone with profits above £12,570 will no longer be required to pay class 2 national insurance.

Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits including the State Pension through a National Insurance credit without paying any NICs, as they currently do.

Any childminders below £6,725 may still choose to pay voluntary contributions to also ensure contributory benefits. The believe is that the current rate of £3.45 per week will remain in tax year 2024-2025.

Secondly, the class 4 contribution rates payable as a percentage of taxable profits, are reducing from 9% to 8% for self employed with effect from the 6 April 2024. These rates are payable between the thresholds of £12,751 and £50,270.

National Living Wages – childminders must plan ahead

Any childcare business with assistants should note the following in the autumn statement.
The National Living Wage for 23 year olds will increase from £10.42 an hour to £11.44 per hour from April 2024.
This rate will also now apply to 21 and 22 year olds.
The new rates from 1st April 2024 as as follows:-
  • 21 and over £11.44 –  (9.8%) increase from previous rate
  • 18-20 – £8.60 – (14.8%) increase from previous rate
  • 16-17 and apprentices £6.40 (21.2%) increase from previous rate
Class 1 national insurance for employees will be cut from 12% to 10% for employees earning between £12,570 and £50,270. This is implemented at the start of the new year on the 6 January 2024.

New basis period reform

What’s basis period reform

The rules that sole traders and partnerships use to work out their profits is changing from April 2023. This is called the basis period reform and will affect anyone whose annual accounting period ends on a date other than between 31 March and 5 April.

For 2023/2024 and subsequent years the taxable amount will be calculated by apportioning the business accounts of two years.

Changes on how to report profit

The best way to explain this is through an example:-

If you use the 31 December 2022 as your accounting year end date then you are assessing the twelve months from 1 January 2022 – 31 December 2022. The relevant tax year when your accounting period ends is in tax year 2022 – 2023 and reportable in this tax return.

From 6 April 2023, the new tax year basis applies, this means that you need to report profit up to the tax year end even if your accounting year ends at a different time.

In our example we will need to apportion profits between two accounting periods. The 2023-2024 period is known as the transitional year.

1 January 2023 – 31 December 2023

1 January 2024 – 5 April 2024

  • In your self assessment tax return for 2023 – 2024 you will report profits covering more than one year.
  • You may need to apportion two set of accounts to calculate your profits for the year.

If you report profits covering more than 12 months the excess is known as transition profit and can be reduced by Overlap Relief.

Spreading Relief

In the transitional year the extra profit can be taxed over five years starting in 2023-2024. This would result in an additional 20% of taxable profit in 2023-24 and for each of the following four years.

It is possible to elect to accelerate when the extra profits are taxed. If you know that a large contract is starting in 2024/25 then you might want to trigger the tax quicker to avoid higher rate tax.

What is overlap relief

In it’s simplest term overlap relief is an allowance to compensate you for profits that are taxed twice. If you didn’t have a 31 March or 5 April starting date when you started your business then the rules for working out your taxable profit would have resulted in your profits being double taxed on these profits.

Under current rules the relief is allowed when your business ceases or you change your accounting basis period.  As the basis period reform is forced on you any overlap relief you’re entitled to must be used for 2023-2024 or earlier.

If your entitled to overlap relief you can use it in any of the 2021/22, 2022/23 and 2023/24 tax years whichever gives the greatest tax saving.

How do I find out my overlap relief

If you are a childminding business who has traded for many years then it’s possible you don’t know your overlap relief figures. You should contact HMRC to obtain the overlap amounts.

HMRC have now developed an online tool to obtain information about overlap relief. This figure is needed to work out your taxable profits for 2023/24.

Please click on the link here to direct you to the HMRC tool: Get your Overlap Relief figure – GOV.UK (www.gov.uk)

You must claim / use your overlap relief in tax year 2023-2024 or earlier.

Apportionment methods and estimates

When you apportion profits the normal method is to look at the number of days however a reasonable alternative is to apportion in months or weeks.

In some circumstances it is likely that you will not know your profit for the whole tax year as your accounts are not finalised for the second part of the tax year.

In this instance you must estimate provisional figures on your tax return and estimate the profit. Once you have prepared the actual figures you must go back and amend the tax return.

What year end should a new business choose in 2023

The simplest thing is to have a short period of account aligning the accounting year end to the tax year end. Any new business should  prepare accounts to the 31 March 2024. This also aligns with Making Tax Digital quarter reporting periods that start in April 2026.

There is no mandatory law that would stop you having a 31 August, 31 December or 31 January accounting year end if your business is cyclical and better suited to these accounting year end dates.

In the main for simplicity it’s best to avoid apportionment of profits and estimating a second set of accounts in your tax return. You would also have to remember to go back and amend the tax return at a future date when actual accounting results are known.

 

 

 

 

 

 

 

 

 

News about self-assessment helpline

If you have any questions for HMRC about self assessment then the helpline is temporarily closed until the middle of September 2023.

HMRC currently have a backlog of work and trained staff are currently diverted to reduce this workload.
Anyone who requires help are directed to the following online resources:-

Self assessment chat – This is an automated chatbot.
Self assessment help sheets – These are detailed information sheets dealing with technical tax issues.
HMRC community forums – These can be helpful if you can’t find an answer elsewhere.

NMW rates from 1 April 2023

National Minimum Wage

The National Minimum Wage is the minimum pay per hour almost all workers are entitled to by law.

These rates apply from 1 April 2023.

Category of worker Hourly rate
Aged 23 and above (national living wage rate) £10.42
Aged 21 to 22 inclusive £10.18
Aged 18 to 20 inclusive £7.49
Aged under 18 (but above compulsory school leaving age) £5.28
Apprentices aged under 19 £5.28
Apprentices aged 19 and over, but in the first year of their apprenticeship £5.28

Are you on track to receive a full state pension – deadline extended for additional contributions

The opportunity to close the gap in any shortfalls in your qualifying years for state pension  has been extended by the government to 31 July 2023. You can check your contribution history via your personal tax account with HMRC.

This could be worth thousands of pounds to some individuals. You can meet the shortfall by making additional voluntary class 3 payments or class 2 payments if your self employed.

The weekly cost of class 3 is currently £15.85 and for class 2 it’s £3.15 per week. One qualifying year can add approximately £275 per annum onto your state pension per annum and this could be worth thousands from retirement if you live a long healthy life.

You can check out your qualifying years by visiting the government state pension forecast calculator Check your State Pension forecast – GOV.UK (www.gov.uk)

 

State pension – window closing on extended voluntary contributions for missing qualifying years

Extended voluntary window – catch up now to ensure future full entitlement to state pension.

Currently, there’s an extended window for individuals to plug holes in their state pension qualifying years record using voluntary NI contributions. However, this is coming to a close after 5 April 2023. 

The state pension is only available to those who have a sufficient NI history. Entitlement is accrued by reference to “qualifying years”. Missing years can result in a shortfall when retirement age is attained, meaning only a partial pension is paid. If the gap is substantial, there may be no entitlement at all. To permit people to catch up on missing years, the government permits payment on class 3 NI at a fixed rate – known as voluntary contributions – to be paid. Usually, this can only be done for the last six years. However, there is a current incentive extending the window back to 6 April 2006.
From 6 April 2023 this will revert to the standard six years. It’s crucial that you check your NI record and make good any missing years’ contributions for tax years prior to 2017/18 before that date or the opportunity may be lost for good.

Check your National Insurance record – GOV.UK (www.gov.uk) 

Pay voluntary Class 3 National Insurance: Overview – GOV.UK (www.gov.uk)

NLW and NMW changes from April 2022

The national living wage and the national minimum wage are increasing from April 2022. Please see rates below and apply accordingly to your employees.
 
 
Age 23 – £9.50 (National Living Wage)
Age 21-22 – £9.18
Age 18-20 – £6.83
Age 16-17 – £4.81
Apprentice – £4.81

Job support scheme

JSS new changes announced

The job support scheme was due to change from the 1st November 2020 to a less attractive scheme from the two previous support schemes for employees. However, due to the worsening pandemic conditions and the introduction of a Tier system for local authorities the scheme has now changed again.

What are the changes

It’s just been announced that employers will be expected to pay 5% of the cost of unworked hours under the Job Support Scheme (JSS) instead of the 33% originally communicated.

When originally announced, the JSS required employers to pay one third of their employees’ wages for hours not worked. Employees were required to be working 33% of their normal hours. But today’s announcement reduces the employer’s contribution to those unworked hours to 5% and cuts the minimum hours requirement to 20%. This means that staff working just one day per week will be eligible.

We will come back and update this page with a worked example on how the payroll employee costs are calculated for employers operating payroll. Any  additional government guidance on the mechanics of the scheme changes will be updated on this page.

 

Time to Pay arrangements

Are you struggling to pay your tax bills?

Did you know that the second payments on account for 2019/2020, due by the 31st July 2020 was deferred automatically until the 31st January 2021. There is now an additional option if you are unable to make these payments in full by 31 January 2021.

Childminders could set up a “Time to Pay” payment plan of up to 12 months online without needing to phone HMRC. If an individual required a longer period than 12 months to repay their debt, then they need to contact HMRC to set it up.