Corporation tax increase from April 2023
The main rate of corporation tax is due to increase to 25% for the financial year 2023, starting on 1 April 2023. However, companies with profits of £50,000 or less will continue to pay corporation tax at the current rate of 19%. Companies whose taxable profits fall between £50,000 and £250,000 will pay corporation tax at the main rate of 25%, but will receive marginal relief which will reduce the effective rate of tax that they pay. Details of the proposed changes can be found in a policy paper published by the Government.
The rate of corporation tax will remain at 19% for the financial year 2022, starting on 1 April 2022.
Small companies’ rate from 1 April 2023
A small companies’ rate of 19% will apply from 1 April 2023 to companies with taxable profits of £50,000 or less. This limit is reduced if the company has associated companies or if the accounting period is less than 12 months.
Marginal relief from 1 April 2023
Companies whose profits fall between the lower profit limit, set at £50,000, and the upper profits limit, set at £250,000, are able to claim marginal relief. This will provide a bridge between the small companies’ rate of 19%, applying to companies with profits of £50,000 or less, and the main rate of 25%, applying to companies with profits of £250,000 or more. The effective rate of corporation tax on profits falling between these two limits will increase gradually. The limits are reduced to reflect the number of associated companies that a company has, for example, being divided by 2 where a company has one associated company. The limits are also proportionately reduced where the accounting period is less than 12 months.
The marginal relief fraction is set at 3/200. The amount of marginal relief is found by multiplying the fraction by the difference between the company’s profits and the upper profits limit of £250,000. For example, if a company has taxable profits of £100,000, they would be entitled to marginal relief of £2,250 (3/200 x (£250,000 – £100,000)).
The calculation is modified if the company has franked investment income.
Where a company’s profits fall between the lower and upper profits limits, their corporation tax liability is found by multiplying their profits by the main rate of 25% and deducting marginal relief. Thus, a company with profits of £100,000 for the year to 31 March 2024 would pay corporation tax of £22,750 ((£100,000 @ 25%) – £2,250). This gives an effective rate of corporation tax of 22.75%.
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Contact us to find out what the increase in corporation tax will mean for your company and how to plan ahead for the change.
New capital allowances super-deduction
Companies within the charge to corporation tax who invest in new plant and machinery in the two years from 1 April 2021 are able to benefit from two new first-year allowances, including a super-deduction of 130%. Details of the measure are set out in a policy paper published by the Government.
Companies that invest in plant and machinery that would otherwise qualify for main rate capital allowances between 1 April 2021 and 31 March 2023 can claim a super-deduction of 130%. The deduction is in the form of a first-year capital allowance. However, it is not available for expenditure for which the claiming of a first-year allowance is excluded by the legislation. The list of exclusions includes expenditure on cars (although a 100% first-year allowance is available separately for zero-emission cars) and expenditure on plant and machinery for leasing. First-year allowances cannot be claimed for the accounting period in which the trade is permanently discontinued.
Impact of the super-deduction
Where the super-deduction is claimed, the company will receive a deduction when computing profits of £1.30 for every £1 that they spend on qualifying plant and machinery. This provides tax relief at the rate of 24.7% (19% x 130%).
Accounting periods spanning 1 April 2023
The super-deduction is available at the rate of 130% where the expenditure is incurred between 1 April 2021 and 31 March 2023. However, the rate of deduction is reduced where the accounting period spans 1 April 2023.
Where expenditure is incurred in a period that straddles 1 April 2023 and is incurred prior to that date, the rate of deduction is given at the ‘relevant percentage’. This is found by dividing the number of days in the period prior to 1 April 2023 by the total number of days in the accounting period, multiplying this by 30 and adding it to 100. For example, if the accounting period is the year to 31 December 2023, the relevant percentage for qualifying expenditure incurred prior to 1 April 2023 is 107.4% ((90/365 x 30) + 100).
A deduction is available at the rate of 100% for qualifying expenditure incurred on or after 1 April 2023 in an accounting period that straddles 1 April 2023.
If an asset which has benefited from the super-deduction is sold, relief is clawed back by treating the disposal proceeds as a balancing charge, rather than allocating them to the relevant pool. If the disposal event occurs in an accounting period that ends before 1 April 2023, the balancing charge is found by multiplying the disposal proceeds by 1.3.
If the disposal event takes place in an accounting period that spans 1 April 2023, the disposal proceeds are multiplied by the ’relevant factor’ to arrive at the balancing charge. This is found by dividing the number of days in the period prior to 1 April 2023 by the total number of days in the accounting period, multiplying this by 0.3 and adding it to 1.
In all other cases, the balancing charge is equal to the disposal proceeds.
The SR allowance
A second new first-year allowance – the SR allowance – is introduced for qualifying expenditure by companies on assets that would otherwise qualify for capital allowances at the special rate of 6% where the expenditure is incurred between 1 April 2021 and 31 March 2023. The allowance is given at the rate of 50%. Assets falling into this category include long-life assets, thermal insulation and expenditure on integral features. As with the super-deduction, expenditure on cars does not qualify for the SR allowance.
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Speak to us to discuss how you can benefit from the new first-year allowances and other available capital allowances.
Further grants available under the SEISS
The Self-Employment Income Support Scheme (SEISS) provides grant support to eligible self-employed taxpayers who have been adversely affected by the COVID-19 pandemic. A further two grants are to be paid under the scheme. In addition, the scheme has been expanded to include those who commenced self-employment in 2019/20. Guidance on the grants can be found on the Gov.uk website.
The fourth grant covers February, March and April 2021 and is worth 80% of average profits for three months, capped at £7,500. The grant can be claimed from late April 2021, and will be paid in a single instalment. The claim window will run until 31 May 2021.
A trader will be eligible to claim if they have been adversely affected by the COVID-19 pandemic. This test will be met if the trader is currently trading but has suffered reduced demand as a result of the pandemic, or if they have been trading but are unable to do so temporarily due to Coronavirus. Suffering additional costs where demand has not fallen does not qualify the trader for the grant.
As previously, a trader can only benefit from the scheme if their trading profits are no more than £50,000 and comprise at least 50% of the trader’s total income. HMRC will look first at the trader’s profits as returned on their tax return for 2019/20. Where these are more than £50,000, HMRC will look at average profits over 2016/17 to 2019/20. The rules are modified if the trader did not trade in all of those years.
The fifth and final grant covers the period from May to September 2021. Unlike the previous grants, the amount of the fifth grant depends on the extent to which turnover has fallen as a result of the COVID-19 pandemic. Traders will be able to claim the fifth grant from late July.
Turnover has fallen by at least 30%
Where the trader’s turnover has fallen as a result of the COVID-19 pandemic by at least 30%, the fifth grant will be worth 80% of three months’ average profits capped at £7,500.
Turnover has fallen by less than 30%
Traders who have been less severely affected by the pandemic will receive a lower grant. Where turnover has fallen by less than 30%, the fifth grant will be worth 30% of three months’ average trading profits, capped at £2,850.
The Government will publish further details on the fifth grant in due course.
When initially launched, the scheme was only available to traders who had filed their 2018/19 self-assessment tax return by 23 April 2020. However, as the deadline for filing the 2019/20 tax return has now passed, taxpayers who commenced self-employment in 2019/20 are able to claim the fourth and fifth grants, as long as they meet the usual eligibility criteria and they traded in both 2019/20 and 2020/21 and submitted their 2019/20 tax return by midnight on 2 March 2021.
Contact us to find out whether you are eligible for the fourth and fifth grants under the SEISS, and what the grant is worth to you.
CJRS extended until 30 September 2021
The Coronavirus Job Retention Scheme (CJRS) has provided a lifeline for many employers and employees during the COVID-19 pandemic. The scheme was due to come to an end on 30 April 2021. However, at the time of the 2021 Budget, the Chancellor, Rishi Sunak, announced that the scheme would, once again, be extended. It will now run until 30 September 2021.
Nature of the scheme
The CJRS allows employers to furlough or flexibly furlough employees, and to claim a grant for the usual hours that they do not work. The employee receives 80% of their normal pay for their unworked hours, subject to a cap equivalent to £2,500 a month. The employer can claim some or all of this amount, depending on the month to which the claim relates. Where an employee is flexibly furloughed, the employer must pay the employee for the hours that they work at their usual rate.
Final phase of the scheme
The final phase of the scheme runs from 1 May 2021 to 30 September 2021. The amount that the employer can claim under the scheme remains unchanged for May and June, but reduces from July onwards once lockdown restrictions are lifted. Guidance on changes to the scheme from July can be found on the Gov.uk website.
Grant claims – May and June 2021
For May and June 2021, employers can continue to claim 80% of the employee’s pay for their unworked hours, up to the monthly cap of £2,500 (reduced proportionately where the employee is not fully furloughed for the full month). The employee must continue to be paid in full for any hours that they work, and also 80% of their pay up to the level of the cap for any usual hours that are unworked in the month.
Grant claim – July 2021
From July onwards, the employer is required to contribute to the payments made to furloughed and flexibly furloughed employees for their unworked hours.
For July 2021, the amount that the employer can claim under the CJRS for the employee’s unworked hours is reduced to 70% of their usual pay for those hours, subject to a cap of £2,187.50 per month (reduced proportionately where the employee is not fully furloughed for the full month). However, the employee will continue to receive 80% of their usual pay for their unworked hours, subject to the monthly cap of £2,500. This means that the employer must make up the difference of 10% (capped at £312.50 per month) between the amount claimed under the CJRS and the amount paid to the employee.
Grant claims – August and September 2021
The amount that the employer can claim is further reduced in the final two months of the scheme. For August and September 2021, the employer can claim a grant of 60% of the employee’s usual pay for their unworked hours, subject to a cap of £1,875 per month (proportionately reduced where the employee is not fully furloughed for the full month).
The employer must continue to pay the employee 80% of their usual pay for their unworked hours. Consequently, the employer must top up the grant claimed from the Government, contributing 20% of the employee’s usual pay for their unworked hours (up to £625 per month).
We can help
We can help you work out what support you can claim for your employees as lockdown restrictions are eased and the CJRS is wound down.
Thresholds and allowances frozen until April 2026
To help meet some of the costs of the COVID-19 pandemic, the Chancellor has opted to freeze various allowances and thresholds until April 2026, rather than increase the rates of income tax and capital gains tax. As incomes rise over the period, more people will pay tax, and more people will pay tax at the higher and the additional rates.
Personal allowance and basic rate band
The personal allowance is increased to £12,570 for 2021/22, from £12,500 for 2020/21. It will remain at this level for all tax years up to and including 2025/26. The allowance is reduced by £1 for every £2 by which income exceeds £100,000. As a result, for the tax years 2021/22 to 2025/26 inclusive, anyone with income in excess of £125,140 will not receive a personal allowance.
The basic rate band is increased to £37,700 for 2021/22, from £35,500 for 2020/21. As a result, the point at which taxpayers in receipt of the standard personal allowance start to pay higher rate tax is increased to £50,270 for 2021/22, from £50,000 for 2020/21. It will remain at £50,270 for future tax years up to and including 2025/26.
Capital gains tax annual exempt amount
Individuals are allowed to realise net chargeable gains up to the level of the annual exempt amount for each tax year before a liability to capital gains tax arises. The capital gains tax annual exempt amount remains at £12,300 for 2021/22, and will stay at this level for the following four tax years.
National Insurance thresholds
The upper earnings limit for Class 1 National Insurance contributions and the upper profits limits for Class 4 National Insurance contributions are aligned with the level at which higher rate tax become payable. This ensures that once a person starts to pay tax at the higher rate, the rate at which they pay National Insurance drops to the additional rate of 2%, so that they do not pay both higher rate tax and main rate National Insurance contributions on the same income. For 2021/22, the upper earnings limit for Class 1 National Insurance contributions and the upper profits limit for Class 4 National Insurance contributions are set at £50,270. As the higher rate threshold is frozen at this level until April 2026, both the upper earnings limit and the upper profits limit will remain at £50,270 for all tax years up to and including 2025/26.
Inheritance tax nil rate bands
No inheritance tax is payable unless the value of the deceased’s estate exceeds the nil rate band. This has been frozen at £325,000 since 2008/09. It was due to be reviewed in 2021. However, at the time of the 2021 Budget, the Chancellor announced that the nil rate band would remain at £325,000 for another five years, for 2021/22 to 2025/66 inclusive.
A further nil rate band – the residence nil rate band (RNRB) – is available where the main residence is left to a direct descendant, such as a child or a grandchild. The RNRB remains at its 2020/21 level of £175,000 for 2021/22. It too is frozen at this level until April 2026.
The freezing of the nil rate bands will bring more estates within the charge to inheritance tax. Planning ahead and making more lifetime transfers could reduce the eventual liability on the estate at death.
Pension lifetime allowance
The pension lifetime allowance places a cap on the value of tax-relieved pension savings. The lifetime allowance remains at its 2020/21 level of £1,073,100 for 2021/22 and for the following four tax years. If the value of your pension savings is nearing this level, it is important that you review your pension pot before making further tax-relieved contributions in any of the years from 2021/22 to 2025/26 inclusive.
Where tax-relieved pension savings exceed the lifetime allowance, tax relief is clawed back at the rate of 25% where the excess is taken as a pension, and at the rate of 55% where the excess is taken as a lump sum.
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Speak to us to understand what the freezing of the allowances and thresholds will mean to you, and what action you can take to mitigate the effects.
Off-payroll working – what do the changes means for you?
The extension to the off-payroll working rules finally comes into effect from 6 April 2021, having been delayed by a year as a result of the COVID-19 pandemic. The rules were originally introduced from 6 April 2017 where a worker’s services were provided to a public sector body via an intermediary. The extension from 6 April 2021 brings engagements where the end client is a medium or large private sector organisation within their scope.
The extent to which the extension to the rules will affect you depends on whether you engage workers who provide their services through an intermediary or whether you provide services in this way, and also whether you or your end client is a medium or large private sector organisation.
Scenario 1 – you engage workers providing their services through an intermediary
If you engage workers who provide their services to you through an intermediary, such as their own limited or personal service company, the extent to which you need to consider the off-payroll working rules depends on whether you are:
- a medium or large private sector organisation;
- a small organisation; or
- a public sector body.
Medium and large private sector organisations
The off-payroll rules apply from 6 April 2021 to medium and large private sector organisations that engage workers who provide their services through intermediaries, such as a personal service company. If you are a private sector organisation engaging staff in this way, it is important that you know what size your organisation is for these purposes. You will be a medium or large organisation if at least two of the following apply:
- annual turnover is more than £10.2 million;
- balance sheet total is more than £5.1 million;
- you have more than 50 employees.
If you fall within this category, for each engagement that is live on or after 6 April 2021 where you engage a worker who provides their services through an intermediary, you must:
- determine whether the worker would be an employee if they provided their services to you directly; and
- advise the worker of their status by giving the worker, and all other parties in the chain, a Status Determination Statement.
HMRC’s Check Employment Status for Tax (CEST) tool can be used to determine the worker’s status.
If the decision is that the worker would be an employee if they provided their services to you directly, rather than via their personal service company, the off-payroll working rules apply. This means that you (or the fee-payer where this is a third party) must calculate the deemed direct payment (broadly, the amount invoiced by the worker’s intermediary, less VAT and the cost of any recharged materials and employment expenses, where applicable) and deduct tax and National Insurance when paying the worker’s intermediary.
You also need to report the payment and deductions to HMRC under Real Time Information (making it clear that the worker is an off-payroll worker), and pay the deductions, together with employer’s National Insurance, over to HMRC. You must also take the payment into account when working out your apprenticeship levy payments.
The requirement to pay employer’s National Insurance is a new cost, and you should budget for this.
Small private sector organisations
The off-payroll rules do not apply to small private sector organisations. Consequently, if you are a small private sector organisation and you engage workers who provide their services through a personal service company or other intermediary, from 6 April 2021, as now, you continue to pay the invoice from the worker’s intermediary gross, without deducting tax and National Insurance. You do not need to carry out a status determination either.
Public sector bodies
The off-payroll rules have applied to public sector bodies engaging staff providing their services through an intermediary since 6 April 2017. From 6 April 2021, the rules continue to apply as now (subject to some minor tweaks to facilitate their application to the private sector). The public sector body engaging the worker’s intermediary must continue to assess whether the engagement falls within the off-payroll working rules, and deduct tax and National Insurance from payments to the worker’s intermediary where it does.
Scenario 2 – you are a worker providing your services to an intermediary
Prior to 6 April 2021, if you are a worker providing your services to an end client in the private sector through a personal service company or other intermediary, you need to consider the IR35 rules.
From 6 April 2021, this may change depending on whether the end client is a medium or large private sector organisation. Remember to check the size of the organisation when agreeing engagements that are live on or after 6 April 2021.
End client is a medium or large private sector organisation
The off-payroll rules apply in place of the IR35 rules from 6 April 2021 where the end client is a medium or large private sector organisation. The end client will be responsible for deciding whether the off-payroll working rules apply. Under the rules, they must determine your status and give you a status determination statement.
If you do not agree with the status determination, you should tell the end client this, and also the reasons why you disagree. The end client must reconsider the determination in light of this. Within 45 days, the end client must either issue a new determination or confirm that the original determination stands.
If the off-payroll working rules apply, which will be the case if the nature of the engagement is such that you would be an employee of the end client if you supplied your services to them directly, rather than through your personal service company, the fee payer will deduct tax and National Insurance from payments that they make to your personal service company. This will have a cash flow implication as the amount you receive will be net of tax and National Insurance; prior to 6 April 2021, payments are made gross. Remember to allow for this.
You will receive credit for the tax and National Insurance deducted from payments made to your intermediary against the tax and National Insurance that you owe on payments that your personal service company makes to you.
Your personal service company does not need to consider the IR35 rules.
End client is a small private sector organisation
The off-payroll rules do not apply where the end client is a small private sector organisation. Therefore, if you provide your services to a small private sector organisation via an intermediary on or after 6 April 2021, you must continue to consider the IR35 rules.
This means that your personal service company must decide whether you would be an employee of the end client if you provided your services directly to that end client. If this is the case, your personal service company must calculate the deemed employment payment on 5 April at the end of the tax year, and account for tax and National Insurance on that payment to HMRC.
End client is a public sector organisation
The off-payroll rules have applied since 6 April 2017 where the end client is a public sector organisation, and continue to apply, as now, from 6 April 2021 and beyond. You do not need to do anything different.
Although the off-payroll working rules contain sanctions to ensure compliance, HMRC have stated that they will apply a light touch and will not impose late or inaccuracy penalties on medium and large organisations until 6 April 2022. This will give them a year to get to grips with the rules.
Speak to us
Talk to us about what the new rules mean for you, and what you need to do to prepare.
Business interruption insurance pay-outs
Business interruption insurance policies provide cover for losses that arise if a business is severely disrupted or is forced to close. The policy will cover losses that arise as a result, and also fixed costs that the business has to continue to pay while shut.
Many businesses that expected their policies to pay out when they were forced to close as a result of the COVID-19 pandemic found that their insurers did not agree. A sticking point for many was the policy wording, which often excluded diseases unless the disease was named.
FCA test case
To provide some clarity as to whether closures due to COVID-19 were covered, the Financial Conduct Authority (FCA) took forward a test case. A ruling in the Supreme Court found predominantly in favour of the policyholders, paving the way for compensation payments to be made.
The tax treatment of any receipts received under a business interruption insurance policy will depend on the nature of those receipts, and also whether the associated insurance premiums were deductible.
Deductibility of premiums
As a general rule, insurance premiums will be deductible in calculating the profits of the business if the premiums are incurred wholly and exclusively for the purposes of the business. If you have taken out business interruption insurance, it is likely that this test is met and you can deduct the cost of the premiums when working out your taxable profits.
Taxability of receipts
HMRC have confirmed that in most situations, where the premium is deductible, any receipts paid out under the policy will be taxable. If you have received a pay-out to compensate you for profits lost as a result of having to close your business during the COVID-19 pandemic, you should include the receipt as a trading receipt when working out your taxable profits.
If you prepare accounts using the cash basis, the receipt should be taken into account in the period in which you received it. However, if you use the accruals basis, the usual rule is that the receipt should be taken into account in the period to which it relates. This would normally be when the business was closed, but where it was not certain that the payment would be made, it should be reflected in the accounts from the date that this became clear, if later.
Can we help?
If you have received a pay-out under a business interruption insurance policy and are unsure how it should be treated for tax purposes, please get in touch.
Updating PAYE codes for 2021/22
The 2021/22 tax year starts on 6 April 2021. If you employ staff, you will need to update their tax codes before you pay them for the first time in the new tax year. However, remember to finalise the 2020/21 tax year before updating your payroll software and data for 2021/22.
Tax codes from 6 April 2021
The tax code that you will need to use for an employee from 6 April 2021 will depend on whether or not HMRC have sent you a notification of a new tax code to use from that date.
The personal allowance is increased to £12,570 for 2021/22. As a result, the PAYE starting threshold will increase to £242 per week (£1,048 per month). The emergency tax code for 2021/22 is 1270L.
Employees with a new tax code
If HMRC issue a new tax code for an employee, you will receive either a paper form P9(T), ‘Notice to employer of employee’s tax code’, or an internet notification of coding if you are registered for HMRC’s PAYE Online Service. To access your code online, you will need to:
- Go to the login page for PAYE online and select ‘Sign in’.
- Sign in to the service using your Government Gateway User ID and password.
- From your Business Tax Account home page, select ‘Messages’ and then select ‘PAYE for employers messages’.
- Select ‘View your tax code notices’.
- From the tax year drop down menu, select ‘2021/2022’.
You should use the form P9(T) or the online tax code notification with the most recent date if you have received more than one for 2021/22, and discard any previous notifications. You should update your 2021/22 payroll to reflect the tax code shown in the notification for that employee.
Employees without a new tax code
If HMRC have not issued a tax code notification for an employee, you will need to update their 2020/21 tax code to reflect the increase in the personal allowance to £12,570 for 2021/22. To do this, you should:
- add 7 to any tax code ending in L;
- add 8 to any tax code ending in M; and
- add 6 to any tax code ending in N.
For example, 1250L will become 1257L.
You should not carry over any ‘week 1’ or ‘month 1’ markings.
Scottish and Welsh taxpayers
Scottish taxpayers are identified with an ‘S’ prefix and Welsh taxpayers are identified with a ‘C’ prefix. Check any Scottish or Welsh employees (those living, respectively, in Scotland or in Wales) have the correct tax codes, including the prefix.
You can find more information on tax codes to use from 6 April 2021 in HMRC’s P9X(2021) guidance.
Get in touch
Please get in touch if you need assistance in updating your employees’ tax codes for the 2021/22 tax year.
Gift Aid warning
If you are a taxpayer and you make a Gift Aid declaration when making a donation to a charity, the charity can reclaim basic rate tax on your donation.
Tax relief on the donation
A donation made under Gift Aid is treated as being made net of the basic rate of tax, currently 20%. The charity can reclaim 25% of the amount donated. For example, if you donate £100, the charity can reclaim £25 (25% of £100), bringing the total donation up to £125. Your donation of £100 is 80% of the total donation, with the charity reclaiming the remaining 20%, i.e., £25.
If you are a higher rate taxpayer or an additional rate taxpayer, you can claim relief through your self-assessment tax return for the difference between the highest rate at which you pay tax and the basic rate relief received at source – a further 20% of the gross donation for higher rate taxpayers and a further 25% for additional rate taxpayers.
Have you paid enough tax?
The tax that is reclaimed by the charity on the donation is funded by the tax that the taxpayer has paid. As long as you pay more tax than the charity reclaims on your Gift Aided donations, all is well. However, problems can arise if your income falls and you have not paid enough tax to cover that reclaimed on your Gift Aid donations. If this is the case, HMRC will look to you to make up the shortfall.
Review your Gift Aid donations
If your income has fallen for 2020/21, either as a result of the COVID-19 pandemic or otherwise, you may wish to review your regular Gift Aid donations to ensure that you have paid sufficient tax to cover the basic rate relief given at source. If your income has fallen below the level of the personal allowance, set at £12,500 for 2020/21 and rising to £12,570 for 2021/22, you should cancel any existing Gift Aid declarations so that you do not have to repay the tax claimed on those donations back to HMRC.
When making one-off donations, consider your tax position before completing the Gift Aid declaration.
If you would like to review the tax effectiveness of your charitable donations, please contact us.
Self-assessment late payment penalty
HMRC announced in January that they would not charge a late filing penalty if your 2019/20 tax return was not filed by midnight on 31 January 2021, as long as the return was filed by 28 February 2021. Any tax due by 31 January 2021 should still have been paid by that date, unless a time-to-pay arrangement had been agreed.
Where tax is paid late, interest is charged from the due date (31 January) until the date of payment. Penalties may also be charged. However, this year, a late payment penalty will not be charged as long as the tax is paid by 1 April 2021, or a time to pay agreement set up by that date.
Interest on late paid tax
Interest is charged from 1 February 2021 on any amounts unpaid at that date. This is the case regardless of whether or not a time-to-pay arrangement is in place.
Late payment penalty waived
The first late payment penalty – set at 5% of the unpaid tax – is normally charged where the tax remains unpaid after 30 days. However, HMRC have announced that the late payment penalty will be waived as long as the tax is paid, or a time-to-pay arrangement is agreed, by 1 April 2021.
You can set up a time-to-pay arrangement online.
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Speak to us if you have unpaid tax and you need help in setting up a time-to-pay arrangement.
MTD for corporation tax
The Government would like to hear your views on proposals for a new process for keeping records for corporation tax purposes and reporting tax information to HMRC, known as Making Tax Digital (MTD). Your comments will help ensure that the design makes it as easy as possible for smaller businesses to comply when the rules are introduced.
The consultation closes at 11.45pm on 5 March 2021.
National Minimum Wage changes from 1 April 2021
You must pay employees at least the statutory minimum wage, either the National Living Wage (NLW) or the National Minimum Wage (NMW), depending on the employee’s age. From 1 April 2021, the age threshold for payment of the NLW is lowered and the rates of the NLW and the NMW are increased.
National Living Wage
The NLW is the statutory minimum wage that you must pay older workers. Prior to 1 April 2021, the NLW is payable to workers aged 25 and older. From 1 April 2021, the threshold is lowered and from that date, you must pay the NLW to workers aged 23 and older.
National Minimum Wage
The NMW is payable to workers who are at least school leaving age but who are not entitled to the NLW. There are three NMW age bands — workers aged 16 and 17, workers aged 18 to 20, and workers aged 21 and over but below the age of entitlement to the NLW. Prior to 1 April 2021, the last band applies to workers aged 21 to 24; from 1 April 2021, it applies to workers aged 21 and 22.
A lower rate of the NMW is payable to apprentices who are aged 19 and under, or who are over the age of 19, but in the first year of their apprenticeship.
Rates from 1 April 2021
The following table shows the NLW and the NMW rates that are payable from 1 April 2021.
|NLW: Workers aged 23 and above||NMW: Workers aged 21 and 22||NMW: Workers aged 18 to 20||NMW: Workers aged 16 and 17||NMW: Apprentice rate||Accommodation offset|
|£8.91 per hour||£8.36 per hour||£6.56 per hour||£4.62 per hour||£4.30 per hours||£8.36 per day
£58.52 per week
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Talk to us about what the changes to the NLW and NMW mean for your business.
File your tax return by 28 February
The normal deadline for filing the 2019/20 tax return is 31 January 2021. However, HMRC announced in a press release issued on 25 January 2021 that they would not issue a late filing penalty as long as the 2019/20 tax return is filed online by 28 February 2021. However, any tax due by 31 January 2021 must still be paid on time.
Jim Harra, Chief Executive of HMRC, confirmed that taxpayers will not receive a penalty for the late filing of their 2019/20 tax return, as long as the return is received online by 28 February 2021. HMRC have previously resisted attempts to extend the deadline due to the pressures imposed by the COVID-19 pandemic. The change of heart came late in the day as HMRC accepted that it had become increasingly clear that people were struggling to meet the 31 January deadline. The extension will provide taxpayers with breathing space to complete their returns.
Normally, a penalty of £100 is issued automatically if the return is filed after midnight on 31 January.
No change to tax payment deadline
Despite the relaxation to the filing deadline, any tax due by 31 January 2021 must still be paid by this date. This will include any remaining tax due for 2019/20, including the July 2020 payment on account where this was delayed, and also the first payment on account for 2020/21. Interest will run from 1 February 2021 on any tax paid late
Taxpayers struggling to pay their tax in full and on time can set up a Time to Pay arrangement and pay what they owe in instalments. You can do this online if the tax that you owe is £30,000 or less. However, you will need to file your return before you can set up an instalment plan.
Speak to us
Speak to us if you need help filing your 2019/20 tax return or setting up a Time to Pay arrangement.
Furloughing staff unable to work due to school closures
The Coronavirus Job Retention Scheme (CJRS) provides grant support to enable employers to continue to pay staff who are fully or flexibly furloughed. The scheme can be used for staff who have been furloughed because they have caring responsibilities.
On 4 January 2021, the Prime Minister, Boris Johnson, announced that England would enter its third national lockdown the following day. Unlike the last lockdown, schools are also closed, other than for the children of key workers and for vulnerable children. This places a caring responsibility on parents, who need to look after their children and undertake home schooling.
If you have employees who need to care for and home school their children and who are unable to work as a result, you are able to furlough them and claim a grant under the CJRS. Likewise, where an employee needs to work fewer hours in order to fulfil their parental responsibilities while schools are closed, you can flexibly furlough the employee and use the CJRS to claim a grant for the employee’s usual hours that they do not work.
Eligible caring responsibilities
In their guidance on the CJRS, the Government have confirmed that an employee can be furloughed if their caring responsibilities mean that the employee is unable to work (including being unable to work from home) or can only work reduced hours. The guidance cites caring for children who are at home as a result of school or childcare facilities closing as an example of caring responsibilities that might arise as a result of COVID-19.
Claiming the grant
You can claim a grant of 80% of the employee’s usual wages for their unworked hours, to a maximum of £2,500 a month. Claims must be made for each calendar month by the 14th of the following month (or the next working day if this falls on the weekend).
Talk to us
If your employees are struggling to juggle childcare and their job, talk to us about the option of furloughing or flexibly furloughing them and claiming a grant through the CJRS.
New COVID-19 grants for closed businesses
England went into the third national lockdown on 5 January 2021. To help business affected, the Chancellor unveiled a £4.6 billion package to help businesses forced to close. The grants are in addition to the monthly support payments previously announced.
Cash grant for closed businesses
If your business is in a sector such as non-essential retail, leisure or hospitality, and you have been forced to close as a result of the latest lockdown, you may be eligible for a one-off cash grant. The grant is available to businesses with business premises that are required to close and which cannot operate remotely. The amount of the grant depends on the rateable value of the property. Businesses with more than one property will receive a grant for each closed property.
If the rateable value of your business premises is £15,000 or less, you will receive a cash grant of £4,000. This increases to £6,000 if your business premises have a rateable value of between £15,000 and £51,000. If your business premises have a rateable value of more than £51,000, you will receive the maximum grant of £9,000.
On-going support payments
In addition to the one-off cash grant, you may also be entitled to on-going support from your local council. You will qualify if your business is based in England and you occupy premises on which you pay business rates, your business has been forced to close as a result of national restrictions and you are unable to provide your usual in-person customer service from your premises. This may include you if your business is in the retail, leisure, tourism or hospitality sectors, or if you provide sports facilities or personal care. You may also qualify if, for example, you run a restaurant and move to providing takeaways instead.
You will not be eligible for the on-going support payments if you can continue to operate remotely, or if you chose to close voluntarily.
Separate support measures are available for businesses in Scotland, Wales and Northern Ireland.
The amount of support that you will receive depends on the rateable value of your business premises.
If your business property has a rateable value of £15,000 or less, you may be entitled to a cash grant of £2,001 for each 42-day period for which qualifying restrictions apply. The grant is increased to £3,000 for each 42-day restriction period if your property has a rateable value of more than £15,000 but less than £51.000, and to £4,500 for the same 42-day period if your rateable value is more than £51,000.
Applications for the grant should be made to your local authority.
Contact us for help in understanding what support you are entitled to receive and how to obtain it.
Domestic VAT reverse charge for building and construction services
The domestic VAT reverse charge for building and construction services finally comes into effect on 1 March 2021. The start date was originally 1 October 2019, but it was postponed by one year until 1 October 2020 to allow those affected more time to prepare. The start date was further delayed – until 1 March 2021 — as a result of the COVID-19 pandemic.
Detailed guidance on the charge can be found on the Gov.uk website.
Nature of the charge
Under the domestic VAT reverse charge, the customer receiving the service must pay the associated VAT to HMRC rather than paying it to the supplier. The charge will be relevant to you if you are an individual or a business that is registered for VAT in the UK, and you supply or receive specified services that are reported under the Construction Industry Scheme (CIS). If you are a customer, you will pay the supplier the amount net of VAT and pay the VAT to HMRC. If you are a supplier, you will receive payment net of VAT and will no longer need to pay the VAT to HMRC.
Services within the scope of the charge
The following services fall within the scope of the charge:
- constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services;
- constructing, altering, repairing, extending or demolishing any works forming, or planned to form, part of the land, including walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for the purpose of land draining, coast protection or defence;
- installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building;
- internal clearing of buildings and structures which is carried out in the course of their construction, alteration, repair, extension or restoration; and
- services that form an integral part of, or are part of, the preparation or completion of the services described above, including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.
The domestic VAT reverse charge does not apply to:
- drilling for, or extracting, oil or natural gas;
- extracting minerals (using underground or service working), and tunnelling, boring or the construction of underground works for this purposes;
- manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site;
- manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, and delivering any of these to site;
- the professional work of architects or surveyors, or of building engineering, interior or exterior decoration or landscaping consultants;
- making, installing and repairing art works, such as sculptures and other items that are purely artistic, signwriting, and erecting, installing and repairing signboards and advertisements;
- installing seating, blinds and shutters; and
- installing security systems, including burglar alarms, closed circuit television and public address systems.
Preparing for the charge
If you are an individual or business that falls within the scope of the charge, you will need to ensure that you are ready to apply it from 1 March 2021. In preparation, you will need to check that your accounting systems and software can cope with the reverse VAT charge, and upgrade them if necessary. You should also ensure that any staff who deal with VAT understand the changes and what they need to do to comply.
It is also prudent to assess how the charge will impact on your cash flow, particular if you supply services that fall within the scope of the charge as you will no longer receive the associated VAT.
Completing the VAT return
If you are a supplier, you must not enter any output tax on any sales that fall within the domestic VAT reverse charge on building and construction services on your VAT return. Instead, you only need to enter the net sales value.
If you are a customer purchasing services within the scope of the charge, you must account for the associated VAT to HMRC by including it as output tax on your VAT return. You should not enter the net value of the purchase as a net sale. You can reclaim the input tax on your reverse charge purchases in accordance with normal VAT rules.
We can help
We can help you to prepare for the introduction of the charge, and comply with your obligations in relation to it.
31 January self-assessment deadline approaching
There are a number of key tasks that you need complete by midnight on 31 January 2021. These include filing the self-assessment tax return for 2019/20, paying any remaining tax due for 2019/20 and, where applicable, calculating and paying the first payment on account for 2020/21.
The deadline for filing the 2019/20 tax return online is midnight on 31 January 2021. If you received a notice to file a return which was issued after 31 October 2020, a later deadline applies, and you have three months from the date of that notice in which to file your return. The deadline for filing paper returns (31 October 2020) has already passed. While any paper returns filed after that date (or more than three months from the date of notice to file a return, if later) will attract a late filing penalty, the penalty can be avoided by filing your return online by midnight on 31 January 2021.
If you miss the filing deadline, you will receive an automatic late filing penalty of £100. This is the case regardless of whether you have any tax to pay. Further late filing penalties are charged where the return remains outstanding after three months, six months and 12 months.
Do I need to file a return?
You will need to file a tax return if HMRC have sent you a notice requiring you to file one. You will also need to register for self-assessment if you have not already done so and file a tax return for 2019/20 if in that year you had taxable income that was not taxed at source. This might include:
- income from self-employment of more than £1,000;
- money received from renting out a property;
- savings income, such as interest or dividends;
- foreign income; or
- capital gains.
You might also need to fill in a tax return if you have income tax reliefs that you wish to claim, although this will not always be the case as some, for example, relief for employment expenses, can be claimed online.
You must pay any tax owing for 2019/20 plus the first payment on account for 2020/21 by 31 January 2021. As a result of the COVID-19 pandemic, you may find that your bill is higher than normal this year if you opted to delay making the second payment on account for 2019/20. If you are struggling to pay your bill, you may be able to pay in instalments.
If you filed your tax return by 30 December 2020, have PAYE income and owe £3,000 or less, the tax that you owe can be collected through PAYE by adjusting your 2021/22 tax code.
Tax due for 2019/20
Unless you have agreed a Time-to-Pay arrangement with HMRC, you will need to pay any tax that you owe for 2019/20 by 31 January 2021. Remember, to take off any payments that you have already made when working out what you need to pay – the HMRC tax calculation does not do this automatically. If you are unsure what payments have been made, you can check this by looking at your personal tax account.
If you opted to delay your second payment on account for 2019/20 (which would have normally been due by 31 July 2020), you will need to pay this by 31 January 2021, along with any balance that remains outstanding. As long as you pay the delayed payment by this date, there will be no interest to pay.
First payment on account for 2020/21
You will need to make payments on account of your 2020/21 self-assessment liability if your tax and Class 4 National Insurance bill for 2019/20 was at least £1,000, unless at least 80% of your tax is collected at source, for example, under PAYE. Each payment on account for 2020/21 is 50% of the tax and Class 4 National Insurance liability for 2019/20. You must make the payments by 31 January 2021 and 31 July 2021.
However, because of the impact of the COVID-19 pandemic, your liability for 2020/21 may be considerably lower than that for 2019/20. The payments on account for 2020/21 are based on pre-pandemic profits of 2019/20; where your income has fallen significantly, you may wish to reduce your 2020/21 payments on account to more realistic levels. However, when working out your estimated liability for 2020/21, remember to include any COVID-19 support payments as these are taxable. You can opt to reduce your payments on account by completing the relevant section of your self-assessment tax return or via your personal tax account.
If you are struggling to pay the tax that you owe by 31 January 2021, you may be able to set up an arrangement to spread the cost and pay your tax in instalments. You can do this online if you owe £30,000 or less and have no other payment plans or debts with HMRC; otherwise, you will need to contact HMRC to agree a payment plan.
Interest and penalties
If you pay any tax owing for 2019/20 after 31 January or make your 2020/21 payments on account late or reduce your payments on account by too much, you will be charged interest. Interest is also charged where payments are made in instalments. In the absence of an instalment plan, you will also be charged penalties at the rate of 5% of the unpaid tax where it remains unpaid after 30 days, six months and 12 months.
Please let us know if you would like us to file your return on your behalf or if you need help working out what tax you need to pay and by when.
The CJRS, furloughed staff and Christmas holidays
Following the announcement of more stringent lockdown measures, the Chancellor, Rishi Sunak, announced yet another extension to the Coronavirus Job Retention Scheme (CJRS). The scheme will now run until the end of April 2021.
Under the extended scheme, claims must be made within 14 days of the end of the month to which they relate (or by the following working day where this falls on a weekend). Consequently, if you are making a claim for December 2020, you must do this no later than 14 January 2021. When making claims for December and January, care must be taken not to fall foul of the rules in relation to claims over the Christmas holiday period.
Furloughed workers and annual leave
Furloughed workers continue to accrue leave as for any other employee. Where you have workers who are on furlough, they remain entitled to their statutory leave entitlement of 5.6 weeks.
Furloughed workers can also take holiday while on furlough; and you can require that they take holiday to use up their annual leave entitlement. Normal rules apply as regards the notice required to take leave.
Where an employee takes annual leave while furloughed, they must be paid their usual rate of pay. This means that while you can still continue to claim a grant under the CJRS for a furloughed worker while on leave, you must top this up so that they receive their usual pay for the days that they are on holiday.
A number of bank holidays fall over the festive period. It is important to note that there is no statutory entitlement to time off on a bank holiday, although you can require that an employee takes bank holidays as leave. The days are included within the employee’s statutory entitlement of 5.6 weeks.
If a furloughed employee would usually work on a bank holiday, you can claim the furlough grant for that day. You do not need to top it up. However, if you require a furloughed employee to take bank holidays as leave, you must top up the furlough grant so that the employee receives their usual pay for those days.
You can only furlough employees and claim a grant under the CJRS if your business is adversely affected by the COVID-19 pandemic. If you normally close over Christmas, you cannot simply furlough employees for the period of the Christmas shutdown and claim a grant under the CJRS for this period. Likewise, you cannot furlough an employee because there is less work for them to do over the Christmas period. This is an abuse of the scheme, and where claims of this nature are made, the grant money received must be paid back to HMRC.
Speak to us
We can help you understand what claims can be made under the CJRS and how to make a claim.
Virtual Christmas parties and tax-free gifts
The COVID-19 pandemic has meant that the traditional Christmas party could not happen in 2020. If, instead, you held a virtual event, you will be pleased to know that this too can benefit from the tax exemption for annual parties and functions. There is also good news if you opted to give your staff a seasonal gift, as this may fall within the scope of the trivial benefits exemption.
Virtual Christmas parties
The tax exemption for annual parties and functions means that your staff can enjoy a Christmas party without having to worry about an associated benefit-in-kind tax charge as long as the cost per head (including VAT) is £150 or less and the event is open to all staff (or all staff at a particular location).
The COVID-19 pandemic has meant that large in-person events are off the menu this year. If, like many other organisations, you chose not to forgo the Christmas party entirely and held an online event instead, your virtual event will fall within the scope of the exemption for annual parties and functions, as long as the associated conditions have been met. HMRC have confirmed that where the event is provided using IT, the exemption will cover the costs of the event, including the provision of equipment, entertainment and refreshments, as long as they are provided principally for the enjoyment or consumption by employees during the event.
If a virtual event is not for you, the exemption will also apply if you delay the Christmas party and hold a later event instead, as long as it is held before the end of the current tax year.
Where the conditions for exemption have been met, you do not need to report the virtual event to HMRC on your employees’ P11Ds, or include it within a PAYE Settlement Agreement.
If, as a gesture of goodwill, you gave your employees a Christmas gift, as long as the cost of providing that gift is not more than £50, it will fall within the scope of the trivial benefits exemption. This is good news; there is no tax to pay and you do not need to report the gift to HMRC.
The choice of gift is up to you, and traditional seasonal gifts, such as a turkey or a hamper, can be given within the scope of the exemption, as long as they do not cost you more than £50 to provide. If you provide gifts to a number of employees and it is impracticable to work out the individual cost, the average cost can be used instead.
There are, however, some points to watch. The exemption does not apply to gifts of cash or cash vouchers, or to those given as a reward for the provision of services or where the employee is contractually entitled to the gift. Care must also be taken when giving gift cards if these can be topped up; in this case, HMRC regard the cost to be the total cost in the tax year, rather than the cost of each individual top-up. Similar considerations apply to the use of apps to buy goods and services and to season tickets.
Get in touch
Talk to us to find out whether your Christmas events and gifts for employees are exempt from tax.
Furnished holiday lettings and lockdowns
The second National Lockdown and local restrictions may mean that you are unable to meet the tests for your holiday let to qualify as a furnished holiday letting (FHL) for 2020/21. However, where this is the case, all is not lost as there are alternative routes by which your let might meet the FHL requirements.
To qualify for the more advantageous FHL tax regime, your property must be let commercially, let furnished, and it must be in the UK or the EEA. It must also meet all of the following occupancy conditions.
- The pattern of occupancy condition – the total of all lettings that exceed 31 continuous days in the tax year cannot be more than 155 days.
- The availability condition – your property must be available for letting as furnished accommodation for at least 210 days in the tax year. Days that you stay in the property do not count.
- The letting condition – your property must be let commercially as furnished holiday accommodation for at least 105 days in the tax year (excluding lets of more than 31 days and days occupied cheaply or free by family and friends).
If you have failed to meet the letting condition in 2020/21 due to the impact of the COVID-19 pandemic, you may be able to make an averaging and/or a period of grace election to help you reach the magic number. HMRC Helpsheet HS253 contains further details.
If you have more than one property that you let out as furnished holiday accommodation, you may be able to use an averaging election to help all your properties to qualify. This will be the case if some but not all of the lets meet the letting condition. An averaging election allows the condition to be met by reference to the average occupancy across all your holiday lets. For example, if you have three holiday lets and the total number of days in the tax year on which the properties are let as furnished holiday accommodation is at least 315 days, all 3 properties will meet the requirement. The average let will be at least 105 days.
An averaging election for 2020/21 must be made by 31 January 2023.
Period of grace election
A period of grace election can be made as well as, or instead of, an averaging election. It will help if you genuinely intended to meet the letting conditions, but were unable to do so, for example, because of the impact of the COVID-19 pandemic.
To qualify, the property must have met the letting requirement for the year before the year for which you first wish to make a period of grace election; so, if the first year for which an election is required is 2020/21, the letting condition must have been met (individually or as a result of an averaging election) in 2019/20. A second election can be made for 2021/22 if the condition is not met again in that year. However, your property must meet the requirement in 2022/23 if it is to continue to qualify as a FHL.
As with an averaging election, a period of grace election for 2020/21 must be made by 31 January 2023.
Talk to us
Contact us to discuss how you can ensure that your holiday let qualifies for the favourable FHL tax regime.
Some Brexit reminders
The Brexit transitional period comes to an end on 31 December 2020. As a result, new rules will apply from 1 January 2021. As the situation is evolving, it is recommended that you check the guidance on the Gov.uk website regularly.
From 1 January 2021 you will need an EORI number to move goods between Great Britain and the EU. You may also need a separate EORI number to move goods between Great Britain and Northern Ireland. You can find out more on the Gov.uk website.
Postponed VAT accounting
From 1 January 2021, postponed VAT accounting will apply if you are a VAT-registered business and you import goods into the UK. Under postponed VAT accounting, you can account for the import VAT on your VAT return for goods imported from anywhere in the world. More information can be found on the Gov.uk website.
The rules governing when customs declarations need to be made also change from 1 January 2021. Note that different rules apply to Northern Ireland and Great Britain. Check the guidance for details of the declarations that are required when sending goods from the UK, and also the guidance on the declarations required when bringing goods into the UK.
We can help you manage the transition to the new rules.
Temporary AIA limit extended until 31 December 2021
The Annual Investment Allowance (AIA) enables a business which incurs qualifying expenditure to claim an immediate deduction when computing taxable profits. The deduction is capped at the amount of the AIA limit for the period which remains available. The AIA limit was increased from its permanent level of £200,000 to a temporary level of £1 million from 1 January 2019 to 31 December 2020. The Government have announced that the £1 million limit will apply for a further year – until 31 December 2021 – to help businesses to recover from the COVID-19 pandemic.
Impact on the transitional rules
The extension of the £1 million limit for a further year means that the transitional rules, which originally would have applied where the accounting period spanned 31 December 2020, will now apply where the accounting period spans 31 December 2021.
If your accounting period falls wholly within the period from 1 January 2019 to 31 December 2021, your AIA limit for the period is £1 million.
Speak to us
Talk to us when planning your capital expenditure projects to find out how the timing can impact on the capital allowances available.
HMRC consult on Making Tax Digital for corporation tax
Earlier this year, the Government published a timetable for taking the Making Tax Digital (MTD) programme forward.
As part of that programme, MTD will be extended to corporation tax. Although, this will not be mandatory until at least 2026, HMRC are now consulting on the design. Businesses will be given the chance to take part in a pilot prior to its introduction. This is currently planned for 2024.
Under the current system, you must file your accounts at Companies House within nine months of the end of your accounting period. Your corporation tax is due nine months and one day from the end of your accounting period, and you must file a company tax return with HMRC no later than 12 months from the end of your accounting period.
What MTD for corporation tax may look like
The purpose of the consultation is to consult on the design for MTD for corporation tax – therefore it is not yet set in stone. However, it is envisaged that your company will need to use approved software to maintain digital business records (which include XBRL tagging). You will then use your digital records to upload quarterly updates to HMRC. As part of this process, you will be able to see your expected corporation tax liability for the period. After the end of the year and before your accounts are submitted to Companies House, we will be able to use MTD-compatible software to make any adjustments that are needed and finalise your company’s MTD process.
Keep up to date
MTD is an evolving process. Speak to us to ensure that you keep abreast of the changes.
Customs declarations from 1 January 2021
The Brexit transitional period comes to an end on 31 December 2020. From January 2021, new arrangements apply if you send goods abroad from the UK or bring goods into the UK. It is important that you check what customs declarations you need to make from 1 January 2021 onwards.
Where goods are moved through Great Britain and Northern Ireland, Common Transit may affect the declarations that you need to make.
Sending goods from the UK
The first point to note is that the customs declarations that are required will depend on whether the goods are sent from Great Britain or from Northern Ireland – the rules are not UK-wide.
Sending goods from Great Britain
If you are sending goods from Great Britain to another country, the declarations that are needed will depend on the country to which the goods are being sent.
If you are sending goods from Great Britain to Northern Ireland, you will not need to make a declaration when you send the goods. However, you may need to make a declaration when the goods arrive in Northern Ireland. If you move goods between Great Britain and Northern Ireland, you can make use of the Trader Support Service.
From 1 January 2021, if you are sending goods from Great Britain to a country in the EU, before the goods leave Great Britain, a declaration will be needed and also an exit summary (safety and security) declaration if this is not already included in your declaration.
The procedure for sending goods from Great Britain to a country outside the EU (other than Northern Ireland) is unchanged from 1 January 2021 – a declaration is needed before the goods leave Great Britain, and also an exit summary if this is not included in the declaration.
From 1 January 2021, the procedures are the same where goods are sent from Great Britain to a country other than Northern Ireland.
Sending goods from Northern Ireland
In most cases, you will not need to make a customs declaration when sending goods from Northern Ireland to Great Britain. However, the Government are yet to publish guidance on when declarations may be needed for certain goods.
Unlike goods sent from Great Britain, you will not need to make a customs declaration from 1 January 2021 if you send goods from Northern Ireland to a country in the EU.
However, as now, if you send goods outside the EU from Northern Ireland, you will need to make a customs declaration and you will also need an exit summary if this is not included in your declaration.
Bringing goods into the UK
If you are a UK-based business and you bring goods into the UK, the customs declarations that you need to make from 1 January 2021 onwards will depend on where the goods have come from and whether you are bringing them into Great Britain or Northern Ireland.
Bringing goods into Great Britain
You will not need a customs declaration for most goods that you bring into Great Britain from Northern Ireland. Guidance on the declarations needed for certain goods is yet to be published.
From 1 January 2021, the customs declarations that are needed if you bring goods into Great Britain from an EU country will depend on whether the goods are controlled goods or not. If they are, you must make a customs declaration when the goods arrive. If the goods are not controlled goods, you may be able to delay making declarations and instead record the goods in your own records and tell HMRC about them up to six months later. Guidance on whether you can take advantage of these procedures can be found on the Gov.uk website. This may be an option if you are moving goods from the EU into free circulation in Great Britain between 1 January and 30 June 2021.
A customs declaration and an entry summary are needed for goods brought into Great Britain from outside the EU or Northern Ireland.
Bringing goods into Northern Ireland
From 1 January 2021, you will need to make a customs declaration when goods arrive into Northern Ireland from Great Britain. An entry summary is also required.
However, you will not need a declaration for any goods that you bring into Northern Ireland from the EU. If you bring goods into Northern Ireland from outside the EU, other than from Great Britain, as now, you will need a customs declaration and entry summary.
Talk to us
Making customs declarations can be complicated and you may want to appoint someone to handle this on your behalf. Talk to us to find out how we can help.
File your tax return by 30 December 2020
Although the deadline by which your 2019/20 self-assessment tax return must be filed online is 31 January 2021, an earlier deadline of 30 December 2020 applies if you want any tax that you owe for 2019/20 to be collected through PAYE. This can be advantageous as you can spread the cost across the tax year, rather than paying it in a single instalment.
You can pay your self-assessment bill through PAYE if all of the following apply:
- the amount that you owe is £3,000 or less;
- you already pay tax through PAYE (for example, because you are an employee or you receive a company pension); and
- you either submitted a paper tax return for 2019/20 by 31 October 2020 or filed your return online by 30 December 2020.
You should note that if you meet all of these conditions, HMRC will collect any tax that you owe through the PAYE system. If you file your self-assessment return by 30 December 2020 and owe less than £3,000 and do not want to pay it in this way, you will need let HMRC know. You can do this on your tax return. If you choose this route, you will need to pay the tax you owe for 2019/20 by 31 January 2021 (unless you have agreed a Time to Pay arrangement with HMRC).
You will not be able to pay any tax that you owe via PAYE if:
- you do not have sufficient PAYE income to cover the tax that you owe;
- collecting tax in this way would mean that you would pay more than 50% of your PAYE income in tax; or
- if you would end up paying twice as much tax as you would do otherwise.
Collection through your tax code
Your tax code will be adjusted to facilitate the collection of the tax that you owe through the PAYE system. The adjustment will reflect the amount that you owe and the rate at which you pay tax.
Underpayments for 2019/20 will be collected by adjusting the 2021/22 tax code. Adjusting the tax code will have the effect of collecting the underpaid tax in 12 equal instalments over the 2021/22 tax year. Interest is not charged, meaning this is an interest-free way of paying any tax that you owe in instalments.
Speak to us
If you have a tax underpayment of £3,000 or less and would like it to be collected via an adjustment to your 2021/22 tax code, please let us know so that we can ensure that your 2019/20 tax return is filed by the 30 December 2020 deadline.
SEISS grant increased
The Self-Employment Income Support Scheme (SEIS) will now run until 30 April 2021, providing two further grants – one for the three months from 1 November 2020 to 31 January 2021 and one for the three months from 1 February 2021 to 30 April 2021. Since the extension to the scheme was originally announced, the amount of the first of these grants has been increased several times. The amount of the final grant has yet to be set.
Amount of the third grant
The third grant payable under the SEISS will now be set at 80% of three months’ average trading profits, capped at £7,500.
As for the first two grants, the amount of the third grant is calculated by reference to average profits over the 2016/17, 2017/18 and 2018/19 tax years, with the calculation modified if you did not trade in all three of these years.
Claiming the grant
The qualifying conditions for the scheme remain the same. You can claim the third grant if you are currently actively trading but demand has fallen as a result of Coronavirus, or if you were trading previously, but are unable to do so as a result of Coronavirus. You do not need to have made a previous claim.
You can claim the third grant from 30 November 2020.
How we can help
Although we cannot make the claim on your behalf, we can help you work out whether you are eligible for the third grant and the amount to which you are entitled. Get in touch to find out more.
CJRS extended until March 2021
The Coronavirus Job Retention Scheme (CJRS) was due to come to an end on 31 October 2020, being replaced from 1 November 2020 with a new scheme – the Job Support Scheme. However, the second national lockdown in England changed all that. The CJRS has been reprieved and will now continue to run until 31 March 2021, while the Job Support Scheme has been put on hold.
Eligibility under the extended scheme
You will be able to claim a grant for eligible employees who are fully or flexibly furloughed under the extended scheme if you had a UK PAYE scheme on 30 October 2020 and have a UK bank account. You do not need to have made a claim previously to be eligible to claim for periods starting on or after 1 November 2020
You can make a claim in respect of an employee, if the employee was on your payroll at 11.59pm on 30 October 2020 and you had made an RTI submission in respect of that employee between 20 March 2020 and 30 October 2020. Employees who are made redundant or who left on or after 23 September 2020 can also benefit from a grant under the scheme if you re-employ them, as long as you had made an RTI submission in respect of them between 20 March 2020 and 23 September 2020.
You do not need to have previously furloughed an employee and made a claim under the scheme on their behalf to claim a grant for them under the extended scheme.
Amount of the claim
The good news is that for the first phase of the extended scheme, which runs from 1 November 2020 to 31 January 2021, you can once again claim the full 80% of the employee’s usual wages for their furloughed hours (subject to the cap, set at £2,500 a month) – there is now no obligation for you to top up the amount claimed, as was the case for October and September.
As previously, the employee will receive 80% of their usual pay for their furlough hours (up to the cap). You must pass on the full amount of grant to the employee. Where the employee is flexibly furloughed, you must continue to pay them at their usual rate for the hours that they work, in addition to payment of the CJRS grant.
The amount of support that will be provided under the scheme for February and March 2021 has yet to be set; the Government are to review this in January 2021.
Calculating the claim
The amount that you can claim in respect of an employee’s furloughed hours depends on the usual hours that they work and their usual rate of pay. This can be complex. Guidance on working out what you can claim is available on the Gov.uk website.
Tax and National Insurance
You must deduct PAYE tax and employee’s National Insurance from grant payments that you make to your employees. You must also calculate and pay employer’s National Insurance on grant payments. Unfortunately, you cannot claim this back from the Government and must meet this cost yourself.
Making the claim
As previously, you will need to make your claim online via the claim portal. Claims must be for a minimum period of seven consecutive days and must start and finish in the same calendar month. If you use an authorised agent to file your RTI submissions, they can make the claim on your behalf.
You should be aware that tighter deadlines apply for making claims under the extended scheme – for pay periods starting on or after 1 November 2020, claims must be made by the 14th of the following month. Where this date falls on a weekend, the deadline is the following Monday. The following table shows the claim deadlines for making claims under the extended scheme.
|Claim period||Claim deadline|
|November 2020||14 December 2020|
|December 2020||4 January 2021|
|January 2021||15 February 2021|
|February 2021||15 March 2021|
|March 2021||14 April 2021|
The money should reach your account within six working days of the day on which you made your claim, so remember to allow sufficient time so that you have the money available to pay your employees on time.
Claims for July to October 2020 had to be made by 30 November 2020.
Job Retention Bonus
The extension of the CJRS means that you will now not be able to claim a Job Retention Bonus in February 2021.
Can we help?
Speak to us if you are unsure whether you are able to make a claim under the extended scheme or if you need help in working out what you can claim.
Postponed VAT accounting
Postponed VAT accounting is being introduced from 1 January 2021. This will affect you if you are VAT-registered and you import goods into the UK, particularly if you are a smaller business and you do not currently use the Duty Deferment Scheme. Postponed VAT accounting will apply to goods imported into the UK from all countries, regardless of whether they are in the EU or not.
Nature of postponed VAT accounting
The Brexit transition period comes to an end on 31 December 2020. From 1 January 2021, if you are a VAT-registered business in the UK, you will be able to account for import VAT on your VAT return for goods imported from anywhere in the world. This is good news as it means that you will declare and recover VAT on the same VAT return, rather than having to pay it upfront and recover it at a later date. This will be beneficial from a cash flow perspective.
The introduction of postponed accounting does not change the VAT that can be recovered as input tax; normal rules continue to apply.
Accounting for import VAT on your VAT return
You can start to account for import VAT on your VAT return from 1 January 2021. You do not need to be authorised in order to do so.
You can account for import VAT on your VAT return if:
- you import goods for use in your business;
- you include your EORI number, which starts with ‘GB’, on your customs declaration; and
- you include your VAT registration on your customs declaration where needed.
You can also account for import VAT on your VAT return if you use certain customs special procedures, or if you release excise goods for use in the UK (also known as ‘released for home consumption’).
If you are eligible to defer submitting your supplementary declaration for up to six months, you must account for import VAT on your VAT return.
Customs special procedures
If you initially declare goods using one of the following special procedures, you can account for import VAT on your VAT return when you submit the declaration to release the goods into free circulation. The relevant customs special procedures are:
- customs warehousing;
- inward processing;
- temporary admission;
- end use;
- outward processing; and
- duty suspension.
Completing your VAT return
From 1 January 2021, there are some changes in the way in which you will need to complete your VAT return if you are a UK VAT-registered business importing goods into the UK and you account for import VAT on your VAT return.
You will be able to download an online monthly statement which will show the total import VAT postponed for the previous month, and which should be included on your VAT return. You should keep this statement for your records.
The changes affect boxes 1, 4 and 7.
In Box 1, you must include the VAT due in the VAT accounting period on imports accounted for through postponed accounting.
In Box 4, you must include the VAT reclaimed in the VAT accounting period on imports accounted through postponed VAT accounting.
In Box 7, you must include the total value of all imports of goods included on your monthly online statement, excluding any VAT.
If you are eligible to defer your customs declarations, you must account for import VAT on the VAT return that covers the date on which you imported the goods. To do this, you will need to estimate the import VAT that is due from your records of the imported goods. When you submit your deferred declaration, your next online monthly statement will show the amount of import VAT due on that declaration. You must then account for any difference between the estimated figure and actual figure for the import VAT on your next VAT return.
When you can’t use postponed accounting
If you are authorised to use simplified declarations for imports and you complete your simplified frontier declaration before 1 January 2021, you will not be able to use postponed accounting to account for import VAT on your VAT return. This is the case even if you complete your supplementary declaration after 1 January 2021.
Consignments not exceeding £135 in value
HMRC are to issue guidance in due course on the VAT treatment of goods on consignments which do not exceed £135 in value.
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Speak to us to find out what the changes mean for your business.
Job Support Scheme
The Job Support Scheme replaces the Coronavirus Job Retention Scheme from 1 November 2020. The scheme, which has already evolved since it was originally announced to provide a greater level of support, will run for six months until 30 April 2021. The Government will review the level of support provided under the scheme in January 2021.
Nature of the scheme
The Job Support Scheme provides grants to eligible employers to enable them to pay employees who are working reduced hours as a result of the impact of the COVID-19 pandemic, or who are unable to work because the business has been required to shut as a result of lockdown restrictions. There are two strands to the scheme – one for open businesses and one for closed business.
Support for open businesses
The Job Support Scheme for open businesses allows you to claim a government grant to top-up the wages of your employees who are working at least 20% of their usual hours. You must pay the employee for the hours worked at their contracted rate. To be eligible to claim a grant, you must also pay the employee for 5% of their usual hours that are unworked, again at the contracted rate. Your contribution for unworked hours is capped at £125 per month. You can claim a grant for 61.67% of the employee’s unworked hours from the Government. The Government will pay those hours at the employee’s usual rate, subject to a cap of £1,541.75 per month. The cap will apply where the employee earns more than £3,125 per month.
Your employee will receive pay for the hours worked and for two-third of their usual hours that they are not able to work. The percentage of their normal pay that an employee receives depends on the proportion of their usual hours that they work. An employee who works 20% of his or her usual hours will receive 73% of their pay, whereas an employee who works one-third of their usual hours will receive just under 78% of their pay.
The level of support now available under the scheme is higher than was originally announced. Under the original proposals, employees had to work at least one-third of their usual hours to be eligible for a grant, with the employer paying one-third of the unworked hours and the Government paying a further third (capped at £697.62 per month). The reduction in the hours worked requirement, and the substantial reduction in the employer contribution, are to be welcomed. In its original format, the costs imposed on the employer would have meant that for many businesses struggling to survive, the scheme was not viable.
Amounts paid to employees benefitting from the Job Support Scheme are liable to tax and National Insurance, as for usual payments of wages and salary. You must account for these as normal through your payroll and pay the deductions over to HMRC, with your employer’s National Insurance. You will be required to meet the full cost of the employer’s National Insurance on the total payment made to the employee, including the grant element – you cannot claim this back from the Government. Pension contributions under auto-enrolment must be paid as normal, as must the apprenticeship levy.
More details of the scheme, together with examples of how it will work in practice, can be found in the factsheet published by the Government.
Support for closed businesses
The Job Support Scheme for closed businesses provides a higher level of support to business which are required to close as a result of local lockdown restrictions, such as pubs not serving substantial meals in Tier 3 lockdown areas. If your business is restricted to delivery or collection services only as a result of lockdown restrictions, you will also qualify for the scheme for closed businesses.
If you are forced to close due to lockdown restrictions imposed by one of the four governments in the UK, you will be able to claim a grant with which to pay your employees, as long as your employees are instructed to cease work for at least seven consecutive days, and actually do so. You cannot claim a grant for employees who are working from home.
Unlike the open scheme, you do not need to pay the employee for any unworked hours. Instead, you can claim a grant of two-thirds of the employee’s usual pay, subject to a cap of £2,100 per month. The grant will cover wages paid to employees who are unable to work. The scheme will mean that workers who are not subject to the cap will receive two-third of their usual pay. You can top up your employees’ pay if you want to, but there is no obligation to do so.
You will, however, have to pay employer’s National Insurance on grant payments, and also any employer pension contributions and the apprenticeship levy as normal. You must deduct PAYE tax and employee’s National Insurance contributions from payments made to employees, and report pay and deductions to HMRC under RTI.
The Government factsheet on the scheme for closed businesses provides more details.
You will be eligible to claim a grant under the relevant Job Support Scheme if you have a UK bank account and a UK PAYE scheme which was registered, and in respect of which an RTI submission had been made, on or before 23 September 2020. You do not need to have used the Coronavirus Job Retention Scheme to be eligible to use the Job Support Scheme.
Under the scheme for open businesses, a financial impact test applies to large businesses with 250 or more employees. If you fall into this category, you will have to demonstrate that your turnover is not above the level that it was before you experienced difficulties as a result of the COVID-19 pandemic.
If you claim under the Job Support Scheme, you will still be eligible to claim the Job Retention Bonus, as long as the qualifying conditions are met.
Claiming the grant
Grants are payable in arrears. Unfortunately, this means that you must pay the money to your employees before you receive it back from the Government, and report the payments and deductions to HMRC via RTI. While this will limit fraudulent claims, it may cause cash flow problems for businesses who have either been forced to close or are operating at reduced capacity. You may need extra funding to cover the first month. Grants payable to businesses in Tier 2 and 3 lockdown areas may help bridge the gap.
Claims must be made online via the dedicated portal, which is due to open on 8 December 2020. Claims will be paid on a monthly basis.
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Speak to us to find out what help may be available to you under the Job Support Scheme.
More time to pay your tax bills
In his Winter Economy Plan, the Chancellor, Rishi Sunak, unveiled measures which will allow self-assessment taxpayers and VAT-registered businesses more time to pay back deferred tax.
New Payment Plan for VAT
At the start of the pandemic, VAT-registered business could delay paying VAT where it fell due between 20 March 2020 and 30 June 2020. VAT falling due after that date – i.e. that for VAT quarters ending on or after 31 May 2020 – must be paid in full and on time.
Under the original proposals, if you took advantage of the opportunity to defer paying your VAT due to Coronavirus, you had until 31 March 2021 to pay it. However, if this is likely to be difficult, you can take advantage of the New Payment Plan for VAT and instead pay your deferred VAT in 11 interest-free instalments over the 2021/22 tax year. This will mean that you will have an additional year – until 31 March 2022 rather than 31 March 2021 – to pay the full amount. To take advantage of the instalment option, you will need to opt in. HMRC will publish details of how to do this over the coming months.
Enhanced Time-to-Pay for self-assessment
If you owe tax under self-assessment, you will be able to use enhanced Time-to-Pay arrangements to set up a monthly repayment plan online, without the need to call HMRC. Taxpayers can now use this service as long as they do not owe more than £30,000 in tax. Previously, the service was only available to taxpayers owing £10,000 or less.
Self-assessment taxpayers were able to opt to delay the second payment on account for 2019/20, which was due by 31 July 2020. Under the original proposals, the deferred tax had to be paid by 31 January 2021, together with any balancing payment for 2019/20 and the first payment on account for 2020/21.
If you need more time to pay your tax, you can use HMRC’s self-service facility to set up a Time-to-Pay plan. This will give you an additional 12 months (until 31 January 2022) in which to pay the second payment on account for 2019/20, any balancing payment for 2019/20 and the first payment on account for 2020/21.
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Contact us to find out how we can help you set up payment plans and budget for your tax bills.
Further extension to the SEISS
To help self-employed individuals who continue to be affected by the COVID-19 pandemic, the Self-Employment Income Support Scheme (SEISS) has been extended for a further six months, from November 2020 to April 2021.
Grants payable under the extended scheme
The extended scheme will provide two taxable grants for the self-employed. Availability of the grants is limited to those who meet the eligibility conditions for the scheme and who are actively continuing to trade, but are facing reduced demand as a result of COVID-19.
The first grant covers the three-month period from 1 November 2020 to 31 January 2021. It will be based on 40% (rather than 20%, as originally announced) of average monthly profits for a period of three months, capped at £3,750 in total.
The second grant will cover the three-month period from 1 February 2020 to 30 April 2021. The level of the second grant has yet to be set.
As with the earlier grants, any grant that you receive under the extended scheme is taxable and subject to National Insurance.
HMRC are to provide details in due course on claiming the grants.
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Contact us to find out whether you are eligible for a grant under the extended SEISS scheme.
Deadline for applying for COVID-19 finance extended
The Government launched four temporary Government-backed schemes to provide finance to businesses struggling as a result of the COVID-19 pandemic:
- the Bounce Back Loan Scheme (BBLS);
- the Coronavirus Business Interruption Loan Scheme (CBILS);
- the Coronavirus Large Business Interruption Loan Scheme (CLBILS); and
- the Futures Fund.
The deadline for new applications under the schemes has been extended to 30 November 2020.
Pay as you Grow
If you took out a Bounce Back Loan, you can take advantage of Pay as you Grow to spread your loan repayments over ten years rather than six.
Under Pay as your Grow, you will also have the option to move temporarily to interest-only payments for up to six months. You can make use of this option up to three times during the life of the loan. Once you have made six payments, you will also have the option to pause repayments entirely for six months. This option can only be exercised once.
You do not need to make any repayments of a Bounce Back loan for the first 12 months. The Government covers the interest on the loan in the first year. Thereafter, interest is payable at the rate of 2.5% per annum.
Coronavirus Business Interruption Loans
The Chancellor announced in his Winter Economy Plan that the Government intend to allow CBILS lenders to extend the term of a loan provided by the scheme to allow for a repayment period of up to ten years, rather than the current maximum term of six years. This will provide additional flexibility for UK-based SMEs who may otherwise be unable to repay their loans.
Contact us to discuss your financing needs.
Extracting funds from a family company without retained profits
Many family companies have struggled as a result of the COVID-19 pandemic and may no longer have any retained profits. Where this is the case, they may need to rethink how they extract funds from their company to meet their personal bills.
A popular and tax-efficient strategy is to pay family members a salary equal to the primary threshold, set at £9,500 for 2020/21, or, if the employment allowance is available, a salary equal to the personal allowance of £12,500, and to extract further profits as dividends.
Requirement to pay dividends from retained profits
Under company law, dividends can only be paid from retained profits. This means that if a company lacks sufficient retained profits to pay a proposed dividend, they will not be able to pay that dividend legally. The ability to pay a dividend is constrained by the available retained profits.
Dividends must also be paid in proportion to shareholdings; however, the use of an alphabet share structure can provide flexibility.
Despite not having any retained profits, your company may have money in the bank. This may provide options for taking funds from the company where dividends are not an option.
Unlike dividends, salaries and bonus payments can be made where the company lacks profits, even if this results in a loss. Funds can also be extracted in the form of benefits in kind or, if the business is run from home, rent.
This will not always be ideal, from a tax perspective, but may be necessary. However, the directors must be wary of inadvertently trading while insolvent.
The company could also consider making a loan to the director. This can be a useful short-term option and it is possible for a director to borrow up to £10,000 for up to 21 months tax-free. However, there will be tax implications if the loan remains outstanding nine months and one day after the end of the accounting period in which it was made.
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We can discuss ways to navigate the COVID-19 pandemic and extract funds from an unprofitable family company.
PAYE Settlement Agreement reminder
If you have a PAYE Settlement Agreement (PSA) in place for 2019/20, you will need to pay the tax and National Insurance due under the agreement by 22 October 2020, assuming payment is made electronically. If you pay by cheque, the cheque must reach HMRC by the earlier date of 19 October 2020.
Nature of a PSA
A PSA enables an employer to pay the tax on certain benefits in kind on the employee’s behalf. This can be useful to preserve the goodwill element of a benefit. As the payment of an employee’s tax is itself a taxable benefit, tax must be paid on that too. Where a PSA is in place, Class 1B National Insurance contributions are payable on the items included within the PSA that would otherwise attract a Class 1 or Class 1A National Insurance liability, and also on the tax payable under the PSA. Class 1B contributions are employer-only contributions that are payable at the rate of 13.8%.
A PSA is an enduring agreement, and once set up remains in place until cancelled by the employer or HMRC. A new PSA must be agreed by 6 July after the end of the tax year to which it relates. Guidance on setting up and using a PSA can be found on the Gov.uk website.
Calculating the tax – the need to gross up
To take account of the fact that the payment of an employee’s tax by the employer is itself a taxable benefit, it is necessary to gross up the tax on benefits included within the PSA at the marginal rate of tax of the employees receiving the benefit.
Where benefits provided to Scottish and Welsh taxpayers are included within the PSA, the appropriate Scottish and Welsh rates of tax are used in the grossing up calculation.
You can use form PSA1 to calculate what you owe under a PSA.
Paying the tax and National Insurance
If you have a PSA in place for 2019/20, you should quote your PSA reference when making your payment. This can be found on your PSA confirmation letter. It is important that this reference is used rather than your Accounts Office reference so that the payment is treated correctly. If you use your Accounts Office reference, your payment will be allocated to your normal PAYE account and you will receive reminder letters regarding the tax due under your PSA as HMRC will not recognise it as being paid.
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We can help you work out what you need to pay under your PSA.
Annual investment allowance
The annual investment allowance (AIA) was temporarily increased from £200,000 to £1 million for two years, from 1 January 2019 to 31 December 2020. The allowance reverts back to its usual level of £200,000 from 1 January 2021. While the COVID-19 pandemic may have put projects on hold, you may want to review planned capital expenditure to ensure that the deadline for benefitting from the increased allowance is not missed. Particular care should be taken to avoid falling foul of the transitional provisions.
Nature of the AIA
The AIA provides immediate relief for capital expenditure up to the available limit when calculating taxable profits – qualifying capital expenditure up to the level of the AIA can be deducted in full. However, there is no requirement to claim the AIA for all the qualifying expenditure – writing down allowances can instead be claimed for some or all of the expenditure.
Where capital expenditure in a period exceeds the available AIA, relief for the excess is given in the form of writing down allowances.
Calculating the AIA
The amount of the AIA depends on when the accounting period falls. If the accounting period falls wholly within the period from 1 January 2019 to 31 December 2020, the AIA is £1 million, proportionately reduced for periods of less than 12 months. If the period spans 31 December 2020, the AIA for the period must be calculated.
Accounting period ends 31 December 2020
If you prepare your accounts annually to 31 December, for the year to 31 December 2020, you have an AIA of £1 million. This falls to £200,000 for the year to 31 December 2021.
If you are planning capital expenditure in excess of £200,000, funds permitting, you may wish to go ahead in 2020, rather than 2021, to enable you to benefit from the increased AIA and obtain immediate relief in full for qualifying capital expenditure of up to £1 million.
Accounting period spans 31 December 2020
If your accounting period spans 31 December 2020, you will need to be aware of the transitional rules. The first step is to calculate the AIA for the period. This is done by reference to the proportion of the period falling on or before 31 December 2020, in respect of which the annual limit is £1 million, and the proportion of the period falling after this date, in respect of which the annual limit is £200,000. Thus, if your accounting period is the year to 31 March 2021, you have an AIA for that period of £800,000 ((9/12 x £1 million) + (3/12 x £200,000)).
However, that is not the end of the story — there is also a cap on the amount of expenditure incurred on or after 1 January 2021 which can qualify for the AIA. The cap is y/12 x £200,000, where y is the number of months in the period falling on or after 1 January 2021. So, if the accounting period is the year to 31 March 2021, the cap is £50,000 (3/12 x £200,000). This means that while the AIA for the year to 31 March 2021 is £800,000, only expenditure of up to £50,000 incurred on or after 1 January 2021 will qualify for the AIA.
Consequently, to take advantage of the increased AIA for the period as a whole, timing is key and the bulk of the expenditure must be incurred in 2020 rather than delayed until 2021. If you spend £800,000 in November 2020, the full amount will be eligible for the AIA; however, if you spend £800,000 in February 2021, because of the cap, only £50,000 of the expenditure will qualify for the AIA, despite the fact that the AIA for the year to 31 March 2021 is £800,000.
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Back to the office – what about homeworking equipment?
When your employees return to the office, they may no longer need the homeworking equipment that enabled them to continue to work during lockdown and beyond. Are there any tax implications if they return the equipment or if they keep it?
Employer provided the homeworking equipment
If you provided equipment to enable your employees to work from home, as long as you retained ownership of that equipment, there are no tax implications if the employee returns the equipment to you when they come back to the office.
For many, the experience of working from home has highlighted the benefits of flexible working. You may want your employees to be able to continue to work from home on a more flexible basis once the office is open, and for them to keep their homeworking equipment to enable them to do so. As long as you have not transferred ownership of the equipment to the employee, and the equipment continues to be provided predominantly to enable them to work from home, the provision remains tax-free – there is no taxable benefit and nothing to report to HMRC.
Should your employees no longer need to work from home and you let them keep the homeworking equipment for personal use, a tax charge will arise. The employee is taxed on the market value of the equipment, less anything that they pay for it. The benefit must be notified to HMRC on the employee’s P11D. However, if the employee buys the equipment from you for at least its current market value, there is no taxable benefit and nothing to report to HMRC.
Employer reimbursed homeworking equipment
The requirement to work from home where possible was implemented at very short notice. Consequently, it may not have been feasible for you to provide your employees with the equipment that they needed to work from home.
If, instead, your employees purchased homeworking equipment and you reimbursed them, there is no tax for them to pay on the reimbursed amount, as long as the equipment was purchased to enable them to work from home. Unless you required the employee to transfer ownership of the equipment to you, the equipment remains the employee’s equipment. Consequently, there is no tax charge if they keep it for personal use once they return to the office.
Employee buys the homeworking equipment
It may have been the case that your employees bought whatever they needed to be able to work from home and you did not meet the costs. In this situation, the equipment belongs to the employee and this remains the case if they keep it for personal use when they return to the office. There are no tax implications of employees keeping their own equipment.
Guidance on the tax treatment of homeworking equipment can be found on the Gov.uk website.
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We can help you to determine the tax implications surrounding the future of homeworking equipment once your employees return to the office.
Off-payroll working back on the horizon
The extension to the off-payroll working rules was put on hold as a result of the COVID-19 pandemic. However, the legislation has now been implemented and the new rules will come into effect from April 2021 – one year later than originally planned. As the Coronavirus Job Retention Scheme draws to a close and businesses assess their future staffing requirements, the impact of the off-payroll working rules cannot be overlooked.
The extended off-payroll working rules only apply to ‘medium’ and ‘large’ private sector organisations. The definitions are taken from the Companies Act 2006.
An organisation is medium or large for these purposes if at least two of the following apply:
- annual turnover of more than £10.2 million;
- balance sheet total of more than £5.1 million;
- more than 50 employees.
A simplified turnover test applies to organisations which are not a company, a limited liability partnership, an unregistered company or an overseas company. Such organisations are within the rules if their turnover is more than £10.2 million.
Obligations under the rules
The new rules impose a number of obligations on medium and large private sector organisations that engage workers who provide their services through a personal service company or other intermediary.
If you fall within this category, from 6 April 2021, you must determine whether the off-payroll working rules apply. This is the case where the worker would be an employee if they provided their services to you directly, rather than through an intermediary. You can use HMRC’s Check Employment Status for Tax (CEST) tool to check a worker’s status.
Once you have reached your determination, you must give a copy of it to the worker, and to any other parties in the chain. You must also provide them with the reasons for reaching the decision that you reached. Giving the worker a copy of the CEST output will tick this box. You must also keep a copy of the determination and the reasons for reaching it for your records.
If your worker does not agree with the determination, you must consider their reasons for this. If, after reconsideration, you feel that the original determination is correct, you must let the worker know. If, on reflection, you feel that the original determination was incorrect, you must issue a new determination.
It is important that you make a determination of the worker’s status and give it to the worker. If you fail to make a determination, you will be liable for tax and National Insurance on payments made to the worker’s intermediary, even if the engagement is one that would fall outside the off-payroll working rules.
Off-payroll working rules apply
If the determination is that the worker would be an employee if they provide their services to you directly, the off-payroll working rules apply. Where this is the case, you (or the fee payer if this is different) must:
- calculate the deemed direct payment to account for employment taxes and National Insurance contributions associated with the contract;
- deduct income tax and employee’s National Insurance contributions from the payment to the worker’s intermediary;
- pay employer’s National Insurance contributions;
- report the payments and associated tax and National Insurance to HMRC under real time information; and
- apply the apprenticeship levy and make any payments necessary.
Off-payroll working rules do not apply
If the determination is that the off-payroll working rules do not apply, you can continue to make payments to the worker’s intermediary gross, without deducting tax and National Insurance.
Small private sector organisations
The extended off-payroll working rules do not apply to small private sector organisations. Consequently, if you are an organisation that is categorised as small, and you engage workers who provide their services via a personal service company, you do not need undertake a status determination. Instead, you continue to pay the worker’s intermediary gross without deducting tax and National Insurance.
In this situation, the IR35 rules continue to apply; the worker’s intermediary is responsible for deciding whether the rules apply, calculating the deemed payment and accounting for tax and National Insurance if they do.
Speak to us to find out what you need to do to ensure that you are ready for the extended rules when they come into force in April 2021.
Benefit-in-kind charge on electric vans
A tax charge arises under the benefit-in-kind rules where an employee enjoys unrestricted private use of a company van. The taxable amount is a set amount, with a reduced charge applying to electric vans. However, the charge for zero-emission vans is to be reduced to zero from 6 April 2021.
Taxation of company vans
Employees who enjoy the private use of a company van are taxed for the privilege. For 2020/21, the standard charge is set at £3,490. The charge does not apply where the ‘restricted private use’ condition is met. This is the case where private use, other than home to work travel, is insignificant.
A lower charge applies to electric vans.
The charge is reduced to reflect periods of unavailability and payments for private use.
Since 2015/16, the charge for a zero-emission van has been a percentage of the full charge. That percentage has been steadily increasing. For 2015/16, zero-emission vans were charged at 20% of the standard charge; by 2020/21 it had reached 80% of the standard charge and was due to increase to 90% for 2021/22 before being aligned with the standard charge from 2022/23.
For 2020/21, the benefit-in-kind charge for an electric van is £2,782 (80% of £3,490). By contrast, an employee can enjoy the benefit of an electric company car tax-free.
At the time of the 2020 Budget, it was announced that the tax charge for zero-emission vans would be reduced to zero from 6 April 2021 to encourage employers to move to using electric vans. This change has now been enacted.
A move to electric vans will benefit your employees, who from 2021/22 will not pay any tax if the van is available for private use. You will also benefit as there will be no employer’s Class 1A National Insurance to pay either.
Is it a car or is it a van?
For the purposes of the benefit-in-kind legislation, a vehicle is a ‘van’ if it is a mechanically propelled road vehicle which is a goods vehicle and which has a design weight not exceeding 3,500 kilograms, and which is not a motorcycle.
However, as the long-running Coca-Cola case has demonstrated, just because something looks like a van does not mean that it is, at least for tax purposes. The Court of Appeal have held that modified crew-cab vehicles are cars rather than vans for the purposes of the benefit-in-kind legislation, and as such the taxable benefit should be worked out using the company car rules rather than van benefit rules. In this case, the vans in question were panel vans with a second row of seats behind the driver’s seat.
Separate charge for fuel
If an employer meets the costs of fuel for private journeys in a company van, a separate fuel benefit charge arises. The benefit is valued at £666 for 2020/21.
However, HMRC do not regard the provision of electricity as a ‘fuel’ for these purposes. Consequently, no tax charge arises if the employer meets the cost of electricity for the private use of an electric van.
Help and advice
We can help you work out the benefit-in-kind charge on company vans and plan ahead for the changes to come.
Statutory redundancy pay and furloughed employees
The Coronavirus Job Retention Scheme (CJRS) comes to an end on 31 October 2020. As the scheme winds down and employers start meeting some of the associated costs, they will face difficult decisions as to whether they can bring employees back to work or whether they need to make some employees redundant. New legislation has been introduced to ensure that furloughed employees do not lose out on certain statutory entitlements, including the right to statutory redundancy pay.
Nature of statutory redundancy pay
Employees who have at least two years’ continuous employment with their employer at the date on which they are made redundant are entitled to statutory redundancy pay. Where an employer operates a contractual redundancy pay scheme, they must pay employees redundancy pay which is at least equal to the statutory amount.
Where an employee has been placed on furlough prior to being made redundant, the time that the employee was furloughed counts as continuous employment in determining their entitlement to statutory redundancy pay.
The cost of statutory redundancy pay is met by the employer. From the employee’s perspective, it is tax-free as long as the £30,000 tax-free threshold for termination payments remains available.
How much is statutory redundancy pay?
An employee’s entitlement to statutory redundancy pay depends on the length of their service, their age and how much they are paid when they are made redundant. They are entitled to:
- one-and-a half weeks’ pay for each full year of service for which they were 41 or older;
- one weeks’ pay for each full year of service for which they were 22 or older but under 41; and
- half a week’s pay for each full year of service that they were under 22.
Service is capped at 20 years for the purpose of the calculation and counted backwards from the date of redundancy. Pay, too, is capped for the purposes of the calculation. For 2020/21, the cap is set at £538 per week, meaning that the maximum amount of statutory redundancy pay that must be paid in 2020/21 is £16,140 (20 x £538 x 1.5).
Where an employee’s pay varies, statutory redundancy pay is calculated by reference to average weekly pay for the 12 weeks prior to the date on which the employee was made redundant.
Pay and furloughed employees
During the COVID-19 pandemic, the CJRS allowed employers to place employees on furlough and to claim a grant with which to pay them from the Government. The grant was set at 80% of the employee’s pay to a maximum of £2,500 per month.
When calculating statutory redundancy pay for an employee who has been made redundant after a period of furlough, the employee’s ‘usual’ pay should be used, rather than the reduced pay that they may have received while on furlough. This will normally be the pay used to calculate the grant payable under the CJRS, typically their pay for February 2020 or, where their pay varies, their average pay for the 2019/20 tax year. Thus, if an employee whose normal pay is £300 per week is furloughed prior to being made redundant and receives £240 per week (80% of £300) while on furlough, the employee’s usual pay of £300 per week is used to calculate their statutory redundancy pay.
We can help you work out whether your employees are entitled to statutory redundancy pay, and the level of pay which should be used to calculate their entitlement.
Correcting claims under the CJRS
HMRC have moved into the next phase of their compliance activity in relation to the Coronavirus Job Retention Scheme (CJRS) and have written to 3,000 employers who they believe may have either claimed more under the scheme than they were entitled to or who did not meet the conditions for making a claim.
Legislation introduced in the Finance Act 2020 provides HMRC with the authority to recover amounts overpaid under the CJRS.
Correcting incorrect claims
If you have made an incorrect claim under the CJRS, the onus is on you to correct the claim. HMRC have published guidance setting out what you should do if you have claimed too much or not claimed enough under the scheme.
What to do if you have claimed too much
The action that you need to take if you have claimed too much under the CJRS depends on when you made the claim and whether you will be making further claims under the scheme.
There is a limited window of 72 hours in which a claim can be deleted from the online claim service. Once this period has elapsed, if you have claimed too much under the scheme, you need to tell HMRC. If you will be making another claim under the scheme, this can be done in your next claim by adjusting that claim for the amount that you have over-claimed. Where this route is taken, you will need to keep records of the adjustment that you have made for six years. If you do not have another claim to submit, you should contact HMRC on 0300 322 9420 to arrange how to pay the money back.
Deadline for telling HMRC about an overpaid grant
To avoid being charged a penalty, you must tell HMRC about any overpaid grants under the scheme by latest of:
- 90 days from the date on which you received the grant to which you were not entitled;
- 90 days from the date on which you were no longer entitled to keep a grant that you had claimed because your circumstances had changed; and
- 20 October 2020.
Repaying any overpaid grant within this time frame will prevent a potential tax liability in respect of the over-claimed amount from arising.
What to do if you have not claimed enough
If you have made a mistake in working out your claim under the CJRS, you may have claimed too little. Where this is the case, you should contact HMRC by telephone on 0800 024 1222 to amend your claim. You should note that even if you have not claimed the full amount to which you are entitled back from HMRC, you must pay your employees the correct amount. Where a claim is increased, HMRC may carry out additional checks on the validity of the claim.
Recovery of overpaid amount
HMRC may recover the full amount of any overpaid grant which has not been repaid by making an assessment to income tax. The amount assessed must be paid no later than 30 days from the date of the assessment. Interest is charged if the amount is paid late. Late payment penalties may also be charged if the amount remains outstanding 31 days after the due date.
If an assessment is not made, the overpaid amount should be included on your corporation tax return or your 2020/21 self-assessment return, as appropriate.
Penalty for failing to tell HMRC about an overpaid grant
If you do not tell HMRC about an overpaid CJRS grant by the notification deadline, you might be charged a failure to notify penalty. The amount of the penalty will depend on whether you knew you had been overpaid and whether you attempted to hide it.
HMRC have stated that they will not charge a penalty if you did not know that you had been overpaid at the time, or if your circumstances changed so you stopped being entitled to the grant, as long as it is repaid by 31 January 2022 (sole traders) or within 12 months from the end of your accounting period (companies).
HMRC have published a factsheet which explains how they recover overpaid grants under the CJRS.
We can help
Speak to us about how we can help you check claims that you have made under the CJRS and correct any mistakes that you might have made.
Final SEISS grant
The Self Employment Income Support Scheme (SEISS) provides grants to self-employed taxpayers whose business has been adversely affected by the Coronavirus pandemic. Eligible taxpayers can now claim the second and final grant under the scheme. Grants paid out under the scheme are taxable.
To qualify for the second grant, you must be a sole trader or a partner in a partnership and your business must have been ‘adversely affected’ by the Coronavirus pandemic on or after 14 July 2020. As for the first grant, you must have:
- traded in the 2018/19 tax year and submitted your self-assessment tax return for that year no later than 23 April 2020;
- traded in the 2019/20 tax year; and
- traded in the 2020/21 tax year or intend to do so.
The scheme is only open to self-employed taxpayers whose income from self-employment comprises at least 50% of their total income and is not more than £50,000. The £50,000 limit is initially applied for 2018/19 and the test is met if profits for that year are £50,000 or below. However, where profits for 2018/19 are more than £50,000, average profits for 2016/17, 2017/18 and 2018/19 are considered. You will qualify if the average profits for these years do not exceed the £50,000 threshold.
If you meet the eligibility conditions for the second grant, you can make a claim, even if you did not claim for the first grant.
Meaning of ‘adversely affected’
The second grant is only available to businesses that have been ‘adversely affected’ by the Coronavirus pandemic on or after 14 July 2020. HMRC have published guidance, together with examples, setting out the circumstances in which they consider a business to have been ‘adversely affected’ by the pandemic.
As a general guide, a business will be ‘adversely affected’ if it has experienced lower turnover or higher costs as a result of Coronavirus. This may be because you were unable to work because you were sick, self-isolating, shielding or caring for someone because of the virus. The business may also suffer a reduction in trade or an increase in costs because of interruptions to the supply change, a reduction in customers or the need to incur additional costs to make the business COVID-secure or to meet social distancing requirements.
Need to keep records
To support a claim for the second grant under the SEISS, you should keep evidence to show how and when the business was ‘adversely affected’ by Coronavirus. This may include:
- business accounts showing a reduction in turnover or an increase in expenditure;
- confirmation of any Coronavirus-related loans that the business has received;
- any dates that the business had to close as a result of lockdown restrictions; and
- any dates that the staff were unable to work because they had Coronavirus symptoms, were self-isolating, shielding, or had caring responsibilities as a result of the virus.
How much is the second grant?
As with the first grant, the second grant is based on average profits over the three tax years 2016/17, 2017/18 and 2018/19. If you did not trade in 2016/17 or file a return for that year, the grant is based on average profits for 2017/18 and 2018/19; if you did not trade in 2017/18 or file a tax return for 2017/18, the grant is only based on profits for 2018/19, regardless of whether you traded in 2016/17.
The second grant is worth 70% of three months’ average profits, to a maximum of £6,570.
HMRC have written to all traders who they believe to be eligible to make a second claim under the scheme, telling them the date from which they can make their claim. Claims can be made online via the claim portal, which opened on 17 August 2020. The last date on which a claim can be made under the scheme is 19 October 2020.
As with the first claim, you must make the claim yourself; claims by agents are not permitted. However, we can advise you on how to make the claim, whether you qualify and what records you need to keep.
Making Tax Digital – the next steps
On 21 July, the Treasury published a report, Building a trusted, modern tax administration system, which sets out the Government’s vision of what they wish to achieve in the next ten years. The vision comprises three elements – policy, systems and law and practice. The ‘policy’ vision means a progressive extension of HMRC’s Making Tax Digital (MTD) work, the ‘systems’ vision means exploring the appropriate timing and frequency for the payment of the different taxes and the technology infrastructure needed to support this, and the ‘law and practice’ vision means reform of the tax administration framework itself.
Extension of MTD
HMRC’s MTD programme is currently in the initial roll-out phase for VAT. Since April 2019, MTD for VAT (MTDfV) is mandatory for most VAT-registered traders whose VAT-taxable turnover is above the VAT registration threshold of £85,000. As a result of a recent Government announcement, the next phase will be to extend the scope of MTD to the VAT registered with turnover below £85,000 from April 2022 and then to introduce MTD for Income Tax for the self-employed and unincorporated landlords from April 2023.
MTD for VAT
MTDfV is compulsory for VAT-registered traders whose taxable turnover is above the VAT registration threshold of £85,000. Traders within its scope must maintain digital VAT records and file digital returns using MTD-compliant software. However, the requirement for digital links to be in place between all parts of process has been delayed by one year as a result of the COVID-19 pandemic and will now apply from the first VAT return period starting on or after 1 April 2021. A digital link is simply the transfer or exchange of information between software programmes without the need for manual input of data.
MTD for Income Tax
Businesses and landlords with annual business income chargeable to Income Tax of more than £10,000 will need to comply with MTD for Income Tax from the start of their first accounting period that starts on or after 6 April 2023. This will necessitate the keeping of digital records and the use of software to send in-year updates of their income and expenditure to HMRC, at least quarterly, instead of filing annual post year end information when submitting a self-assessment tax return.
In addition to the four ‘in-year’ updates, at the end of the accounting period the taxpayer will need to finalise their business income by filing a final adjusting submission and making a declaration that it combined with the earlier submissions is correct. The final declaration will replace the current self-assessment return filed after the end of the tax year.
More information about MTD for income tax can be found on the Gov.uk website.
MTD for Corporation Tax
HMRC are to consult later in 2020 on the design of the MTD system for Corporation Tax to ensure that the MTD process evolves to include limited companies.
Help and advice
We can help you prepare for and comply with MTD.
Bonus for employers who retain furloughed staff
The Chancellor, Rishi Sunak, presented A Plan for Jobs at the time of the Summer Economic Update on 8 July 2020. This included incentives for employers who retain furloughed staff and who offer training and apprenticeships.
Job Retention Bonus
The Coronavirus Job Retention Scheme (CJRS) is now in its final phase. Government support under the scheme is withdrawn gradually from August and the scheme comes to an end on 31 October 2020. Where staff are still furloughed in October, employers will need to decide whether they can bring their furloughed employees back to work.
To encourage employers to retain furloughed staff, a bonus – the Job Retention Bonus – of £1,000 will be paid to the employer for each furloughed employee who is employed continuously from the end of the CJRS until 31 January 2021. However, to qualify for the bonus, the employer must pay the employee, on average, earnings that are at least equal to the lower earnings limit for Class 1 National Insurance purposes, set at £120 per week (£520 per month) for 2020/21.
The Government will pay the bonuses from February 2021.
The scheme is not without its critics, with Jim Harra, Chief Executive of HMRC, questioning whether it offers value for money. Some employers, including Primark and Rightmove, have stated that they will not claim the bonus.
The Chancellor also unveiled plans to fund a new Kickstart Scheme providing £2 billion of funding to create high-quality work placements aimed at young people between the ages of 16 and 24 who are on Universal Credit and who are deemed to be at risk of long-term unemployment. Funding for each job will cover 100% of the relevant National Minimum Wage for 25 hours a week, plus the associated employer’s National Insurance contributions and employer pension contributions under auto-enrolment (where relevant).
Funding of £111 million is to be made available to fund work placements and training for 16 to 24 year olds. The Government will pay employers who provide trainees with work experience £1,000 per trainee. The funding will expand the provision of and eligibility for traineeships for those with Level 3 qualifications and below.
Employers who hire new apprentices will also receive funding from the Government. Where employers take on a new apprentice between 1 August 2020 and 31 January 2021, they will receive a payment of £2,000 for each new apprentice under the age of 25 that they hire and £1,500 for each new apprentice aged 25 and over. These payments are in addition to the existing £1,000 provided by the Government for apprentices aged 16 to 18 and to those aged under 25 with an Education, Health and Care Plan.
Contact us to find out how you can benefit from the incentives on offer.
New rules for claims under the CJRS
The second and final phase of the Coronavirus Job Retention Scheme (CJRS) runs from 1 July 2020 to 31 October 2020. During this phase, furloughed workers may return to work part-time under the flexible furloughing provisions. New rules also apply from 1 July 2020 to determine the length of the claim period.
Claims must start and finish in same calendar month
For claim periods ending on or before 30 June 2020, there was no maximum length for the period for which a claim could be made. However, for claim periods starting on or after 1 July 2020, claims must start and end in the same calendar month. This is because the amount payable under the scheme differs in each month as support under the scheme is phased out.
Where the furlough period for which a grant is being claimed spans more than one calendar month, the period must be split and two claims made. For example, if employees are furloughed for three weeks from 20 July 2020 to 9 August 2020, one claim should be made for the period from 20 July 2020 to 31 July 2020 (12 days) and a further claim should be made for the period from 1 August 2020 to 9 August 2020 (9 days).
Claim period must be at least seven days
Claims for periods starting on or after 1 July 2020 must cover at least seven days, unless the period spans more than one calendar month and the claim relates to the last few days in one month or the first few days in the next month. Where this is the case, a claim can only be made for fewer than seven days if the claim includes the first or the last day of the month, and a claim has been made for the period ending immediately before it.
Only one claim per period
Only one claim can be made for each period. This means that all furloughed or flexibly furloughed employees must be included in the same claim. Where a subsequent claim is made, the subsequent claim cannot overlap with other claims that have been made.
If an employee has been furloughed or flexibly furloughed continuously, the claim periods must follow on from each other with no breaks. For example, an employer could make a claim each week. The claim must include all employees furloughed or flexibly furloughed that week. The first day of the next claim period must be the day after the last day of the previous claim period.
Cap on number of employees
The number of employees who can be included in a claim for a period starting on or after 1 July 2020 cannot be more than the maximum number of employees under any claim ending on or before 30 June 2020. This is subject to an exception where an employee returns from statutory leave and is furloughed on their return.
We can help
We can help you work out your claim periods for claims under the CJRS and assist you in making the claim.
Temporary increase in residential SDLT threshold
To help boost the housing market and allied sectors, the residential Stamp Duty Land Tax (SDLT) threshold in England and Northern Ireland has been increased from £125,000 to £500,000 for a temporary period from 8 July 2020 to 31 March 2021. Increases have also been announced to the residential thresholds for Land and Buildings Transaction Tax (LBTT) in Scotland and Land Transaction Tax (LTT) in Wales.
Residential SDLT rates
The rates of residential SDLT applying from 8 July 2020 to 31 March 2021 are as shown in the following table.
|Property value||Main home||Additional properties|
|Up to £500,000||Zero||3%|
|Next £425,000 (£500,001 to £925,000)||5%||8%|
|Next £575,000 (£925,001 to £1.5 million)||10%||13%|
|The remaining amount (over £1.5 million)||12%||15%|
The nil rate band that applies to the net present value of any rents payable for residential property is also increased to £500,000 for the same period. Where the net present value is more than £500,000, SDLT is charged at the rate of 1% on the excess.
On 1 April 2021, the rates and thresholds will revert to those applying prior to 8 July 2020.
The increase in the residential SDLT threshold will also benefit those looking to purchase second homes and investment properties, such as buy-to-let properties. The 3% supplement, which applies where the consideration is £40,000 or more, is added to the residential rates, as reduced. Consequently, those completing on second and subsequent homes between 8 July 2020 and 31 March 2021 will pay SDLT at 3% on the first £500,000 of the consideration.
Prior to 8 July 2020, first-time buyers enjoyed a higher SDLT threshold of £300,000, as long as the consideration for the purchase was not more than £500,000. From 8 July 2020 to 31 March 2021, first-time buyers will pay SDLT at the residential rates, as reduced. The reduction will benefit first-time buyers purchasing properties for more than £300,000.
Non-residential and mixed-use properties
The increase in the threshold only applies to residential properties – the threshold for non-residential and mixed-use properties remains at £150,000.
The starting threshold for LBTT in Scotland is increased from £145,000 to £250,000 from 15 July 2020 until 31 March 2021. The additional property supplement of 4% in Scotland is payable on top of the reduced residential rates.
Taxpayers buying residential property in Wales will benefit from a reduction in LTT as the LTT residential property threshold is increased from £180,000 to £250,000 from 27 July 2020 until 31 March 2021. However, unlike the rest of the UK, the higher threshold does not apply to additional properties – the 3% supplement is added to the residential rates applying immediately prior to 27 July 2020, rather than to the reduced rates as is the case in the rest of the UK.
Talk to us
Speak to us to find out how much you could save by completing your residential property purchase by 31 March 2021.
Reduced rate of VAT for hospitality sector
To support businesses and jobs in the hospitality sector, the reduced (5%) rate of VAT applies to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar establishment across the UK for a temporary period from 15 July 2020 to 12 January 2021.
The reduced rate of VAT (5%) also applies to supplies of accommodation and admissions to attractions during this period.
Guidance on the application of the reduced rate can be found on the Gov.uk website.
Speak to us
If you operate in these sectors, talk to us about what the reduced rate of VAT will mean for you.
NIC implications of COVID-19 support payments
Various support payments have been made to help those affected by the COVID-19 pandemic. How are those payments treated for National Insurance purposes?
Grant payments under the CJRS
Where an employer claims a grant payment under the Coronavirus Job Retention Scheme (CJRS), the full amount of the grant (topped up to 80% of wages in the last two months of the scheme) must be paid over to the employee. As far as the employee is concerned, this is treated in the same way as a normal salary payment. The employer deducts Class 1 National Insurance and pays it over to HMRC.
The payment is also liable to employer’s Class 1 National Insurance to the extent that it is not covered by the employment allowance. For pay periods prior to 1 August 2020, the employer can reclaim the associated employer’s National Insurance on grant payments from the Government under the CJRS. The employer’s National Insurance must be paid over to HMRC in the usual way.
Grants under the SEISS
Grants under the Self-Employment Income Support Scheme (SEISS) should be taken into account in computing profits for 2020/21. Where those profits exceed £9,500, Class 4 National Insurance contributions will be payable. If the profits for 2020/21 are more than £6,475, you must pay Class 2 contributions.
As a result of the pandemic, profits may be lower in 2020/21 than previously. If profits are below the small profits threshold, set at £6,475 for 2020/21, there is no obligation to pay Class 2 contributions. However, it may be worthwhile to do so voluntarily to ensure that 2020/21 remains a qualifying year for state pension and contributory benefit purposes. This is much cheaper than paying Class 3 contributions to make up a shortfall.
Businesses may also receive other grants, such as those payable to businesses qualifying for small business rate relief or payable to specific sectors, such as the hospitality and leisure sector. For self-employed taxpayers, these are taken into account in calculating profits, which in turn will determine whether a liability to Class 2 and Class 4 National Insurance contributions arise.
Talk to us
Speak to us to ascertain the effect of grant payments on your National Insurance bill.
The Self-Employment Income Support Scheme (SEISS) has been extended. Eligible self-employed taxpayers will be able to claim a second, and final, grant under the scheme in August.
The eligibility criteria for the second grant are the same as the first. To qualify, the individual must:
- have submitted their self-assessment tax return for 2018/19 by 23 April 2020;
- traded in 2019/20;
- be continuing to trade when they claim the grant, or would be except for the Coronavirus pandemic;
- intend to continue to trade in 2020/21; and
- they have lost profits due to the Coronavirus.
The grant is limited to traders whose trading profits are £50,000 or less, either for 2018/19 or on average for the three years 2016/17 to 2018/19 inclusive. Profits from self-employment must also comprise at least 50% of the individual’s income to qualify for the grant.
The taxpayer will need to confirm that they were ‘adversely affected’ by COVID-19 on or after 14 July 2020 when making their claim for the second grant. HMRC have published examples on the Gov.uk website of circumstances in which a business will be deemed to be adversely affected by the pandemic. They include:
- an inability to work because the taxpayer is shielding, self-isolating, sick with Coronavirus or has caring responsibilities as a result of the virus;
- a scaling down of the business due to interruption of the supply chain;
- a loss of trade because staff are unable to work; or
- a loss of trade because of a reduction in customers or clients.
Amount of the second grant
The second grant is based on 70% of average monthly profits for three months, based on the profits for 2016/17, 2017/18 and 2018/19. The calculation is adjusted where the taxpayer was not trading for all of these years. The second grant is capped at £6,570.
Making the claim
The claim cannot be made until August. As with the first claim, it must be made online. While agents cannot make claims on behalf of clients, we can help you determine whether you are eligible and what you are entitled to receive.
Changes to trading activities as a result of COVID-19
The COVID-19 pandemic and restrictions on trade have led many businesses to change what they do in a bid to survive. An example of this is the village pub opening instead as a local shop selling food and other essentials. Alternatively, a business may have ceased trading temporarily as a result of the lockdown.
HMRC have recently published guidance on the tax implications of crisis-driven changes to trading activities.
Nature of trade
When a business changes what they do, the tax implications will depend on whether the new activity is broadly similar to their previous activities or completely unrelated.
If a business has started something new which is completely different to their usual business, for example, a hairdresser starting to manufacture face masks, the business making face masks will be treated as a new separate business. The profits and losses should be calculated separately from those of the existing hairdressing business.
However, if a business starts to carry on a new activity that is broadly similar to its existing trade, the new activity should not be treated as a new business. Instead, profits and losses should be included when working out the profits and losses of the existing trade. An example of this would be a restaurant that instead offers a takeaway and delivery service.
Temporary break in trading
In the initial strict phase of the lockdown, many businesses were not allowed to trade. The list included those in the leisure and hospitality sector, non-essential shops, hairdressers, beauticians and barbers. As a result, the business will have a temporary break in its trade.
HMRC have confirmed that where a business closed its doors to customers or otherwise ceased trading as a result of the pandemic, the break will not be treated as a cessation of trade where the intention is to continue trading once the lockdown restrictions are lifted. However, this is conditional on the activities after the break being the same as, or similar to, those prior to the break. Any income and expenses relating to the gap in trading should be taken into account in calculating the profits or losses for the period.
Help and advice
Discuss the tax implications of any changes to or breaks in your trade with us.
The Coronavirus Job Retention Scheme (CJRS) has provided a lifeline for many employees and employers during the COVID-19 pandemic. As at 21 June 2020, 9.2 million employees had been furloughed by 1.1 million employers who had, collectively, claimed grants totalling £22.9 billion.
Prior to 30 June 2020, employees who had been furloughed could not work for their employer while on furlough. This changes from 1 July 2020 with the introduction of flexible furloughing.
The CJRS runs until 31 October 2020. As the scheme draws to a close, the grant support provided to employers is gradually reduced from 1 August 2020.
Reduction in support
The CJRS enters its second and final phase from 1 July 2020. While employees will continue to receive 80% of their wages for furloughed hours up to the maximum amount for the duration of the scheme, the amount that employers can claim changes each month.
For July 2020, employers can still claim 80% of the furloughed employee’s wages up to £2,500 per month, plus the associated employer’s National Insurance due on the grant amount and the minimum employer pension contributions due under auto-enrolment. For pay periods commencing on or after 1 August 2020, the employer is no longer able to claim back employer’s National Insurance or pension contributions. For August, the grant claim remains at 80% of the employee’s pay up to £2,500 per month; however, this reduces to 70% for September up to £2,187.50 per month and to 60% for October up to £1,875 per month. For the last two months of the scheme, the employer must make up the difference so that the employee continues to receive 80% of their pay for furloughed hours up to the maximum amount.
Nature of flexible furloughing
Flexible furloughing enables employers to bring back furloughed workers for any amount of time and under any work pattern while continuing to claim a grant for the employee’s normal hours that they are not working. The employee’s normal hours are effectively split between hours that they work for which they are paid by the employer as normal and hours that they do not work – treated as furloughed hours – in respect of which the employer is able to claim a grant under the scheme.
From 1 July 2020, employers can only claim a grant for an employee if the employee had previously been furloughed for at least three consecutive weeks between 1 March 2020 and 30 June 2020. To meet this test, the latest date an employee could have been placed on furlough for the first time is 10 June 2020. However, this does not apply to employees returning from statutory leave (such as maternity, paternity or adoption leave) after this date who can be furloughed when their leave comes to an end.
Calculating the amount of the claim
The calculation of the claim amount under flexible furloughing can be complicated. However, detailed guidance is available, with examples, on the Gov.uk website.
The starting point is to determine the employee’s usual hours, the hours that the employee works and the furlough hours (which are simply the usual hours less the hours worked). The Government guidance explains how to work out an employee’s usual hours.
Having determined the furlough hours and the usual hours, the next step is to work out the minimum furlough pay. This is found as follows:
- Find the lesser of 80% of the employee’s usual wages and the maximum amount (equivalent to £2,500 per month).
- Divide this by the employee’s usual hours.
- Multiply this by the number of hours that the employee is furloughed in the pay period.
In July 2020, an employee returns to work on flexible furlough. The employee’s usual hours are 155 hours and the employee works 56 hours in July, for which they are paid by their employer as normal. The remaining 99 hours are furlough hours for which the employee can claim a grant.
The employee’s usual pay is £3,000 per month; 80% of which is £2,400. As this is less than £2,500, this figure is used to calculate minimum furlough pay.
The minimum furlough pay is £2,400 x 99/155 = £1,532.90.
The employer can claim £1,532.90 for July plus the associated employer’s National Insurance and pension contributions.
Claims for August, September and October
The amount that the employer can claim for August is the minimum furlough pay, for September 70/80ths of the minimum furlough pay, and for October 60/80ths of the minimum furlough pay.
For pay periods on or after 1 July 2020, claims must start and end in the same calendar month. If the pay period spans two months, two separate claims must be made.
Help with claims
We can provide guidance on flexible furloughing and submit claims on your behalf.
Option to defer July self-assessment payment on account
Taxpayers facing financial difficulties as a result of the COVID-19 pandemic can opt to delay making their second self-assessment payment on account for 2019/20, due by 31 July 2020. As long as the amount is paid in full, together with any outstanding balance for 2019/20, by 31 January 2021, HMRC will not charge any interest or penalties.
Requirement to make payments on account
Under the self-assessment system, taxpayers are required to make payments on account of their tax and Class 4 National Insurance liability if their self-assessment bill for the previous tax year was £1,000 or more, unless at least 80% of the tax owed for that year was deducted at source, for example, under PAYE.
Each payment on account is 50% of the previous year’s tax and Class 4 National Insurance liability. Although Class 2 National Insurance contributions are collected via the self-assessment system, they are not taken into account when working out payments on account. Payments on account are made on 31 January in the tax year and on 31 July after the end of the tax year, with any balance being paid by the tax return filing date of 31 January after the end of the tax year. If the payments on account are more than the eventual liability, the excess is refunded or set against the next year’s liability.
The first payment on account for 2019/20 was due by 31 January 2020. The second payment would normally need to be paid by 31 July 2020.
Option to defer
This year, taxpayers have the option to defer the second payment on account if they are finding it difficult to make the payment by 31 July 2020 due to Coronavirus. There is no obligation to defer – taxpayers can still make the payment by 31 July 2020 if they so wish.
Where a taxpayer takes the deferral option, the outstanding payment can be made whenever the taxpayer is able to meet the payment, as long as this is no later than 31 January 2021. Any balance owing for 2019/20 must be paid by the same time, together with the Class 2 National Insurance liability for the self-employed and the first payment on account for 2020/21.
Taxpayers choosing the deferral option do not need to tell HMRC – they simply pay the tax by 31 January 2021; nor do they have to provide evidence that they were adversely affected by the COVID-19 pandemic.
Guidance on the deferral option is available on the Gov.uk website.
Pros and cons
Delaying the payment will no doubt help those struggling as a result of the COVID-19 pandemic. Indeed, it may provide a lifeline for particular groups of taxpayers, for example, those who are self-employed and who do not qualify for a grant under the Self-employment Income Support Scheme and who have been unable to work due to the restrictions.
However, the deferred tax has to be paid eventually, and the payback for having nothing to pay in July is a big bill in January 2020. Not only will the deferred tax be payable then, but also any balance due for 2019/20 and the first payment on account for 2020/21.
Get in touch
It would be a pleasure to help you decide whether the deferral option would be beneficial to you and what it will mean for your cashflow come January 2021.
Expenses and benefits provided to employees during the COVID-19 pandemic
HMRC have recently published guidance for employers on how to treat certain expenses and benefits which may be provided to employees during the COVID-19 pandemic. The guidance is available on the Gov.uk website.
They have also relaxed the rules for a limited period where an employer reimburses an employee for the cost of equipment purchased to enable them to work from home.
Particular issues can arise where an employer supports employees who are undertaking volunteer work during the pandemic, such as delivering prescriptions or PPE.
Volunteers driving a company car
If the employee has a company car and you refund the fuel costs where the car is used for volunteer duties using the advisory fuel rates, this will be a taxable benefit as the reimbursed mileage is not business mileage. If you wish to meet the tax and National Insurance on behalf of your employees, you can include it within a PAYE Settlement Agreement. If not, the reimbursement is taxable and liable to National Insurance.
If, as an employee, you pay for the petrol when undertaking volunteer duties using you company car, you are not able to claim tax relief as the expense is not incurred wholly, exclusively and necessary in the performance of your job.
Volunteers driving their own car
Where an employee undertakes volunteer driving using their own car and, as measure of support, you reimburse the cost using the approved mileage allowance rate, again, this will be taxable and liable to National Insurance. However, you can instead settle the associated liability on behalf of your employees by including it within a PAYE Settlement Agreement.
If the employee pays the mileage costs associated with volunteer driving, they cannot claim mileage allowance relief as the journeys are not business journeys.
Company car availability
During the lockdown many employees have been furloughed or are working from home. As a result, if they have a company car, they may be using it only rarely or not at all.
A taxable benefit arises in respect of the provision of a company car when that car is ‘available’ for private use – it does not matter whether the car is actually used or not, it is the ‘availability’ that triggers the tax charge. HMRC have confirmed that during the lockdown, a company car should still be treated as being ‘available for private use’, even if the employee has been:
- instructed not to use the car;
- asked to keep a record of the mileage to prove the car has not been used (i.e. photographs of the mileage at the start and end of the period); and
- unable to return the car or arrange for its collection.
However, where it was not possible for the car to be handed back or collected as a result of the restrictions on movement, where the contract has been terminated, HMRC will accept that the car ceased to be available from the date that the keys (including tabs or fobs) are returned to the employer or relevant third party. If the contract has not been terminated, the car will be treated as unavailable after a period of 30 consecutive date from the date on which the keys have been returned. HMRC accept that where the employee no longer has access to the keys, they cannot drive the car, even if the car remains at their home.
The company car tax rules are strict and it important to appreciate the difference between a car being available for use and a car actually being used by the employee when it comes to calculating the taxable benefit.
An employee may have purchased office equipment to enable them to work at home. HMRC have, temporarily, relaxed the rules where the employer reimburses the cost. Under the normal rules, where an employee purchases a capital item, such as computer, to enable them to work from home, any reimbursement by the employer is taxable. Likewise, the employee is unable to claim tax relief.
However, where an employee has purchased equipment to work at home because of Coronavirus, if the employer reimburses the costs on or after 16 March 2020 and before the end of the 2020/21 tax year, the reimbursement will be tax-free. If the employee purchases equipment in this period and the cost is not met by the employer, the employee can claim a tax deduction, either on form P87 or via their self-assessment return. They should retain evidence of the expenditure
HMRC have also confirmed that employees can claim tax relief for additional household expenses of up to £6 per week (£26 per month) without the need for supporting evidence.
HMRC’s guidance also covers other benefits that may be provided to employees during the pandemic. We can help you ensure that these are provided in a tax-efficient manner.
Expenses and Benefits Returns for 2019/20
Employers who provided taxable expenses and benefits to their employees during the 2019/20 tax year will, as usual, have to tell HMRC about these by 6 July 2020. This obligation is unchanged despite the COVID-19 pandemic.
Form P11D is used to tell HMRC about taxable benefits and expenses provided to employees where these have not been payrolled or included within a PAYE settlement. If the employer has payrolled some benefits but not others, only those benefits which have not been payrolled should be included on the P11D.
Benefits and expenses which are covered by a tax exemption do not need to be shown on the P11D. However, exemptions are only available if all the associated conditions are met. Remember, where provision is made via an optional remuneration arrangement, for most benefits the exemption is lost and thus the benefit should be notified on the P11D.
The taxable value of the benefit is its cash equivalent value, unless provision is made via an optional remuneration scheme. Where a benefit-specific rule exists, as is the case for company cars and employment-related loans, the cash equivalent value is calculated in accordance with the relevant rules; where there is no specific rule, the general rule applies. This is the cost to the employer less any amount made good by the employee (which must be by 6 July after the end of the tax year). HMRC produce worksheets which can be used to work out the cash equivalent value for some benefits. These can be found on the Gov.uk website.
If the benefit is made available under an optional remuneration scheme, such as a salary sacrifice arrangement, alternative valuation rules apply to all but a handful of benefits. In this case, the taxable amount is the ‘relevant amount’. Broadly, this is the salary foregone where this is more than the cash equivalent value. The alternative valuation rules do not apply to pensions or pensions’ advice, childcare, employer-provided cycles and cyclists’ safety equipment under cycle to work schemes, and cars with CO2 emission of 75g/km or less, and transitional rules apply in certain cases.
The P11D(b) is the employer’s declaration that all required P11Ds have been filed, and also the Class 1A National Insurance return. Remember to take account of payrolled benefits when working out the Class 1A National Insurance liability.
A P11D(b) is still required even if you have no P11Ds to file because all benefits have been payrolled.
If you provided benefit and expenses in 2018/19 but not in 2019/20, you may need to make a nil declaration. This will be required if HMRC sent you either a P11D(b) or a reminder letter. The notification can be made online.
How and when to file
Expenses and benefits returns (P11D and P11D(b)) can be filed online using HMRC’s Expenses and Benefits Online Service, PAYE for Employers or commercial software. Paper returns can also be submitted.
Returns for 2019/20 must reach HMRC by 6 July 2020. Employees must be given a copy of their P11D or details of the information that it contains by the same date.
The Class 1A National Insurance liability must reach HMRC by 22 July 2020 where payment is made electronically. Where payment is made by cheque, the deadline is 19 July; however, as this falls on a Sunday this year, the cheque must be with HMRC by Friday 17 July.
How we can help
Discuss with us what you need to do in order to meet your filing obligations during these challenging times.
Coronavirus Job Retention Scheme extended
The Chancellor, Rishi Sunak, announced on 12 May that the Coronavirus Job Retention Scheme would be extended until 31 October 2020. The scheme enables employers adversely affected by the COVID-19 pandemic to furlough staff rather than making them redundant, and to claim a grant from the Government for 80% of their wages up to £2,500 a month. It was due to finish at the end of June. It will now continue in its current form until 31 July 2020, with changes being made from August as part of the gradual withdrawal of the scheme.
As at 17 May 2020, 8 million jobs had been furloughed by 986,000 employers who had, in total, claimed grants totally £11.1 billion.
In its current form, employers can furlough staff and claim a grant from the Government for 80% of the furloughed employee’s wages, capped at £2,500 a month. The grants, which must be paid over in full to the employee, are liable to tax and National Insurance as usual, and must be reported to HMRC as normal under Real Time Information. However, the employer can claim the associated employer’s National Insurance, together with minimum employer contributions where these are due under auto-enrolment, from the Government as part of the grant.
Employers can only claim a grant if the employee is furloughed for a minimum of three weeks. Employees are not currently allowed to undertake work for their employer while on furlough (although they can work for someone else if their contract allows).
Changes from August
Support provided under the scheme is to be withdrawn gradually. While the scheme will continue to be available for a further three months from 1 August, employers will have the flexibility to bring furloughed employees back part time from that date. Employees will continue to receive 80% of their salary (capped at £2,500 a month), but employers will be required to meet some of the cost. The Government are to publish more details of how the scheme will operate from 1 August 2020 to 31 October 2020.
Guidance on the operation of the scheme can be found on the Gov.uk website. Speak to us to find out how you can use the scheme to help you maintain your workforce during the pandemic.
Claim SSP for Coronavirus-related absences
Smaller employers who have paid statutory sick pay (SSP) to employees who were absent from work due to a Coronavirus-related absence can now claim a rebate from the Government. The claim portal went live on 26 May 2020.
Who can claim?
Employers are eligible to make a claim if they have a payroll scheme that was created on or before 28 February 2020 and had fewer than 250 employees on the payroll at that date. They can claim back up to two weeks’ SSP paid to an employee who was absent from work due to Coronavirus.
What can you claim?
An absence counts as a Coronavirus-related absence if the employee is unable to work for one of the following reasons:
- they had Coronavirus (COVID-19) symptoms;
- they were self-isolating because someone in their household had Coronavirus symptoms; or
- they were shielding and have a letter from either the NHS or their GP telling them to stay at home for at least 12 weeks.
Claims are capped at two weeks’ SSP per employee, even if the employee is absent for work and receiving SSP for longer than this, for example, because they are shielding. Claims can be made for periods of sickness starting on or after 13 March 2020 where the employee either had Coronavirus symptoms themselves or were self-isolating because someone in their household had symptoms, and in relation to periods of absence starting on or after 16 April 2020 where the employee is shielding. If you have paid more than the weekly SSP rate (for example if you pay employees their full pay while sick), the claim is limited to the SSP rate, set at £95.85 per week from 6 April 2020 and at £94.25 before that date. For Coronavirus-related absences, SSP can be paid from the first qualifying day once a period of incapacity for work has been established – the usual three waiting days do not need to be served.
Where SSP is paid for an absence which is not a Coronavirus-related absence, the employer cannot claim it back under the rebate scheme. Normal rules apply in relation to absences that are not related to Coronavirus and the employer must meet the cost of any SSP paid to employees who are absent other than for one of the reasons listed above. Claims can be made for employees in respect of whom a grant has been claimed under the Coronavirus Job Retention Scheme; although a claim for a grant and an SSP rebate cannot be made for the same period.
How do we claim?
Claims can be made via the online portal. To claim, you will need:
- your Government Gateway User ID;
- employer PAYE scheme reference number;
- UK bank or building society details for the account into which the rebate is to be paid;
- the total amount of SSP paid to employees for Coronavirus-related absences;
- the number of employees in respect of whom a claim is being made; and
- the start and end date of the claim period.
When claiming, you will also need to provide a contact name and telephone number. Claims can be made at the same time for multiple pay periods and multiple employees.
HMRC will check claims and if satisfied pay the money into the designated account within six working days of the date on which the claim was made.
Do we need records to support the claim?
You do not need to provide evidence when making the claim. However, you do need to keep records of:
- the dates on which the employees were absent from work;
- which of those dates were qualifying dates;
- the reason for their absence, i.e. whether they had symptoms or were shielding; and
- the National Insurance numbers of the employees in respect of whom a claim is being made.
You do not need to obtain a Fit Note for Coronavirus-related absences.
Records should be kept for three years from the date on which you received the rebate.
The good news is that HMRC has confirmed that if you have authorised us to do PAYE online for you, we can complete the claim on your behalf. Alternatively, if you prefer, we advise if you are able to make a claim and how to go about it.
COVID-19 self-employed scheme
After mounting pressure for clarification on the COVID-19 support that was expected to be made available on the 26 March, the Chancellor Rishi Sunak has now announced the details of the self-employed income support scheme (SEISS) and how it will work.
SEISS is a taxable grant payable to the self-employed (including partners).
It is set at 80% of a qualifying person’s average trading profits, payable for 3 months and capped at £2,500 per month.
No real-time information?
With it being almost impossible to determine what the self-employed earn in real time, the government has opted to base the grant a person should receive on an average of their trading profits arising in three tax years ending 5 April 2019, as reported under self-assessment.
Where self-employment started later 6 April 2016, the average profit will be calculated by reference to actual period of trading, from commencement to 5 April 2019.
Nothing to do…. yet
As HMRC already holds the data there is nothing for the taxpayer or their agents to do. Instead, the revenue authority will use what it holds to establish eligibility and, if appropriate, the size of grant.
One quarter of the average annual profit will form the basis of the SEISS grant awarded, at the rate of 80% of taxable profits up, with the maximum monthly grant being £2,500.
The SEISS grant is payable to anyone who is self-employed and meets these conditions:
- average annual taxable profits of no more than £50,000;
- submitted a tax return for 2018/19;
- more than half of taxable income from self-employment;
- continued to trade throughout 2019/20 tax year;
- an intention to trading throughout 2020/21 tax year.
Started after 6 April 2019
Those who started trading on or after 6 April 2019 are not eligible for the SEISS grant. Tough, very probably, but the government had to draw a line somewhere.
To qualify for the cash-grant, a self-employed person must have traded in 2018/19, filed a 2019 Tax Return, and would still be trading in the current tax year if it hadn’t been for the interruption to business due to the Coronavirus. In fact, to be eligible for SEISS it is not necessary for your business to cease entirely. It just needs to have suffered a loss of income as a result of the pandemic.
Where a trader has already decided to cease trading, no grant is payable.
Taxpayers who have not submitted their 2018/19 tax return were given until 23 April 2020 to get it in to HMRC and still qualify for the grant. Although, it should be noted that for late filing, and late payment of tax, penalties are not going to be waved.
HMRC will contact those eligible and invite them to apply for the grant online. At the time of writing, it is not clear how that approach will be made.
When will it arrive
The three month’s grant will be paid into the applicants bank account in one lump sum, starting early June.
The number of months covered by a SEISS grant may be extended beyond three months if the COVID-19 shutdown continues into July.
As observed earlier, the grant will be treated as taxable income and those in receipt of working tax credits or universal credit should treat the SEISS grant as part of their self-employed income.
Points to note:
- Those who pay themselves a salary and dividends through their own company are not covered by the scheme. Instead they will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.
- Property letting businesses are not regarded as a trade, therefore, landlords will not qualify for the SEISS.
- Similarly, the letting of furnished holiday accommodation is not strictly a trade and, as believed, HMRC is unlikely to consider income from furnished holiday lets as qualifying for the SEISS grant.
Making Tax Digital – soft landing extension
One-year extension for MTDfV soft landing
In a welcome response to COVID-19, HMRC has extended its digital links ‘soft landing period’ by twelve months to April 2021.
In a widely distributed email issued on 30 March 2020, HMRC stated:
“We understand that the impact of COVID-19 is creating extremely difficult times for all, and we are committed to helping in every way possible all those businesses facing unprecedented challenges.
Therefore, we are providing all MTD businesses with more time to put in place digital links between all parts of their functional compatible software. This means that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.”
From April 2019, once those mandated to comply with VAT MTD have entered accounting data into their business’s accounting software, they have been required to transfer, recapture or modify that data using digital links. Effectively, once VAT data has been digitally captured the rest of its journey until the submission of a VAT return must be a digital journey, without manual intervention.
HMRC recognised that not all businesses would have digital links in place from day one and allowed a period of grace, the ‘soft landing period’. HMRC promised that, where businesses were trying to meet the statutory digital end to end journey during the ‘soft landing period’, the department would not impose penalties for non-compliance.
The effect of the ‘soft landing’ announcement meant that for the first year of mandation, businesses are not required to have digital links between software programs.
For most, MTD for VAT rules have applied from VAT period starting on or after 1 April 2019. Although there was a smaller group where mandation was deferred until the start of the first VAT return period on or after 1 October 2020.
What it means
All businesses mandated to comply with MTD for VAT now have until their first VAT return period, starting on or after 1 April 2021, to put digital links in place.
Given the coronavirus related troubles affecting practically all businesses in the UK, this extension to the ‘soft-landing period’ is another sensible easement that is to be much welcomed.
Optimal salary for 2020/21
A popular profit extraction strategy for personal and family companies is to pay a small salary and to extract further profits as dividends. With new National Insurance thresholds applying for 2020/21, what is the optimal salary for the new tax year?
Starting point – what can be paid free of tax and National Insurance?
Assuming the director has the full personal allowance for 2020/21 of £12,500 available, the optimal salary will be dictated by National Insurance considerations. Unless the director already has the 35 qualifying years needed to secure a full single tier state pension, it is worthwhile paying a salary at least equal to the lower earnings limit, set at £6,240 for 2020/21, to ensure that the year counts for state pension and contributory benefits purposes.
For 2020/21, the point at which employer contributions start (the secondary threshold) is lower than the point at which employee contributions start (the primary threshold). The secondary threshold is set at £8,788 for 2020/21 (£169 per week; £732 per month), whereas the primary threshold is set at £9,500 (£183 per month; £792 per month).
Assuming that the director is over the age of 21 and the employment allowance is not available (as is the case where the sole employee is also a director), the maximum salary that can be paid free of tax and National Insurance is £8,788 – equal to the secondary threshold.
Employer contributions for under 21s do not start until the upper secondary threshold for under 21s is reached (set at £50,000 for 2020/21). Thus, where the director is under 21, a salary equal to the primary threshold of £9,500 per year can be paid free of tax and National Insurance. This is also the case if the employment allowance is available (for example, in a family company scenario).
Is it beneficial to pay a higher salary?
Salary costs and any associated National Insurance are deductible in computing the company’s profits for corporation tax purposes. Thus, if the corporation tax deduction (at 19%) is more than any National Insurance or tax paid on the additional salary, paying a higher salary can be worthwhile.
If the director is 21 or over and the employment allowance is not available, it is worthwhile paying a salary up to the primary threshold of £9,500. On earnings between £8,788 and £9,500, employer National Insurance contributions of 13.8% are due, but this is outweighed by the corporation tax deduction on the additional salary and the associated employer’s National Insurance. However, once the primary threshold is reached, both employer and employee contributions are due (at 13.8% and 12% respectively) on further earnings. As these outweigh the corporation tax deduction, it is not worth paying a salary above £9,500 a year. So, where the director is aged 21 or over and the employment allowance is not available, the optimal salary for 2020/21 is £9,500 a year (£792 per month).
If the director is under 21 or the employment allowance is available, as seen above, a salary of £9,500 (equal to the primary threshold) can be paid free of tax and National Insurance. Above this level, primary National Insurance contributions are payable at 12% until the personal allowance of £12,500 is reached. As the associated corporation tax deduction is higher than the National Insurance cost, it is worth paying a salary of £12,500. Above this, however, income tax at 20% is also payable, outweighing the corporation tax deduction. Consequently, in these circumstances, the optimal salary is equal to the personal allowance of £12,500 a year.
Determine your optimal salary
As shown above, the optimal salary depends on personal circumstances. Speak to us for help in crunching the number and determining the optimal salary for your situation.
Supporting employees working from home
As a result of the COVID-19 pandemic, many employees are now working at home in accordance with Government instructions to help reduce the spread of Coronavirus.
Providing equipment to employees working from home
Employees may need tools and equipment to enable them to work from home. For example, employees who are office based, may need a computer, access to software and possibly a printer. They may also need stationery and printer ink. What are the tax implications if the employer provides these or if the employee meets the cost?
Employer provides equipment to work at home
Employers can provide equipment and supplies tax-free to employees working from home as long as certain condition are met:
- any use of the accommodation, supplies or services for private purposes by the employee or by members of the employee’s family or household is not significant;
- where the accommodation, supplies or services are provided otherwise than on premises occupied by the employer, the sole purpose of the provision is to enable the employee to perform the duties of their employment;
- the provision of the accommodation, services or supplies does not comprise an excluded benefit (such as a car or the construction of a home office).
The exemption will cover the provision of office furniture, such as desks and chairs, computer equipment and stationery. Further guidance on what is covered by the exemption can be found on the Gov.uk website.
Employee meets cost of homeworking equipment
The exemption outlined above does not apply if the employee meets the cost of any equipment that they need to work from home.
If the employee meets the cost, the normal rules for deductibility of expenses incurred by employees apply – that is to say, the employee can claim a deduction for revenue expenses that are incurred wholly, exclusively and necessarily in the performance of the duties of the employment. No deduction is allowed for capital items, such as office furniture and computers. However, employees can claim a deduction for the cost of stationery and suchlike.
Employee meets cost initially and claims it back
From a tax perspective, there is a difference between the employer providing equipment and supplies to enable the employee to work from home and the employee meeting the costs initially and claiming it back from the employer, despite the fact that in each case the employer ultimately bears the cost.
Where the employer provides the equipment, the exemption outlined above applies as long as the associated conditions are met. However, problems can arise if the employee meets the cost and claims it back. In this case, the relevant exemption is the one for paid and reimbursed expenses. This covers paid and reimbursed expenses that would be deductible if met by the employee, i.e. revenue expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment. Consequently, reimbursed capital expenses fall outside the exemption, are taxable and must be reported to HMRC. To avoid this situation, the employer should provide the equipment directly instead.
Additional household expenses
Employees working from home will incur additional household expenses as a result. They may use additional electricity and gas, have higher household insurance or incur additional cleaning costs.
Employers can pay employees a tax-free allowance of £6 per week (£26 per month) to help cover some of these additional costs. Prior to 6 April 2020, the allowance was £4 per week (£18 per month). As long as the employer does not pay more than this, no evidence is required of the amount spent. Guidance on the relief is available on the Gov.uk website.
Employers can pay higher amounts tax-free to cover additional costs of working at home as long as these can be substantiated.
Employees cannot claim a deduction of £6 per week if the employer does not pay the allowance – the usual rule for deductibility of employment expenses apply.
Speak to us
Speak to us to discover how you can support employees working from home in a tax-free manner.
Coronavirus Job Retention Scheme
The online claim portal for the Coronavirus Job Retention Scheme (CJRS) went live on 20 April 2020, allowing employers who have furloughed staff as a result of the COVID-19 pandemic to claim grants from the Government equal to 80% of the employee’s wages (capped at £2,500 per month). Employers can also claim the associated employer’s National Insurance contributions and the minimum employer pension contributions required under auto-enrolment. More than 67,000 employers made a claim under the scheme within the first half hour of the portal opening.
Who can claim?
The CJRS aims to help employers affected by the COVID-19 pandemic to maintain their workforce rather than lay-off staff. It is open to any employer with a UK payroll as long as they:
- had a UK payroll in existence as at 19 March 2020 in respect of which RTI submissions had been made by that date;
- are enrolled for PAYE online (employers not enrolled for PAYE online as at 19 March can do so after that date); and
- have a UK bank account.
What employees are covered?
Claims can only be made in respect of employees who have been furloughed – i.e. laid off from work temporarily. Employers must confirm in writing to the employee that they have been furloughed and make any necessary changes to the employee’s contract of employment. An employee must be furloughed for a minimum of three weeks for a claim to be made.
The employee must have been on the employer’s payroll on 19 March 2020 and the employer must have made an RTI submission in respect of the employee by that date. This may mean that employees who were taken on after the February payroll or who missed the February payroll cut-off date fall outside the scheme, even if they had done some work for the employer prior to 19 March. Claims can, however, be made in respect of employees who were on the payroll as at 28 February 2020 and who were made redundant or stopped working for the employer before 20 March 2020 if the employer puts them back on the payroll and furloughs them. This can be done after 19 March 2020. To qualify, an RTI submission must have been made in respect of the employee by 28 February 2020.
It does not matter what type of contract the employee has – the scheme applies to full-time workers, part-time workers and to those on flexible or zero-hours contracts. Claims can also be made by directors of personal and family companies (but only in respect of their PAYE income).
However, furloughed employees cannot do any work for the employer that generates income while furloughed. This means that claims cannot be made for workers who are on reduced pay or reduced hours. Company directors can, however, continue to fulfil their statutory duties. Apprentices can also be furloughed under the scheme and can continue to train whilst furloughed.
What can be claimed?
Employers can claim 80% of a furloughed worker’s wages, plus the associated employer’s National Insurance and the minimum pension contributions that the employer is required to make under auto-enrolment. Amounts claimed in respect of an employee’s wages must be paid over to the employee in full. Employers can, if they so choose, top up the employee’s wages above the 80% covered by the grant. Grants are pro-rated where the employee is only furloughed for part of the pay period and should be made from the date that the employee starts furlough.
For the purposes of the scheme, wages are the regular payments that the employer is obliged to make to the employee and include:
- regular wages payable to the employee;
- non-discretionary overtime;
- non-discretionary fees;
- non-discretionary commission payments; and
- piece rate payments.
However, the following payments should not be included as wages for the purposes of a claim:
- payments made at the discretion of the employer or a client where there was no contractual obligation to pay, such as tips, discretionary bonuses or discretionary commission payments;
- non-cash payments;
- non-monetary benefits, such as benefits in kind (for example, company cars and private medical insurance).
Calculating the wage claim
For full and part-time employees on a salary, the employer can claim 80% of their salary for the last pay period to 19 March, capped at £2,500 per month (proportionately reduced where the employee was not furloughed for the whole period).
Where an employee’s pay varies and the employee has been employed for at least 12 months, the claim cam be made either by reference to the same pay period in 2019 or by reference to the employee’s average monthly earnings for 2019/20. If the employee has worked for less than 12 months, their average monthly earnings since they started work should form the basis of the claim.
Claiming employer’s National Insurance
Grant payments paid to employees are liable to PAYE tax and National Insurance (employee’s and employer’s) as for normal payments of wages and salary. However, employers can claim the employer’s National Insurance due on grant payments from HMRC. The guidance on the Gov.uk website explains how this is calculated.
Claims cannot be made for employer’s National Insurance covered by the employment allowance. While there is no obligation to claim the allowance from the start of the tax year, it is possible that HMRC may regard delaying claiming the allowance until after the end of the scheme as tax avoidance.
Claiming pension contributions
Where the furloughed employee is within auto-enrolment, the employer will need to pay pension contributions at the minimum level of 3% on earnings above £520 per month (2020/21).
How to make a claim
Claims can be made online.
The claim can be made by the employer or by an agent authorised to act for the employer for PAYE purposes. However, claims cannot be made by agents who are only authorised to file RTI returns on the employer’s behalf.
When making a claim, the following information is required:
- UK bank account and sort code;
- employer PAYE scheme reference number;
- the number of employee’s being furloughed;
- the National Insurance number for each furloughed employee;
- the employee’s payroll number (although this is optional);
- the start and end date of the claim;
- the full amount of the claim, including employer National Insurance contributions and pension contributions;
- contact name and phone number;
- the employer’s corporation tax unique tax reference, self-assessment unique tax reference (as appropriate) or the company registration number.
Claims can be backdated to 1 March 2020. The money should be paid into the employer’s bank account within six working days of the date on which the claim was made. Claims can be made prior to the payroll date so that the employer has the money available to pay furloughed employees.
It should be noted that HMRC will undertake checks for fraudulent claims.
Speak to use to find out whether you are eligible to make a claim and for help in working out what you can claim. Read more about the scheme on the Gov.uk website.
COVID-19: SSP Relaxations
To help employees and businesses manage the Coronavirus outbreak, a number of relaxations have been made to the statutory sick pay (SSP) rules. They apply from 13 March 2020. Details are on the Gov.uk website.
SSP payable from day one
Employees will be able to benefit from SSP from the first day of their absence – they will not need to serve the three waiting days before SSP can be paid.
Extension to those self-isolating
Statutory sick pay will also be available during the pandemic to those who are self-isolating, even if they are not ill themselves. This will include individuals who are self-isolating because someone in their household is showing COVID-19 symptoms.
No need for a Fit Note
Employees can self-certify absences of up to seven days. Beyond seven days, a Fit Note is normally required. To relieve pressure on GPs, employers should not ask for a Fit Note. A temporary alternative, an isolation note, can be obtained from NHS-111, but employers should exercise discretion when asking for medical evidence during the pandemic.
Small employers to be able to reclaim SSP
Normally, employers must suffer the cost of SSP paid to employees who are off sick. However, to help small businesses during the COVID-19 pandemic, small businesses employing fewer than 250 employees on 28 February 2020 will be able to claim a refund of SSP paid to eligible employees who are absent from work due to COVID-19. The refund will be capped at two weeks’ SSP per eligible employee.
As currently there is no process in place for reclaiming SSP, the Government are to work with employers over the coming months to set up a repayment mechanism.
Employers should keep records of staff absences and SSP paid to support the refund claim.
COVID-19: Business rate relief and grants
To help business affected by the COVID-19 pandemic, the Chancellor announced a number of measures effected through the business rates system.
Business rate retail relief increased and extended
At the time of the 2020 Budget, the Chancellor announced that the business rates retail discount for 2020/21 would be doubled from 50% to 100%. The discount is also to be extended to the leisure and hospitality sectors.
The Chancellor also announced funding of £2.2 billion would be provided to local authorities to enable them to provide grants of £3,000 to all businesses receiving small business rate relief. Following the Budget, the Chancellor announced an increase in the amount of the grant to £10,000. Small business rate relief is available in full where the rateable value of the business premises is less than £12,000. The relief reduces from 100% to nil where the rateable value is between £12,000 and £15,000.
Grants of £25,000 are also to be made available for retail, hospitality and leisure businesses with a rateable value of between £15,001 and £51,000. Businesses in this sector will receive a grant of £10,000 where the rateable value of their business premises is £15,000 or less.
Watch this space
New measures are being announced daily to help businesses survive the pandemic. Speak to us to find out what help is available and check out the Gov.uk website.
Entrepreneurs’ relief – reduction in lifetime limit
Prior to the Budget, there had been much speculation that that entrepreneurs’ relief would be abolished. In the event it stayed – albeit with the new name of ‘Business Asset Disposal Relief’ – and a much-reduced lifetime limit.
New £1 million lifetime limit
The lifetime limit is reduced from £10 million to £1 million with immediate effect for disposal on or after 11 March 2020 (Budget Day). Disposals prior to Budget day that qualified for entrepreneurs’ relief count towards the new £1 million limit, and where this has already been reached, the relief will not be forthcoming on future disposals, even if the qualifying conditions are met.
Anti-forestalling measures were announced which may negate protective action taken ahead of the Budget in an attempt to preserve availability of the relief as it applied at that time.
Where arrangements were entered into before Budget day, the old £10 million lifetime limit will only apply if:
- the parties to the contract are able to demonstrate that they did not enter into the contract for the purposes of obtaining a tax advantage by virtue of the capital gains tax rules setting the contract date as the date of the disposal; and
- where the parties to the contract are connected, the contract was entered into for wholly commercial reasons.
If the above conditions are not met, the reduced lifetime allowance of £1 million applies.
Anti-forestalling rules also apply in certain circumstances where between 6 April 2019 and 11 March 2020, shares were exchanged for those in another company, and both companies are owned or controlled by substantially the same person.
If you are planning on disposing of business assets or shares in a personal company, it is important to plan ahead to maximise relief. We can help you. Remember, spouses and civil partners each have their own lifetime limit.
Guidance on the changes is available on the Gov.uk website.
Budget 2020 – rates and allowances
The Chancellor, Rishi Sunak, presented his first Budget on 11 March 2020, confirming the rates and allowances applying for the 2020/21 tax year. The following key rates and allowances were announced.
Full details of the rates and allowances applying for 2020/21 are available on the Gov.uk website.
As previously announced, the personal allowance remains at £12,500 for 2020/21. It is reduced by £1 for every £2 by which income exceeds £100,000. This means that if your income is more that £125,000 for 2020/21, you will not receive a personal allowance.
Income tax rates and allowances are unchanged too. The basic rate remains at 20%, the higher rate at 40% and the additional rate at 45%. The basic rate band is also unchanged at £37,500, meaning that the point at which higher rate tax becomes payable remains at £50,000. Tax is payable at the additional rate on income over £150,000.
The dividend allowance remains at £2,000 for 2020/21. Dividends, which are treated as the top slice of income, are taxed at 7.5% to the extent that they fall within the basic rate band, 32.5% to the extent that they fall in the higher rate band and at 38.1% to the extent that they fall in the additional rate band.
Basic rate taxpayers continue to benefit from a savings allowance of £1,000 for 2020/21, while higher rate taxpayers can enjoy a savings allowance of £500. There is no savings allowance for additional rate taxpayers.
The starting savings rate of 0% applies to savings in the savings starting rate band of £5,000, but remember this is reduced by taxable non-savings income.
The rate of corporation tax was due to fall to 17% for the financial year 2020. However, as previously announced, it will remain at 19%. It will stay at 19% for the financial year 2021 too.
Capital gains tax
The capital gains tax annual exempt amount is increased to £12,300 for 2020/21 for individuals and personal representatives, and to £6,150 for trustees.
Capital gains tax rates remain at 10% where income and gains fall in the basic rate band and at 20% thereafter. Higher rates of 18% and 28% apply to residential property gains.
Off-payroll working rules delayed
In a surprise move, the Government have announced that the reforms to the off-payroll working rules have been delayed by one year and will now come into effect from 6 April 2021. The delay is to help businesses affected by the COVID-19 pandemic. The delay will affect medium and large private sector organisations engaging workers through personal service companies and other intermediaries, and workers providing their services to such organisations in this way.
As the announcement of the delay came only three weeks before the reforms were due to take effect, it comes too late for many. To avoid having to deal with the new rules, many organisations have already taken the decision not to use workers providing their services via an intermediary, opting instead to place all workers ‘on payroll’.
Impact of the delay
The extent to which you will be affected by the delay will depend on whether you are a small, medium or large private sector organisation, a public body or a worker providing their services through a personal service company or other intermediary.
Medium and large private sector organisations
Medium and large private sector organisations (as defined for Companies Act 2006 purposes) who engage workers providing their services through an intermediary can carry on as normal for 2020/21, paying the intermediary gross. They will not need to undertake status determinations and deduct tax and National Insurance from the deemed payment to the worker’s intermediary where the worker would be an employee if their services were provided directly. A further plus is that they will not yet need to pay employer National Insurance contributions on the deemed payment. These changes will now become a reality from 6 April 2021 rather than from 6 April 2020.
Workers providing their services through an intermediary to medium and large private sector organisations
Had the reforms gone ahead as planned from 6 April 2020, the responsibility for determining whether the off-payroll working rules apply would have shifted to the end client where a worker provides his or her services to a medium or large private sector organisation through an intermediary. This shift will now not take place until 6 April 2021.
As a result, the worker’s intermediary will continue to be paid gross, regardless of whether the off-payroll working rules apply. Responsibility for determining whether IR35 applies remains with the worker’s intermediary for 2020/21. If it does, the worker’s intermediary must calculate the deemed payment at 5 April 2021 and account for tax and National Insurance on that deemed payment.
A word of caution here – if the worker would be an employee of the end client if they provided their services directly rather than through an intermediary, the worker’s intermediary will need to operate IR35. While HMRC have said that they will not use off-payroll working determinations to check IR35 compliance for past years, the delay in implementing the reforms is not a licence to ignore the rules.
Small private sector organisations
The extended off-payroll working rules do not apply to small private sector organisations. If you fall into this category and engage workers who provide their service through a personal service company, you should continue, both for 2020/21 and beyond, to make payments to the worker’s intermediary gross.
If you provide your services to a small private sector organisation via a personal service company, your personal service company must determine whether IR35 applies, and apply the IR35 rules if it does.
The delay has no impact on public bodies engaging workers through intermediaries. The rules as they apply where the end client is a public body were reformed from April 2017, and these will continue to apply for 2020/21 (albeit without the tweaks needed to make the rules suitable for application to the private sector).
The delay has no impact on workers providing their services through an intermediary to a public sector body either. The public sector body will continue to determine whether the off-payroll working rules apply, and deduct tax and National Insurance from payment where they do.
If you are unsure of how the off-payroll working rules apply to you, please contact us for advice.
Using capital losses
Where capital gains tax would be payable on a gain made on the disposal of an asset, if the disposal results in a loss, the loss is an allowable loss for capital gains tax purposes.
Gains in the same tax year
In the event that capital gains are made in the same tax year as an allowable loss, the loss is first set against those gains. This may mean that the annual exempt amount is lost as this is set against net gains for the tax year (chargeable gains less allowable losses).
Carry forward unused losses
If there are no gains in the tax year, or allowable losses exceed chargeable gains, the unused losses can be carried forward to a future tax year.
There is no requirement to use them against the first available chargeable gains; rather you can choose when to use them. And unlike the set-off against gains of the same year, they can be set against net gains to the extent that they exceed the annual exempt amount, so that this is not wasted. Any losses remaining unused can be carried forward to a future tax year.
Report the loss
Remember to report capital losses to HMRC. This can be done on your tax return, or by writing to HMRC if you do not need to complete a tax return. You have four years from the end of the tax year in which to claim your losses. We can help you plan your disposals in a tax-efficient manner.
Termination payments and employer National Insurance
From 6 April 2020, employers will have to pay Class 1A National Insurance contributions on taxable termination payments in excess of the £30,000 tax-free limit. However, no contributions will be payable by employees; although employers and employees both pay Class 1 contributions on payments made on termination that count as earnings.
Earnings or a termination payment?
Payments made on the termination of an employment are taxed as earnings up to the amount that the employee would have been paid had they worked their notice period. Amounts in excess of this are treated as termination payments, the first £30,000 of which are tax-free. Some payments, such as redundancy pay, count towards the £30,000 threshold rather than being treated as earnings.
Class 1 National Insurance contributions are payable on payments of earnings by both the employer and the employee.
New Class 1A charge on taxable termination payments
Termination payments are taxable to the extent that they exceed the £30,000 threshold. From 6 April 2020, employers will also be required to pay Class 1A contributions on the taxable amount. Contributions will be payable at the rate of 13.8% to the extent that the payment exceeds £30,000.
No employee contributions
As the Class 1A charge is an employer-only charge, the position for employees is unchanged. Employees will pay tax on the excess over £30,000, but not National Insurance.
The systems for paying and reporting Class 1A National Insurance contributions on taxable termination payments is different to that for benefits in kind. Instead of including the termination payment in the calculation of the Class 1A liability on the P11D(b) after the year end, it must be reported to HMRC under real time information, as for Class 1 National Insurance and PAYE, for the tax month in which the termination payment was paid to the employee.
Payment to be made in-year
Unlike Class 1A National Insurance contributions on benefits in kind, which are due by 22 July after the end of the tax year where payment is made electronically (or 19 July where paid by cheque), Class 1A National Insurance contributions on taxable termination payments must be made in-year.
The Class 1A liability must be paid with the PAYE and Class 1 National Insurance for the tax month in which the payment was made; i.e. by 22nd of the month where payment is made electronically and by 19th of the month where payment is made by cheque.
Accelerate termination payments to avoid the charge
Where a termination is on the cards, terminating the employment prior to 6 April 2020 will save the Class 1A contributions. We can help you structure your termination payments and deal with the associated tax and National Insurance correctly.
National Insurance contributions for 2020/21
The starting point for paying National Insurance is to increase to £9,500 for 2020/21 for employees and for Class 4 contributions payable by the self-employed. This is in line with a Government commitment to increase the starting threshold to £12,500 – the level of the personal allowance for tax purposes.
Employees and Employers
Class 1 National Insurance contributions are payable on an employee’s earnings by the employee (primary contributions) and by the employer (secondary contributions). The rates and thresholds applying for 2020/21 are shown in the table below.
|Weekly lower earnings limit (LEL)||
£120 per week
£520 per month
£6,240 per year
|Primary threshold (PT)||
£183 per week
£792 per month
£9,500 per year
|Secondary threshold (ST)||
£169 per week
£732 per month
£9,500 per year
|Upper earnings limit (UEL)||
£962 per week
£4,167 per month
£50,000 per year
|Upper secondary threshold for under 21s||
£962 per week
£4,167 per month
£50,000 per year
|Apprentice upper secondary rate (AUST)||
£962 per week
£4,167 per month
£50,000 per year
|Employee’s primary rate (payable on earnings between the PT and UEL)||12%|
|Employee’s additional rate (payable on earnings above the UEL)||2%|
|Secondary rate (payable on earnings above the relevant secondary threshold)||13.8%|
|Reduced rate for certain married women (on earnings between the PT and UEL)||5.85%|
For 2020/21, the primary and secondary thresholds are no longer aligned. This means that the point at which employer contributions for employees over the age 21 kicks in is £169 per week (£732 per month), while employee contributions are not payable until earnings reach £183 per week (£792 per month). On earnings between these limits, employer contributions are payable but not employee contributions.
The rate of Class 1A contributions (payable on benefits in kind) and Class 1B contributions (payable on items included in a PAYE settlement agreement) remains at 13.8%.
The self employed
The self-employed pay flat-rate Class 2 contributions and also Class 4 contributions on their profits.
For 2020/21, Class 2 contributions increase by 5p per week to £3.05 per week. Contributions are only mandatory if profits exceed the small profits threshold. This is set at £6,475 for 2020/21. However, they can be paid voluntarily where profits are less than this level.
As with employees, the starting point at which Class 4 contributions become payable on the profits of the self-employed – the lower profits limit – increases to £9,500 for 2020/21. Contributions are payable at the main rate of 9% on profits between this level and the upper profits limit, which remains at £50,000 for 2020/21. Above this, contributions are payable at the rate of 2%.
Voluntary (Class 3) contributions can be paid to make up a shortfall in your contributions record and preserve your entitlement to the state pension. Class 3 contributions rise to £15.30 per week for 2020/21.
Check your contributions record
Speak to us about whether you need to pay additional contributions to ensure that you will qualify for the full state pension when you reach state pension age. You can obtain a pension forecast online.
Personal allowances – use them or lose them
With the end of the 2019/20 tax year approaching, now is a good time to review your available personal allowances for 2019/20 and make sure that they are not wasted.
For 2019/20, the personal allowance is £12,500. However, where income is more than £100,000, the allowance is reduced by £1 for every £2 by which income exceeds £100,000. This means that individuals with income of £125,000 or more in 2019/20 do not have a personal allowance. If your income is between £100,000 and £125,000, you will receive a reduced personal allowance.
At the lower end of the income scale, if you are married or in a civil partnership and if you are not able to use all of your personal allowance or your partner is unable to use all of their personal allowance, you can claim the marriage allowance. This works by allowing the person who is unable to use all of their allowance to transfer 10% of their personal allowance — £1,250 for 2019/20 – to their spouse or civil partner. However, this is only allowed if the recipient is a basic rate taxpayer. The marriage allowance is worth £250 to a couple for 2019/20. It can be claimed online.
At the other end of the scale, taxpayers whose income exceeds £100,000 could consider taking steps to reduce their income to below £100,000 to preserve their full personal allowance. Options include making pension contributions or gift aid donations or delaying taking salary or dividends until after 5 April 2020.
All individuals, regardless of the rate at which they pay tax, are entitled to a dividend allowance of £2,000 for 2019/20. In a family company scenario, where family members have not yet used their allowance, paying dividends by 5 April 2020 to mop up the allowances can be a tax-efficient way to extract profits. The use of an alphabet share structure will enable dividends to be tailored to the circumstances of the recipient.
Pensions annual allowance
Making contributions to a registered pension scheme can be tax efficient. You can make pension contributions to the higher of 100% of your earnings and £3,600 (gross), as long as you have sufficient annual allowance available. The annual allowance is set at £40,000 for 2019/20, but is reduced for high earners. If you have already accessed a money purchase pension, you have a reduced allowance of £4,000.
The annual allowance can be carried forwarded for up to three years. However, before using brought forward allowances (earliest year first), you must use the allowance for the current year. Any allowances unused for 2016/17 will be lost if they are not used by 5 April 2020.
Capital gains tax annual exempt amount
Capital gains tax is only payable where net gains and losses for the tax year exceed the annual exempt amount. This is set at £12,000 for 2019/20. Spouses and civil partners have their own annual exempt amount.
Where a disposal is on the cards which will give rise to a capital gain, if the annual exempt amount for 2019/20 has not been used up yet, consider making the disposal before 6 April 2020 to utilise this. Remember, where a spouse or civil partner has an unused exempt amount, assets can be transferred between them on a no gain/no loss basis, making it possible to make use of their annual exempt amount too.
Inheritance tax annual exemption
The inheritance tax annual exemption allows you to give away £3,000 each year without the gift counting as part of your estate for inheritance tax purposes. If it is not used, it can be carried forward to the next tax year, but is then lost. If you do not use your exemption for 2018/19 by 5 April 2020, you will lose it. There are also various other gifts that you can make IHT-free each tax year.
Why not speak to us to find out what action you need to take to make sure your allowances are not wasted.
Reducing your payments on account
Under the self-assessment system, a taxpayer is required to make payments on account of their tax liability where their income tax and Class 4 National Insurance bill for the previous tax year was £1,000 or more, unless at least 80% of their tax is paid at source, such as under PAYE.
When are payments due?
Where payments on account are required, these are due on 31 January in the tax year and 31 July after the end of the tax year. Any balance not covered by the payments on account must be paid by 31 January after the end of the tax year.
Consequently, payments on account for 2019/20 are due on 31 January 2020 and 31 July 2020, with any outstanding balance due by 31 January 2021.
How much is each payment on account?
Each payment on account is 50% of the tax and Class 4 National Insurance liability for the previous tax year. Class 2 National Insurance is not taken into account in computing payments on account, nor is capital gains tax. These are payable by 31 January after the end of the tax year.
Thus, if a taxpayer had a combined tax and Class 4 National Insurance liability of £3,000 for 2018/19, they would need to make payments on account of their 2019/20 liability of £1,500 on 31 January 2020 and 31 July 2020.
Changing the payments on account
If a person’s tax and Class 4 National Insurance liability is constant from year to year, the payments on account will exactly match the liability for the year. However, in practice this is unlikely and most people will under or over-pay. Where there is a shortfall, the excess must be paid by 31 January after the end of the tax year; if the payments on account exceed the liability for the year, the overpayment can be set against the first payment on account for the next year or refunded.
If you know or strongly suspect that your income will be lower for the current tax year than the previous tax year, for example, if your turnover has fallen because you have lost a major customer, you can apply to reduce your payments on account. There are various ways to do this.
If you know this when you file your self-assessment return, you can do it on the return. You can also do it online by:
- signing into your personal tax account;
- selecting the option to view your latest self-assessment return;
- and choosing ‘reduce payments on account’.
You can also apply to reduce payments on account by post, using form SA303.
If your know your tax liability for 2019/20 will be higher than for 2018/19, you do not have to increase your payments on account – you simply pay the excess by 31 January 2021.
A word of warning
If you are tempted to reduce your payments on account to below the level which they should be, remember that interest will be charged on the difference between what you have paid and what the payment on account should have been.
Confused….don’t be, call us we’re here to demystify tax and help you get it right.
Struggling to pay your tax? Set up a time-to-pay agreement
The self-assessment tax return for 2018/19 must be filed by midnight on 31 January 2020, and any tax still owing for 2018/19 must be paid by the same time, along with the first payment on account of the 2019/20 tax liability.
Taxpayers struggling to pay their tax bill should not ignore it in the hope that it goes away. Rather, they could consider setting up a time-to-pay agreement allowing them to spread their tax bill over a number of months.
What is a time-to-pay agreement?
A time-to-pay agreement is simply a payment plan that allows a tax bill to be paid in instalments. Ideally, it should be set up before the date that the payment is due. It can be considered for all taxes, not just those due under self-assessment.
How to set one up?
To set up a time-to-pay agreement, you will need to call HMRC’s Payment Support Service on 0300 200 385.
Information you will need
When calling HMRC, you will need to tell them:
- your 10-digit unique taxpayer reference;
- the amount of the tax bill you are struggling to pay and why;
- what action you have taken to try and get the money to pay the bill;
- how much you can pay now and how long you will need to pay the balance; and
- your bank account details.
HMRC will usually ask for information about your income and expenditure, your assets and what you are planning to do to get your tax payments up to date.
Paying in instalments
HMRC will only allow payment to be made in instalments if they think that you are genuinely unable to pay the bill on time but will be able to do so in the future. Payment under an instalment plan must be made by direct debit on agreed dates. Interest is charged on tax paid after the due date.
Missed the self-assessment deadline?
If you have already missed the self-assessment payment deadline, you should call HMRC’s Self Assessment Payment Helpline on 0300 200 3822 in the first instance rather than the Payment Support Service.
Loan charge – changes announced
The 2019 loan charge applied to loans made through a disguised remuneration loan scheme on or after 6 April 1999 which remained outstanding on 5 April 2019 and in respect of which settlement had not been reached with HMRC by that date. Loans caught by charge crystallised on 5 April 2019 and were treated as employment income on which PAYE tax and National Insurance were due.
The 2019 loan charge did not apply if the loan was repaid by 5 April 2019 or if a settlement was reached with HMRC. Reaching a settlement allowed the liabilities to be settled on better terms.
The loan charge attracted considerable criticism, particularly as regards the potentially devastating consequences for those affected. In September 2019, the Chancellor of the Exchequer commissioned Sir Amyas Morse to lead an independent review into the disguised remuneration loan charge. The review has now concluded and the Government have announced a package of changes to the loan charge. These include removing some loans, including those taken out prior to 9 December 2010, out of the scope of the charge.
What are the key changes?
The key changes arising from the independent review of the disguised remuneration loan charge are as follows:
- the loan charge will only apply to outstanding loans that are made on or after 9 December 2010;
- the loan charge will not apply to loans made prior to 6 April 2016 where the avoidance scheme was disclosed to HMRC and HMRC did not take any action, such as opening an enquiry;
- those affected by the loan charge will be able to choose to spread their outstanding loan balance over three tax year – 2018/19, 2019/20 and 2020/21 – to provide greater flexibility when the loan is taxed (thereby potentially reducing or eliminating any higher rate tax payable);
- voluntary payments (known as ‘voluntary restitution’) which were made to prevent the loan charge from arising and included in a settlement agreement reached since March 2016 will be refunded where the loan charge no longer applies because the loan was made prior to 9 December 2010 or because the loan was made prior to 6 April 2016 and fully disclosed to HMRC and HMRC took no action.
Additional flexibility in paying the charge
Those that remain within the scope of the loan charge will be given more flexibility as regards paying the charge. Taxpayers affected by the charge who do not have disposable assets and who earn less than £50,000 can agree a time-to-pay agreement with HMRC for a minimum of five years. Where the taxpayer earns less than £30,000, HMRC will agree a time-to-pay agreement for a minimum of seven years. Taxpayers that need longer to pay may be able to agree a longer time limit, but will need to provide HMRC with detailed financial information. Under a time to pay agreement, taxpayers will not normally have to pay more than 50% of their disposable income to HMRC.
This is a welcome outcome of the review. Previously, the ability to spread payments was only available where a settlement had been reached with HMRC.
Obtaining a refund
As a result of the changes outlined above, loans made in the period 6 April 1999 to 8 December 2010 are no longer within the scope of the charge. Likewise, loans made prior to 6 April 2016 under a disguised remuneration scheme disclosed to HMRC in respect of which HMRC took no action are also now outside the scope of the charge. Where the charge has been paid in relation to such loans, the taxpayer will be due a refund.
However, taxpayers will need to wait to receive the refunds due as HMRC have stated that they will not be able to process any refunds until the necessary legislation giving statutory effect to the change has been enacted by Parliament. This is expected to become law in summer 2020.
Filing a tax return
Taxpayers affected by the charge who have not submitted a tax return for 2018/19 or reached settlement with HMRC have a number of options available to them. They can either file their 2018/19 tax return by the normal due date of 31 January 2020 with the best estimate of the tax due in respect of their disguised remuneration loan. Alternatively, they can take advantage of an extended deadline and file the return by 30 September 2020. HMRC have stated that they will waive penalties for late filing, late payment and inaccuracies in relation to loan charge entries in these returns. Further, late payment interest will not be charged for the period 1 February 2020 to 30 September 2020 as long as the return is filed by 30 September 2020 and, by that date, either the associated tax is paid or the taxpayer has reached an agreement with HMRC to pay the tax.
HMRC are to write to taxpayers in early 2020 who they know have used a disguised remuneration scheme and who have either paid the loan charge or who may be liable to do so, explaining what the changes mean for them.
Determining worker status using HMRC’s CEST tool
From 6 April 2020 the off-payroll working rules are extended. The impact of the new rules was discussed in the December 2019 Newswire. Under the new rules, medium and large private sector organisations engaging workers providing their services through an intermediary, such as a personal service company, must determine the status of the worker if the services were provided direct to the end client rather than via the intermediary. If, ignoring the intermediary, the worker would be an employee, the off-payroll working rules apply.
HMRC’s Check Employment Status for Tax (CEST) tool can be used to fulfil the requirement to make a status determination.
The tool was updated in November 2019 in preparation for the extension of the off-payroll working rules. On 7 January 2020, the Government announced that they were reviewing the rules to facilitate a smooth implementation. As part of the review, which is due to report in mid-February, they will evaluate the effectiveness of the enhanced CEST tool.
The CEST tool is available on the Gov.uk website.
What is CEST?
CEST – Check Employment Status for Tax – is a tool which has been created by HMRC and which can be used to determine whether, for a particular contract, the off-payroll working rules apply. It can also be used to ascertain whether, for a particular piece of work, a worker is employed or self-employed.
If you are a medium or large private sector organisation which uses workers who provide their services through an intermediary, such as a personal service company, you can use CEST to meet your obligation to undertake a status determination under the off-payroll working rules as they apply from 6 April 2020. You must give the worker a copy of the determination, together with reasons for reaching it. Printing off the CEST decision will tick this box.
Although use of the CEST tool to make a status determination is not compulsory, its use is advised, not least because HMRC will accept by the decision reached by the tool as long as the information entered is correct.
The tool works by asking a series of questions, the answers to which are used to determine the status of the worker.
The CEST tool can be used anonymously. However, it should be noted that there is no facility to save the answers and return to the task later. If the tool is closed before the determination is complete, the answers will be lost. It will also time out if it is left idle for 15 minutes. It is therefore advisable to ensure that you have all the relevant information to hand before starting the determination.
The starting point is the contract of employment. The tool assumes that a contract is in place – this highlights the significance of mutuality of obligation as without mutuality of obligation there can be no contract.
To use the CEST tool, you will need the following information:
- details of the contract;
- the responsibilities of the worker;
- who decides what work needs doing and when and where;
- how the worker is paid;
- whether the engagement includes any corporate benefits or reimbursement of expenses.
It is then simply a case of working through the question and selecting the best match answer from the available options.
Once all the questions have been answered, the user is given the option of reviewing the answers selected before the decision is given.
The CEST tool will use the information provided in response to the questions to give one of the following outcomes:
- off-payroll working rules (IR35) do not apply;
- off-payroll working rules (IR35) apply;
- unable to make a determination (for whether the off-payroll working rules apply);
- self-employed for tax purposes for this work;
- employed for tax purposes for this work;
- unable to make a determination (for employed or self-employed for tax purposes).
It will also set out the reasons for the decision reached.
Use of the tool by a worker
If you are a worker providing your services through a personal service company or other intermediary, you can also use the CEST tool to check your status. From 6 April 2020 onwards, you can use it to check a determination given to you be an end client that is a medium or large private sector organisation; and if you disagree with the determination given, the CEST decision can be used as the basis for a challenge.
Prior to 6 April 2020 and on or after that date where the end client is small private sector organisation, you can use the CEST tool to see if you need to operate the IR35 rules.
HMRC produce detailed guidance on using the CEST tool, which can be found in their Employment Status Manual. Check this out before using the CEST tool.
The whole area of IR35 and employment status is an area of constantly changing legislation and case law. Remember we’re always here to help you to safely navigate your way through the employment tax minefield.
Changes to Property Taxation – 2017 to 2020
2017 Income Tax – Restriction of finance costs for individual landlords
In his 2015 post-election summer Budget, George Osborne informed residential landlords that from April 2017 their ability to claim higher rate tax relief for finance costs was to be withdrawn over a four year period, as follows:
- April 2017 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% available as a basic rate tax reduction.
- April 2018 the deduction from property income will be restricted to 50% of finance costs, with the other 50% available as a basic rate tax reduction.
- April 2019 the deduction from property income will be restricted to 25% of finance costs, with the other 75% available as a basic rate tax reduction.
- April 2020 all financing costs incurred by a landlord will be given as a basic rate tax reduction.
From April 2020 residential property (not holiday lets) landlords will only receive basic rate tax relief on finance costs.
2019 Extension to Non-resident Capital Gains Tax
Since the start of the current tax year (6 April 2019) non-resident landlords have been required to complete a separate online non-resident Capital Gains Tax return for each property disposal. Including, a computation of gains and losses.
Note: Different rules apply for those who are temporarily non-resident and make disposals during a tax year when you were either not resident in the UK or overseas as part of a split year.
In addition, corporation tax rather than CGT is now chargeable on chargeable gains linked to UK property or land for all non-resident companies.
Non-Resident Capital Gains Tax (NRCGT) is also potentially payable by all non-resident landlords, as the ATED-related gains charge was abolished from 6 April 2019. It now applies to gains arising from the disposal of any type of UK land or property which accrue from 5 April 2015 (residential property) or 5 April 2019 (non-residential property).
2020 Further Capital Gains Tax Restrictions – Coming soon (April 2020)
As part of his 2018 Budget the then Chancellor Philip Hammond announced the intention to restrict the Private Residence Relief (PRR) rules from 6 April 2020 by cutting the last period of ownership from 18 month to just nine months.
Note: As with the 2014 change, the 36-month exemption period is to be retained for owners with a disability or who are in residential care.
As if that wasn’t enough, he also announced that lettings relief (see below) is to be restricted to owners who share occupancy with a tenant.
Lettings relief was introduced in 1980, to allow people to let out spare rooms within their property on a casual basis without losing the benefit of PRR. HMRC says that it has found that lettings relief is being used for purposes beyond the original policy intention, benefitting those who let out a whole dwelling that has, at some stage, been their main residence.
Current lettings relief rules:
Where the property has been let at any time, each owner can claim lettings relief to reduce the taxable capital gain.
- This relief can cover gains of up to £40,000 per owner.
- It is only available if the property has been the owner’s main home for a period.
- It is also capped at the amount of PPR relief due for the period of actual occupation by the owner.
At the same time, Hammond proposed that CGT would be payable “on account” within 30 days of completion for all UK residential properties. Originally intended to be effective from 6 April 2019, to coincide with the new NRCGT rules, implementation of the proposal was delayed until 6 April 2020.
If there’s no gain to report or the gain is covered by exemptions or losses, taxpayers won’t have to complete a property disposal return.
After the end of the tax year, a taxpayer will complete a self-assessment return to disclose the property gain. The ‘on account’ payment will be deducted from the end of CGT liability; this could result in a repayment of CGT for the taxpayer.
Tax Return Tips
The 2018/19 self-assessment tax return must be filed online by midnight on 31 January 2020 if a late filing penalty is to be avoided. What can you do to help ensure this deadline is not missed?
Help us to help you
The tax return season is a very busy time for accountants and tax advisers. With the best will in the world, there is a limit to the number of tax returns that can be filed on 31 January. To ensure that your tax return is filed on time, it is prudent to help us to help you.
- Check what date your accountant needs tax information from you in order to meet the filing deadline, and make sure that you provide the information by that date.
- Collect together all the relevant paperwork and make sure that nothing is missing. This will include your P60 and P11D, dividend vouchers, bank statements, details of trading income and expenses, details of rental income and expenses, details of sales of capital assets and associated expenses, and details of pension contribution and charitable donations.
- Make sure your paperwork is organised and easy to follow, whether supplied digitally or in hard copy format.
- Keep copies of the information supplied to your accountant.
- Advise your accountant of any changes in your personal circumstances – such as change of address, whether you have got married or divorced etc.
- Deal with any queries promptly.
- Pay any tax due on time.
What are the penalties for late returns?
A late filing penalty is charged if the self-assessment tax return is filed late. The normal deadline for filing the 2018/19 tax return online is midnight on 31 January 2020. A later deadline applies if the notice to file a return was issued after 31 October 2019 – this is three months from the date of the notice.
Returns must be filed by 30 December 2019 if you want an underpayment (available for underpayments of up to £3,000) to be collected through PAYE via an adjustment to your tax code. Paper returns had to be filed by 31 October 2019 (or three months from the date of the notice to file where this was issued after 31 July 2019) to avoid a penalty – however, if this deadline was missed, a penalty can be avoided by filing online by 31 January 2020.
Returns filed late attract a late filing penalty of £100. This is charged even if there is no tax to pay or the tax is paid on time. Further penalties are charged if your return has not been filed three months after the due date – from that point daily penalties of £10 per day start to accrue for a maximum of 90 days (£900). At the six month and 12-month point, additional penalties set at the higher of 5% of the tax due and £300 are charged.
Penalties are also charged if tax is paid late, in addition to any interest that may accrue. The trigger dates are 30 days late, six months late and 12 months late. At each date, the penalty is 5% of the tax outstanding at the trigger date.
Is the VAT flat rate scheme still worthwhile for limited cost businesses?
The VAT flat rate scheme is a simplified VAT scheme for smaller traders which allows them to work out the VAT they pay over to HMRC as a fixed percentage of their VAT-inclusive turnover. The fixed rate percentage depends on the business sector in which they operate. The scheme reduces the need to record VAT on purchases separately and reduces the information that must be held digitally under Making tax Digital for VAT. However, for those classed as limited cost businesses, there are potential pitfalls associated with using the scheme.
Who can join the scheme?
The flat rate scheme is open to VAT registered businesses whose VAT-inclusive turnover is not more than £150,000 a year. Once in the scheme, the trader can remain in the scheme as long as their turnover for the year is not more than £230,000 – although HMRC will allow the trader to remain in the scheme if they are satisfied that the turnover for the next 12 months will not exceed £191,500.
Who is a limited cost business?
Special rules apply to limited cost businesses. A business is a limited cost business if the amount it spends on relevant goods is either:
- less than 2% of the business’s VAT flat rate turnover; or
- greater than 2% of the VAT flat rate turnover but less than £1,000 a year (£250 per quarter).
The calculation is performed separately for each VAT quarter; consequently, a business may be a limited cost business for one VAT but not for the next.
What are relevant goods?
Relevant goods are goods used exclusively for the business. Examples of relevant goods are stationery and office expenses, gas and electricity used for the business, stock for a shop, standard software and food used in meals for customers.
However, the list of relevant goods does not include:
- vehicle costs, including fuel (unless the business operates in the transport sector);
- food and drink for you and your staff;
- capital expenditure;
- goods for resale, letting or hiring out where this is not your main business activity;
- goods for disposal such as promotional items, gifts or donations; and
- any services.
Thus, not all purchases on which VAT is suffered are taken into account in assessing whether a business is a limited cost business.
The fixed rate percentage for limited cost businesses
A business that meets the definition of a limited cost business must use a flat rate percentage of 16.5% rather than the one for their business sector.
Doing the maths highlights a potential problem – 16.5% of VAT inclusive turnover is 19.8% of net turnover (16.5% x 120)/100 = 19.8%), so the business will pay almost all the VAT it charges customers (20% of net turnover) over to HMRC, with virtually no margin to cover the input tax suffered.
If the nature of the business is such that its expenditure on relevant goods is low, so that it is classed a limited cost business, but the business has relatively high expenditure on non-relevant goods, such as fuel, the flat rate scheme may not be worthwhile as the business will not recover all its input VAT.
Limited cost businesses should review their position to ascertain whether the flat rate scheme remains worthwhile. If they are not recovering their input tax (with the result that it is costing them to use the scheme), they can consider leaving the scheme and using traditional VAT accounting instead. This will be more work, but depending on the amounts involved, may be worthwhile.
Alternatively, if turnover is below the de-registration limit, set at £83,000, the business can consider de-registering and coming out of VAT.
Guidance on the flat rate scheme can be found in VAT Notice 733.
Off-payroll working – plan ahead for the changes
The tax playing field is not a level one – the tax and National Insurance take where a worker is employed is higher than that where that worker provides his or her services through a personal service company and extracts profits in the form of a small salary plus dividends. From the engager’s perspective, this is also beneficial as there is no employer National Insurance to pay. Unsurprisingly, HMRC are not happy about this. While anti-avoidance legislation has existed for some time (IR35), compliance has been low. To address this, new off-payroll working rules were introduced from 6 April 2017, applying where a worker supplies his or her services through an intermediary, such as a personal service company, to an end client which is a public sector body. These rules are being extended from 6 April 2020; from that date they will also apply where the end client is a medium or large private sector organisation. The existing IR35 rules will continue to apply where services are provided through an intermediary to a ‘small’ private sector organisation.
The extension of the rules will affect engagers and contractors alike – it is now time to prepare for the changes ahead.
What is changing?
Off-payroll working is basically what is says on the tin – working in such a way that the worker is not paid through the payroll.
The original off-payroll working rules were the IR35 rules which were introduced to target perceived avoidance where services were provided through an intermediary but, looking through that intermediary, the relationship between the worker and the end client was essentially that of employer and employee. In this scenario, the worker is off-payroll – instead the intermediary bills the client. To recover the employment taxes that HMRC regard as being due, the intermediary is treated as making a deemed payment to the worker on 5 April at the end of the tax year on which tax and National Insurance are due.
To address poor compliance with the IR35 rules and the difficulties associated with policing them, the rules were changed from 6 April 2017 where the end client is a public sector body. Under these rules, responsibility for determining whether the worker would be an employee if the services were supplied direct rather than through an intermediary (and thus whether the rules apply) was moved from the intermediary to the public sector end client. Where the rules apply, the fee payer must deduct tax and National Insurance from payments made to the worker’s personal service company or other intermediary.
From 6 April 2020, these rules will also apply where the end client is a medium or large private sector organisation which engages workers providing their services through an intermediary.
What do engagers need to do?
If you are a private sector organisation which uses workers who provide their services through a personal service company or other intermediary, the first task is to identify whether you are within the scope of the extended rules. This will be the case if you are a ‘medium’ or ‘large’ organisation.
Where the rules apply, the organisation will need to:
- Determine the worker’s employment status if the intermediary is ignored.
- Supply the worker and other parties in the chain (such as a third-party fee payer or agency) with a copy of the determination and the reasons for it.
- Deduct tax and National Insurance from payments made to the worker’s intermediary where the status determination is that the worker would be an employee if service were supplied direct to the end client.
Is the end client ‘medium’ or ‘large’?
The test here is borrowed from the Companies Act 2006, and the extended off-payroll working rules will apply unless the engaging organisation is ‘small’. A small company is one which meets at least two of the following tests:
- annual turnover is not more than £10.2 million;
- balance sheet total is not more than £5.1 million;
- the number of employees is not more than 50.
The test is modified in its application to unincorporated bodies.
An organisation that is ‘small’ is outside the scope of the extended off-payroll working rules – the intermediary must continue to apply IR35 as now.
Determining the worker’s status
The usual employment status tests apply to determine the status of the worker, if the intermediary is ignored. The easiest way to make a determination is to use HMRC’s Check Employment Status for Tax (CEST) tool, which is available online. The tool asks a series of questions and uses the answers to provide a result as to the worker’s status. An advantage of using CEST is that as long as the information used is accurate, HMRC will stand by the result.
Detailed guidance on the CEST tool can be found in HMRC’s Employment Status Manual.
Paying the worker
If the status determination shows that the worker would be an employee of the end client if the intermediary is taken out of the equation, the fee payer must calculate the deemed payment (which is treated as earnings) and deduct tax and National Insurance when making the payment to the worker’s personal service company. The fee payer is simply the person who pays the worker – this may be the end client or a third party, such an agency.
The fee payer must report the pay and deductions to HMRC on a full payment submission under real time information. The submission should indicate that the worker is an off-payroll worker. The fee payer can either use their existing PAYE scheme or open a new one for this purpose.
Calculating the deemed payment
The deemed payment is the amount which is treated as earnings for tax and National Insurance purposes. It is calculated as follows.
- Work out the value of payments to the worker’s intermediary having first deducted any VAT charged.
- Deduct the direct cost of materials that have or will be used by the worker in providing his or her services.
- Deduct any expenses that would be deductible for tax purposes if the worker was employed.
- The resulting amount is the deemed payment.
If the result of the above calculation is nil or negative, there is no deemed payment.
What do the changes mean for contractors?
If you provide services through a personal service company, the new rules will affect you if you provide your services to a medium or large private sector organisation. You will no longer be responsible for deciding whether the IR35 rules apply – instead your client will determine your employment status, and provide you with a copy of their determination. If you do not agree, you can appeal. This should be done in writing to your client explaining why you disagree with their determination. Your client has 45 days to respond. It is sensible to undertake your own determination using the CEST tool.
Where the rules apply, you will no longer be paid gross – the fee payer will deduct tax and National Insurance from payments made to your intermediary (although you will receive credit for the tax and National Insurance paid when working out the tax and National Insurance that you owe).
If you supply your services to clients that are small, the new rules will not affect you. You should continue to apply the IR35 rules as now.
Contractors operating through personal service companies or other intermediaries are advised to check that they are complying with IR35 – where a worker is found to be within the off-payroll working rules post 6 April 2020, HMRC may look carefully for compliance with IR35 prior to that date. Now is the time to check that your house is in order. If you are within the new rules, you may also wish to consider whether it remains beneficial to supply your services via an intermediary, or whether going on-payroll is a lot less hassle.
Engagers and contractors should plan ahead for the changes and make sure that they understand how the new rules will work and the impact that they will have on you or your organisation.
That said, it would appear that the new rules are not yet set in stone. On the 2nd of December while speaking on BBC Radio 4’s Money Box programme Sajid Javid, the Chancellor of the Exchequer, pledged to review the off-payroll IR35 legislation. Mr. Javid said:
“I want to make sure that the proposed changes are right to take forward. We’ve already said that we’re on the side of self-employed people. We will be having a review and I think it makes sense to include IR35 in that review.”
MTD – announces more time for digital links…what does this mean?
On 17 October HMRC made a much-welcomed announcement that some businesses will qualify for an extension to the MTD for VAT (MTDfV) existing twelve months ‘soft-landing’ period.
In order to explain the significance of the extension, it is best to reprise some of the basics of what is required in order to achieve compliance with MTDfv.
Specifically, the need for a VAT-registered entity with annual VATable turnover greater than £85k, to keep digital VAT records and file MTD-compliant VAT returns.
Section 4 of HMRC VAT notice 700/22 ‘Making Tax Digital for VAT’ covers the requirements for digital record keeping, a fundamental of ensuring compliance with MTD.
- Almost all VAT registered businesses with annual VAT-able turnover in excess of £85K are required to comply with MTDfV rules.
- To achieve compliance, they must keep and preserve certain records and accounts digitally within functional compatible software.
- Functional compatible software can be a software program, or set of software programs, products or applications,
that must be able to:
- record and preserve digital records (see paragraph 4.3);
- provide to HMRC information and returns from data held in those digital records by using the API platform; and
- receive information from HMRC using the API platform.
With only limited exceptions, once VAT data has been digitally recorded into a business’ chosen accounting software any subsequent transfer, recapture or modification of it must be carried out using digital links.
While for many, everything required to achieve compliance can be done from within third-party software. For others, it can mean resorting to transferring data between disparate pieces of software in order to achieve compliance. With each piece of software needing to be ‘digitally linked’, to create a digital journey ending with the submission of an MTD-compliant VAT return.
Section 4.2 .1 of 700/22 describes a ‘digital link’ as, “…. a transfer or exchange of data is made, or can be made, electronically between software programs, products or applications”.
Digital links includes:
- linked cells in spreadsheets;
- emailing a spreadsheet containing digital records so the information can be imported into another software product;
- transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, or flash drive) and physically giving this to someone else who then imports that data into their software;
- XML, CSV import and export, and downloads and uploads of files; and
- automated data transfers.
In the context of MTDfV, a soft-landing period is an amnesty period during which, provided a VAT registered entity required to comply with MTDfV regulations has tried its best to satisfying the digital links rules, and that for reasons such as their software providers are still working on delivering the required functionality, has found it impractical to comply, no penalty for non-compliance will be issued.
Prior to the launch of MTDfV, HMRC announced there would be one-year soft-landing period for all businesses who, after trying, were initially unable meet the legal requirement for digital links. The period-of-soft-landing was, and remains to be, an essential element of ensuring a smooth roll out of MTDfV.
Why…simply…without the soft-landing many businesses, without fully functionally compatible software at the launch of MTDfV, would have been left facing fines for failing to have digital links in place, even though, they and or their software providers were doing their best to ensure that everything required to achieve compliance would be ready as soon as possible. Which, HMRC realised was not a good position to leave those willing to be compliant in.
The initial soft-landing period
For those affected, the initial soft-landing period commenced from the first day, of the first return period, after 31 March 2019 for most mandated businesses, or after 30 September for a small number of deferred businesses. Those with the most complex of VAT affairs.
As announced on 17 October, businesses with complex or legacy IT systems, who are struggling to have digital links in place within the existing one-year soft-landing window, are now able to apply for additional time to put the required digital subject to meeting certain qualifying criteria.
Where a business qualifies, the additional time will be granted as a specific direction from HMRC.
It’s important to note that there is no blanket extension to the soft-landing period and it appears that HMRC will take a fairly strict line on who does and doesn’t qualify.
Why the extension
Many businesses use bespoke software, specifically tailored to their market sector, to manage bookings, keep records, stocks, etc. Where this is the case, it is not uncommon common for there to be a need to manually post totals from one part of a system to another on a weekly, monthly or other basis.
While such transfers will not be acceptable once the soft-landing expires, replacing them with a digital link(s) is proving, for some, to be difficult.
In much the same way, many businesses with internally developed systems are finding they may need additional time to get their, often very different, software packages to talk to each other. This is particularly proving to be the case for VAT registered entities in VAT groups.
In recent months, AAT and its fellow professional bodies have highlighted to HMRC the difficulties some businesses are facing when trying to ensure they have digital links next year.
This is a particular problem in industries that use specialist software, which can often be difficult (or even impossible) to link to accounting and VAT systems.
How generous is HMRC likely to be?
While any business can apply for an extension, they will only get one if HMRC accept that one is needed.
Section 4.2 .1.3 sets out various criteria which need to be met for digital link deadline extensions. Key amongst these is that it must be “unachievable and not reasonable” to have digital links in place in the normal one-year soft-landing period.
HMRC are very clear that an extension will only be granted in “exceptional circumstances”. The department does not accept that the potential cost of achieving compliance with the digital links requirements is sufficient grounds for applying for an extension.
Furthermore, it expects businesses to make every effort to comply with ‘digital links requirements’.
HMRC examples of what might be considered “unachievable and not reasonable”, include:
- part of an IT system is incapable of importing and exporting data to or from another part, and it isn’t possible to update or replace it in time; and
- a business is in the process of updating or replacing its IT system and the planned implementation date is not before the end of the original soft-landing period.
Even where an extension application is granted by HMRC it will not be a permanent relaxation of the requirement for robust end-to-end digital links.
- Businesses still have to consider how they will put digital links in place and will need to set out a clear explanation and timetable for when and how this will be implemented in their application to HMRC.
- The length of any extension will be decided on a case by case basis, though HMRC has indicated that they do not expect that this will ordinarily be what businesses should do.
If any business thinks they may benefit from an extension, they should first look at the detail in the VAT Notice whether they meet HMRC’s criteria. If they believe they do, then a formal application has to be made to HMRC. The VAT Notice sets out the information which this must contain, including an explanation it is “unachievable and not reasonable” to have digital links in place by the end of the normal soft-landing period, a map of current VAT systems, a timetable plan to put digital links in place and details of controls for manual transfers of data in the meantime.
Applications have to be submitted before the current soft-landing-on-digital-links expires. Given the amount of information required businesses may want to make a start on their applications sooner rather than later.
Beware the trivial benefits gift card trap
The tax exemption for trivial benefits is a handy exemption as it allows employers to provide employees with low cost benefits tax-free. However, where the benefit is in the form of the gift card, it is easy to fall foul of the rules inadvertently.
Scope of the exemption
The trivial benefits exemption applies where the cost to the employer of providing the benefit is not more than £50 and the following conditions are met:
- the benefit is in kind; benefits in the form of cash or a voucher that is redeemable for cash do not count;
- the benefit is not given in return for work done; and
- the benefit is not provided under a salary sacrifice or flexible remuneration arrangement.
The value of trivial benefits that can be provided to a director of a close company is capped at £300 per year; otherwise there is no limit on the number of trivial benefits that an employee can enjoy in a tax year.
The problem with gift cards
At first sight, providing an employee with a gift card which is topped up at regular intervals may seem a handy way to take advantage of the trivial benefits exemption. It would be reasonable to assume that as long as each top up is less than £50 and the other conditions for the exemption to apply are met, the top-ups would all be tax-free. However, HMRC take a different view. Their stance is that the benefit of the gift card is a single benefit and the cost of that benefit is the total amount put on the card throughout the tax year.
An employer wishes to take advantage of the trivial benefits exemption and provides an employee with a gift card for a popular store. The initial gift card cost the employer £20. The employer tops up the gift card by a further £20 each month. As each top-up is less than £50, the employer is confident that the trivial benefits exemption applies.
However, HMRC’s position is that the cost to the employer of providing the benefit for the tax year in question is £240 (12 x £20). As this is more than £50, the trivial benefits exemption does not apply. The benefit is taxable as a benefit in kind and is also liable to employer Class 1A National Insurance. It must also be reported to HMRC on the employee’s P11D.
A similar problem could arise with the provision of a season ticket.
To avoid falling foul of the gift card trap, make sure each benefit is separate from other benefits given to the employee in a tax year. Where gift cards are used, give the employee a separate gift card each time (perhaps varying the type of card), rather than simply topping up an existing card.
Voluntary NICs – Should you pay?
The single-tier state pension is payable to individuals who reach state pension age on or after 6 April 2016. Entitlement to the state pension is dependent on having been paid or credited with sufficient National Insurance contributions. Individuals whose contributions record is insufficient for a full state pension can boost their pension by making voluntary contributions.
Is your contributions record sufficient?
To qualify for the full single tier state pension, you need 35 qualifying years. A reduced state pension is paid to individuals who have less than 35 qualifying years but at least ten. Individuals with less than ten qualifying years are not eligible for a state pension. Only the individual’s own contributions are taken into account – contributions by a spouse or civil partner do not provide any pension entitlement.
Check your state pension
In order to decide whether it is necessary to consider paying voluntary National Insurance contributions, you first need to ascertain your state pension entitlement. This can be done by getting a state pension forecast online. The online service allows an individual to:
- check how much state pension they could get — their state pension forecast;
- when they will receive the state pension; and
- how to increase it, if they can.
The service can only be used by individuals who have not already reached state pension age.
Building up qualifying years
The main way in which a person builds up qualifying years for state pension purposes is via the payment of National Insurance contributions. For the year to be a qualifying year, contributions must be paid in respect of all weeks in that tax year.
Where the individual is employed, it is the payment of primary (employee’s) Class 1 National Insurance contributions that provides the means for building up a contributions record. Although no employee Class 1 contributions are payable until earnings reach the primary threshold (set at £166 per week for 2019/20), contributions are deemed to be paid at a notional zero rate once contributions exceed the lower earnings limit (£118 per week for 2019/20). This means that as long as the employee earns at least £118 per week throughout the tax year, the year will be a qualifying one for state pension purposes.
For the self-employed, it is the payment of Class 2 contributions (set at £3 per week for 2019/20) that provides the mechanism for building up entitlement to the state pension and contributory benefits. The self-employed also pay Class 4 contributions on their profits, but this does not confer any pension or benefit entitlement.
Some individuals who are not paying National Insurance contributions may be able to get National Insurance credits. These will help secure qualifying years. Those able to benefit from National Insurance credits include parents and foster parents claiming child benefit for a child under the age of 12, certain people on jobseekers allowance and carers. More information on National Insurance credits can be found on the Gov.uk website.
Topping up with voluntary contributions
Individuals with a shortfall in their contributions record can top it up by paying voluntary (Class 3) National Insurance contributions. Voluntary contributions can be paid to buy additional years or to turn a non-qualifying year into a qualifying year by making voluntary contributions for weeks for which contributions have not been paid or treated as paid.
Class 3 contributions are expensive at £15 per week, so should only be paid where it is beneficial to do so. If a person has, or will have by the time they retire, 35 qualifying years, there is nothing to be gained by paying voluntary contributions. If an individual has slightly less than ten qualifying years, paying voluntary contributions to increase their qualifying years to ten may be worthwhile as this will secure a minimum state pension.
At 2019/20 rates, it will cost £700 (52 weeks @ £15 per week) to buy an additional year – at 2019/20 rates this will increase the state pension by £4.82 a week (£57.04 a year). Thus, a person needs to live at least 12 years and 3 months to recoup the cost of each year of voluntary contributions.
Class 3 contributions must be paid within six years from the end of the tax year to which they relate. Extended time limits apply to certain years.
Class 2 rather than Class 3
The self-employed are only liable to pay Class 2 contributions if their profits exceed the small profits threshold, set at £6,365 for 2019/20. Where profits from self-employment are less than this, Class 2 contributions can be paid voluntarily. If an individual has a shortfall in their contributions record and is eligible but not required to pay Class 2 contributions, at £3 per week for 2019/20, this offers a much cheaper option of plugging a pension shortfall than paying Class 3 contributions of £15 per week.
Review your pension forecast and ascertain whether payment of voluntary contributions is worthwhile.
Starting a business? Remember to claim relief for pre-trading expenses
When starting a business, whether as a sole trader, a company or in partnership, there is inevitably a preparatory period before trading commences during which expenditure is incurred in setting up the business. Depending on the nature of the business, the set-up period can be long and complex and the expenditure incurred during this phase may be considerable. It is therefore important that opportunities to claim relief for pre-trading expenditure are not overlooked.
When does trading commence?
To identify any pre-trading expenditure, it is necessary to determine when trading starts and whether expenditure is incurred while trading or prior to trading. The point at which a business starts to trade will not always be clear cut – the transition from set-up to trading may be very gradual, such that it is difficult to pin point the exact point at which trading commenced. HMRC take the view that a trade cannot commence until the trader:
- is in a position to provide those goods or services which it is, or will be, his or her trade to provide; and
- does so, or offers to do so, by way of a trade.
Whether or not a trade has commenced, is a matter of fact in each particular case. It is important to note that for trading to have started, the trade does not need to be on a large scale, although the production of a small number of items as a trial run will not necessarily mean that the trade has commenced.
Typical pre-trading expenses
Although the specific expenses that will be incurred in the preparatory period will depend on the nature of the business, typical expenses when setting up a business may include:
- expenses incurred in securing business premises, whether rented or purchased;
- computer expenses (hardware and software);
- website costs;
- marketing and promotion;
- purchase of stock;
- legal and professional fees;
- purchase of plant and equipment; and
- travel expenses.
It is important to distinguish between expenses incurred for the purpose of the business and those which are private expense or which have a mixed-use element. It is also vital to identify whether the expense is capital or revenue in nature as this affects the way in which relief is given.
Relief for expenses
Once the business has started to trade, relief is given for revenue expenses as a deduction from profits to the extent that they are incurred wholly and exclusively for the purposes of the business.
As far as capital expenditure is concerned, the mechanism for giving relief depends on whether the trader prepares accounts under the traditional accruals basis or using the cash basis. Where the accruals basis is used, relief for capital expenditure is given in the form of capital allowances (to the extent that the expenditure is qualifying expenditure). By contrast, where accounts are prepared under the cash basis, capital expenditure is deducted in the computation of profits unless the capital expenditure is of a type for which a deduction is expressly prohibited; land, buildings and cars fall into this category.
Expenses incurred pre-commencement
The rules for determining whether a pre-trading expense qualifies for relief mirror those for determining whether relief is available for an expense incurred once trading has begun; an expense incurred prior to the commencement of trading will qualify for relief ,if it would have qualified for relief had it been incurred once trading had commenced. Therefore, for a pre-trading expense to be deductible, it must have been incurred wholly and exclusively for the purposes of the trade. In addition, the expenditure must have been incurred in the period of seven years before the trade commenced; no relief is available for expenditure incurred prior to this. Where the set-up period is likely to be long, this should be borne in mind.
Care should be taken, particularly where the accruals basis is used, in relation to expenses paid in advance, such as rent or insurance paid prior to the commencement of the trade which relates to a period after the trade has begun. Under the accruals basis, such expenses would be relievable as trading expenses once the trade has commenced, and consequently do not count as pre-trading expenses. Likewise, no relief is given under the pre-trading expenses rules for stock purchased before the start of the trade, as the cost of stock is deducted in calculating profits once the trade has started.
The relief is available for both income tax and corporation tax purposes.
How relief is given
Relief for qualifying pre-trading expenses incurred in the seven years prior to the start of the trade is given by treating the expenses as if they were incurred on the first day of trading. In this way, the expenses are deducted in computing the profits of the first accounting period.
Availability of capital allowances
As noted above, where accounts are prepared using the accruals basis, relief for capital expenditure is given by means of capital allowances. Where accounts are prepared in this way, any capital expenditure incurred in the seven years before the start of the trade which is of a type that qualifies for capital allowances, is treated as having been incurred on the first day of trading. Capital allowances (whether the annual investment allowance or writing down allowances) can be claimed for the first accounting period.
Necessity of keeping good records
In order to maximise the relief for pre-trading expenses, it is necessary to know what those expenses are when they were incurred. Good record keeping is therefore essential. If you are thinking of setting up a business, keep a record of everything that you spend. You should also keep invoices and receipts to back up the expenditure. Setting up a separate business bank account as early as possible is also a good idea to keep expenditure on the business separate from any private expenditure.
Can you claim small business rate relief?
Business rates are payable on non-domestic properties such as offices, shops and factories. The rates are worked out on the rateable value of the property, but there are various reliefs available including small business rate relief. The relief is not given automatically and many businesses may be overpaying, not realising they are entitled to the relief. However, all is not lost; claims for relief can be made retrospectively, giving rise to a repayment of overpaid business rates.
The business rates calculation
Business rates are worked out by applying the relevant multiplier (set in terms of pence in the pound) to the rateable value of the property. The most recent valuation took place in 2015 and is used as the basis for business rate calculations from April 2017 onwards. You can check the rateable value of your business property online. The rateable value is based on the annual rent that could be expected to be received if the property were let on a commercial basis.
In England there is a standard multiplier and a small business multiplier. The standard multiplier, set at 50.4p for 2019/20, applies to business properties with a rateable value of £51,000 or more. The small business multiplier, applying to business properties with a rateable value below £51,000, is set at 49.1p for 2019/20. The multipliers for the City of London are higher – the standard multiplier is 51p and the small business multiplier is 49.7p. In Wales, there is a single multiplier of 52.6. So, for example, the annual business rates for a property with a rateable value of £20,000 outside London would be £9,820 – found by applying the small business multiplier of 49.1p to the rateable value of £20,000.
Small business rate relief
In England, small business rate relief is available where the business has only one property and the rateable value of that property is less than £15,000.
Full relief is available where the rateable value is less than £12,000 – business with a single property which has a rateable value of less than £12,000 pay no business rates.
Taper relief is available where the rateable value is between £12,001 and £15,000. The taper reduces the amount of relief from 100% for properties with a rateable value of £12,000 to 0% for properties with a rateable value of £15,000.
The percentage reduction is found by applying the following formula:
(£15,000 – x) / (£15,000 – £12,000) x 100%.
A small business operates from offices with a rateable value of £12,750. The business is based in Norfolk.
The business rates before deducting small business relief are found by applying the small business multiplier of 49.1p to the rateable value of £12,750, giving a figure of £6260.25.
Taper relief is available. The percentage reduction is 75%.
Thus, applying small business relief reduces the business rates by 75% to £1,565.06.
Claim the relief
Unless a claim is made, the business will not benefit from the relief. The claim must be made to the relevant council, either in writing or online. Once a claim is made, it will apply to future years.
Claims can be backdated, so check bills since the start of the current system in April 2017. Many businesses do not realise that small business rates relief is not given automatically and may be due sizeable repayments. Unless a claim is made, they will continue to overpay.
File your tax return by 30 December
The 2018/19 self-assessment tax return must be filed online by midnight on 31 January 2020 if a late filing penalty is to be avoided. A later deadline applies where the notice to file a return was not given until after 31 October 2019 – in this case the deadline is three months after the date of the notice. However, it can be beneficial to file your tax return by 30 December 2019 rather than waiting until 31 January 2020.
Why file by 30 December?
Filing your 2018/19 tax return online by 30 December 2019 may mean that any underpayment can be collected through an adjustment to your tax code. This may be preferable to having to pay it in one instalment by 31 January 2020; instead collection of the underpayment is spread throughout the following tax year.
The option to have tax collected through the tax code is available where:
- the return is filed online by 30 December 2019 or a paper return was filed by 31 October 2019;
- the underpayment is less than £3,000; and
- the taxpayer already pays tax under PAYE, for example, because they are an employee or because they receive a company pension.
However, HMRC will not collect an underpayment via an adjustment to a tax code if the taxpayer does not have sufficient PAYE income to allow for the repayment or if as a result of coding out the underpayment, the taxpayer would pay more than 50% of their PAYE income in tax or would pay more than twice as much tax on their PAYE income as they would do otherwise.
No need to tell HMRC you want an underpayment coded out
Where the tax return is submitted online by the 30 December deadline and the conditions for coding out an underpayment are met, HMRC will automatically adjust the taxpayer’s tax code for 2020/21 to collect the underpayment for 2018/19.
If you have just been organised in filing your tax return ahead of time and do not want an underpayment coded out, you must let HMRC know by ticking the relevant box on your tax return.
How does the adjustment work?
The underpayment is collected by grossing it up at the taxpayer’s marginal rate of tax and treating it as a deduction from the personal allowances to which the taxpayer is entitled. For example, if an employee has a tax underpayment of £300 for 2018/19 relating to, say, dividend income and the taxpayer pays tax at 40%, the relevant adjustment to the tax code is £750 (£750 @ 40% = £300). Assuming the taxpayer has a personal allowance of £12,500 for 2020/21 and no other adjustments to their code, their allowances will be reduced by £750 to £11,750, giving rise to a tax code for 2020/21 of 1175L.
The underpayment is collected in equal instalments over the course of the tax year – where the employee is paid monthly, the £300 underpayment would be collected in 12 instalments of £25. This may be much less painful than paying it all in one hit.
Consider whether it would be beneficial to file your tax return by midnight on 30 December 2019 to enable a tax underpayment to be deducted from your pay.
Parties and Presents
The taxman is not entirely lacking in Christmas spirit and the tax system features a number of exemptions which enable employers to put on a party for staff or to give employees a seasonal gift without triggering an unwanted tax liability. However, the taxman’s generosity is limited, and the message here is to keep it modest.
Staff Christmas parties
Although there is no specific exemption for Christmas parties, there is one for annual parties and functions and it is this exemption which provides the opportunity for staff – and their guests – to enjoy a Christmas party without being hit with tax charge once the decorations have been packed away. As with all exemptions, availability is contingent on the associated conditions being met.
Function must be an annual function
As far as the tax exemption is concerned, not all functions are equal. The tax exemption only applies to annual parties and functions. Consequently, if you hold a staff Christmas party every year, it is possible to take advantage of the exemption to keep it tax-free. However, if the Christmas party is not a regular occurrence and you decide to hold a party for staff this year as a one-off, for example to celebrate a successful year, the exemption will not apply and your employees will be taxed on the resulting benefit in kind.
Exempt amount capped at £150 per head
The exemption only applies to an annual function if the cost per head is £150 or less including VAT. This is simply the total cost of the function divided by the total number of people attending, including both employees and any guests. If accommodation or transport is also provided, these are taken into account in working out the total cost of the function. VAT is also included, even if this is subsequently recovered where the employer is VAT-registered.
If there is only one annual function in the tax year, it will be tax and National Insurance free as long as the cost per head figure is not more than £150.
Exceeding the £150 per head limit
The £150 per head figure is an exemption not an allowance and if the cost of the function is more than £150 per head, the total amount is taxable, not just the excess over £150. This means that if the cost per head is £155 per head, an employee attending alone would be treated as receiving a taxable benefit with a taxable value of £155. Where an employee attends with a partner, the employee is taxed on their partner’s attendance too – in this case the taxable benefit would be £310. The employer will also face a Class 1A National Insurance charge where the provision of the party is taxable on employees as a benefit in kind.
Going slightly over the £150 cost per head limit can be expensive – there is no tax or employer-only Class 1A National Insurance to pay for an annual party where the cost per head is £149; however, the story is very different if it creeps up to £151 per head. The moral here is to keep a close eye on the costs.
More than one annual function
Where there is more than one annual function in the year, the exemption can be allocated in such a way as to minimises the overall tax bill. Annual functions will all be tax-free as long as the total cost of all the functions is not more than £150 per head. For example, if a company holds an annual Christmas party costing £50 per head and a summer barbecue costing £40 per head, both will remain tax free as the total cost per head figure of £90 is less than the permitted £150.
If the total cost of all functions is more than £150, the exemption can cover whole functions in such a way as to give the best result. For example, if there are three annual functions costing respectively, £70 per head, £60 per head and £40 per head, at first sight the exemption is best applied to the £70 and £60 functions (a total cost of £130 per head). The remaining £20 is lost as it cannot be set against the £40 per head function – only whole functions can qualify for the exemption.
The best result may be different if guests are invited to some functions but not to others. In the last example, if the employees bring a guest to the £40 function, the exemption is best utilised against the £70 and £40 per head events. Leaving the £40 function in charge will mean that the employee suffers a taxable benefit of £80 (£40 for the employee and £40 for their guest); leaving the £60 function in charge reduces the total taxable benefit to £60. There is no substitute for doing the sums.
Consider a PSA
If a taxable benefit arises in respect of the staff Christmas party, either because the function is not an annual function or because the cost per head figure exceeds the £150 exempt limit, consider using a PAYE Settlement Agreement (PSA) to settle the tax liability on behalf of your employees to preserve the goodwill gesture. A PSA is an agreement with the tax inspector under which the employer pays the tax and associated National Insurance on behalf of their employees. Information on using a PSA can be found online.
Deduct the cost in computing profits
The general prohibition on tax deductions for entertainment expenses does not apply to staff entertaining. Consequently, the costs of holding a staff Christmas party can be deducted in computing the employer’s taxable business profits.
At Christmas, businesses may wish to show their appreciation by making gifts to staff and to customers and suppliers. The rules on gifts can be quite complicated and it is important to understand when a tax charge may arise on the recipient and what the business can deduct when computing its profits.
It is possible to give staff small seasonal gifts without triggering an associated tax charge. Typical gifts would include a bottle of wine, a small hamper, a box of chocolates and suchlike. The relevant exemption here is the one for trivial benefits which enables employees to enjoy small non-cash benefits costing not more than £50. Unless the employee is a director of a close company, there is no limit on the number of tax-free gifts of £50 and under that an employee can enjoy each year; for close company directors, there is a £300 annual limit.
There are conditions which must be met for the exemption to apply. The gifts must not be in cash or in the form of a cash voucher and it must cost you £50 or less to provide. Further, the gift cannot be reward for services, and there must be no contractual obligation to provide it. Keeping seasonal gifts within the trivial benefits exemption will prevent a tax charge from arising.
Detailed guidance on the trivial benefits exemption can be found in HMRC’s Employment Income Manual.
Cash gifts and cash vouchers are liable to PAYE and employer and employee National Insurance.
If a tax liability does arise, for example because the cost is more than £50, it will be taxed on the employee as a benefit in kind and will need to be reported to HMRC on the employee’s P11D. An employer-only Class 1A National Insurance liability will also arise. Again, the employer could consider using a PSA to meet the liability on behalf of the employees.
As with staff parties, the employer can deduct the cost of staff gifts when computing their taxable profits.
Gifts to third parties
It is also traditional at Christmas to give a small gift to key customers and suppliers as a ‘thank you’. However, the rules here are harsh; gifts the third parties are deemed to be entertaining in respect of which a tax deduction is denied. There is however a workaround – the gift will be tax deductible if the cost does not exceed £50 per person per tax year and it features a conspicuous advert for the business. In addition, it cannot be food, drink or tobacco (or a voucher exchangeable for food, drink or tobacco). Consequently, to benefit from a deduction for gifts to third parties, go for a business diary or a pen featuring an advert for the business rather than a bottle of wine.
Keeping it tax-free
To keep Christmas parties and seasonal gifts tax-free, the trick it to keep it small and make use of the available exemptions. Plan ahead and make sure that the cost figures do not creep up.
Have you got your EORI number?
UK businesses will need an ‘Economic Operator Registration Identification’ (EORI) number to trade with the EU after Brexit.
If there is a ‘no-deal’ Brexit
In the event that the UK leaves the EU on 31 October 2019 without a deal, businesses will need an EORI number that starts with GB to move goods in and out of the UK.
An EORI consists of a 12-digit number following the GB prefix. It includes the VAT registration number where the business is VAT registered.
How do we get an EORI number?
Depending on whether a business is registered for VAT, an EORI number may be issued automatically or, where this is not the case, the business can apply for one.
When is an EORI number issued automatically?
In August and early September, HMRC sent out EORI numbers automatically to businesses that are registered for VAT and which had not previously applied for an EORI number. If you are VAT registered, check that you have received your number.
How do we apply?
Where a business is not registered for VAT, and it is likely that it will want to move goods in and out of the UK post Brexit, it will need to apply for an EORI number.
The application can be done online. The process is straightforward and should take less than 10 minutes, with the EORI number being sent out within 5 working days. Unless, HMRC need to undertake additional security checks.
Trading with Ireland
An EORI number is not needed if goods are only moved between Northern Ireland and Ireland. However, one is required for imports and exports that move directly between Ireland and Great Britain without going through Northern Ireland.
EU EORI numbers
Businesses that want to trade with the EU post-Brexit will need an EU EORI number, starting with the country code of the EU country that they wish to trade with. This should be obtained from the Customs authority of the EU country that the business will first trade with post Brexit.
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Happy anniversary — auto-enrolment’s third anniversary obligations
Auto-enrolment is now up well and truly up and running, and the obligations that it imposes on employers are on-going. The most notable being, employers must undertake a re-enrolment and re-declaration exercise every three years.
Re-enrolment and re-declaration are legal duties and employers may be fined for non-compliance.
What employers must do
All employers must complete a triennial review where they will need to choose a re-enrolment date, assess and re-enrol certain staff, write to them to confirm their intended actions and complete a re-declaration of compliance.
Re-enrolment duties must be completed approximately three years after the original automatic enrolment staging date.
At the time, employers must complete a re-declaration of compliance to tell the Pensions Regulator (TPR) how you have completed your duties.
Re-enrolment and the re-declaration of compliance are legal duties. With failure to comply within the approved timescale punishable by a fine.
Four basic steps
There are four basic steps to the re-enrolment process but, as always, the ‘devil is in the detail’.
1. Choose a re-enrolment date
The re-enrolment date is the date by which an employer’s staff will have been reassessed for re-enrolment.
There is a six month ‘window’ that starts three months before, and ends three months after, the third anniversary of the original staging date (the relevant dates can be found in the correspondence that will be received from the Pensions Regulator).
2. Assess and re-enrol staff
Staff who must be assessed, with a record the assessment activity held on file:
- All staff who have opted out of the pension scheme;
- Left the pension scheme after the end of the opt-out period;
- Remained in the pension scheme but have chosen to reduce the level of pension contributions to below the minimum level; and
- Who meet the age and earnings criteria to be re-enrolled.
It is possible to leave out staff member who, on the chosen re-enrolment date:
- Are already in the pension scheme used for automatic enrolment;
- Are aged 21 or under;
- Have reached, or passed, state pension age;
- Have not yet met the age and earnings criteria for automatic enrolment; or
- Have had their re-enrolment postponed.
Note: Postponement (whereby it is possible to delay payments for up to 3 months) cannot be used with automatic re-enrolment. If the eligible jobholder criteria have been met by an employee on the automatic re-enrolment date, automatic re-enrolment must take place with effect from that date.
3. Write to staff who have been re-enrolled
Employers must write within six weeks of their re-enrolment date to advise that they are to be reinstated into an auto-enrolment pension scheme. An eligible jobholder then has a one-month period, after automatic re-enrolment, during which they may choose to opt out.
A letter template is available on The Pension Regulator’s website.
4. Complete the re-declaration of compliance
A declaration of compliance must be completed within five months of the third anniversary of the staging date.
This is a legal duty. Whereby, an employer must confirm that they have fulfilled their re-enrolment duties. The re-declaration of compliance must be completed regardless of whether the employer has any staff to re-enrol.
The re-declaration of compliance can be filed online.
Understanding your obligations
It is important that employers understand their on-going obligation under auto-enrolment, as penalties for non-compliance can be high. If you are in any doubt, please contact us.
Outstanding director’s loan – clear the loan or pay the ‘Section 455’ charge?
As a company approaches its corporation tax due date, a decision needs to be taken whether to clear any director’s loan account balance remaining outstanding from the year end or whether to pay the ‘Section 455’ charge.
Nature of ‘Section 455’ charge
The ‘Section 455 charge’ (imposed by CTA 2010, s. 455) arises where a loan to a director or participator in a close company remains outstanding on the corporation tax due date nine months and one day after the year end.
According to HMRC, “The purpose of the s455 tax charge is to deter companies from making untaxed loans to their participators rather than paying remuneration or dividends which are chargeable as income”.
The rate of ‘Section 455’ tax is the same as the higher dividend rate, currently 32.5%.
A temporary tax
‘Section 455’ tax is unusual in that it is a temporary tax – it is refundable (usually by offset against the main corporation tax liability) nine months and one day after the end of the period in which the loan was repaid.
Is it worth clearing the loan?
The answer, is that it depends. Not all repayments are equal and the repayment mechanism may trigger its own tax liabilities, which may be higher than the ‘Section 455’ tax.
Ways to clear a director’s loan account
Using personal funds
Declaring a dividend
Basic rate band, their income tax charge will be at 7.5%, considerably less than the rate of the ‘Section 455’ tax.
Higher rate tax band, the tax payable on the dividend will be 32.5%, the same rate as the ‘Section 455’ tax.
Additional rate band, in the short run paying the ‘Section 455’ tax will be the cheaper option.
Paying a bonus
Where a director has sufficient funds at their disposal, outside of their company, introducing those funds for offset against the overdrawn director’s loan account will normally be a cheaper option, tax wise, provided that accessing the cash, in the first place, does not trigger any additional tax liabilities elsewhere.
If the company has sufficient retained profits, within its reserves, another option would be for it to declare a dividend to offset against the overdrawn director’s loan account, to either reduce or even clear the loan account balance.
If the dividend falls within a taxpayer’s:
However, as the dividend tax incurred will be lost for good, in some circumstances it may be preferable to leave the loan outstanding and pay the ‘Section 455’ tax.
Another option available is to pay a bonus to clear a director’s loan account. However, while deductible for corporation tax purposes, it will attract income tax and Class 1 National Insurance costs.
Do the sums
There is no substitute for crunching the numbers. The decision as to whether it is better to pay the ‘Section 455’ tax or clear a director’s overdrawn loan account will depend on each director’s personal circumstances.
Talk to us we’re here to help you through the tax maze.
Beat the changes to main residence ancillary reliefs
From 6 April 2020, two of the reliefs associated with the Capital Gains Tax (CGT) main residence relief are to be significantly curtailed. Therefore, if you are likely to be affected and are currently considering disposing of a potentially affected property, it may be prudent to sell, before 6 April 2020 rather than on or after that date to benefit from the current, more generous, reliefs.
The benefit of being an ‘only or main residence’
Any gain arising on the sale of a residence which has been the owner’s ‘only or main residence’ for the whole period of ownership is exempt from CGT.
However, currently, there are additional ‘generous’ CGT reliefs available if the residential property has been the only or main residence for some, if not all of the period, of ownership.
‘Final period exemption’
Where a property has at some point been the owner’s only or main residence, the final period of ownership is exempt from CGT.
The final period is currently set at 18 months, with a longer period of 36 months applying where the person making the disposal is a disabled person or a long-term resident in a care home.
Reduction in final period
From 6 April 2020, the final period exemption will be halved to nine months (although it will remain at 36 months for disposals by long-term care home residents and disabled persons). This change will potentially bring more of a taxable gain into the scope of CGT.
‘Lettings relief’ is a valuable relief currently available on the disposal of a property which at some point during the period of ownership has both been rented out and occupied by the owner(s) as their main residence. In its current form, letting relief can remove gains of up to £40,000 per person from a charge to CGT.
Under the rules, in place until the end of the 2019/20 tax year, the amount of lettings relief available is the lowest of the following three amounts:
- the amount of private residence relief available on the disposal;
- £40,000; and
- the gain attributable to the letting.
The relief applies regardless of the whether the landlord lives, or lived, in the property while it was rented out.
Reduced relief from 6 April 2020
From 6 April 2020, lettings relief will only be available where the landlord shares occupancy with the tenant(s).
The restricted relief will be available to relieve a gain that would otherwise be subject to CGT because it relates to the part of the main residence that has been let out as residential accommodation.
Where the relief applies, the gain is only chargeable to the extent that it exceeds the lower of:
- the amount of the gain sheltered by private residence relief; and
Beat the changes
If you are considering selling a current or former letting property it would be wise to seek advice from us. It is likely, depending on your individual circumstances, that we will tell you that in order to benefit from the current, more generous reliefs, you should aim to, at the very least, have exchanged contracts before 6 April 2020.
Loan Charge Reporting Requirements – Navigating the Minefield
You will no doubt be aware the loan charge is upon us, and this article highlights what you need to know.
UPDATE: Since this article was written, Boris Johnson has announced a review into the government’s controversial loan charge following sustained pressure from campaigners, MPs and the House of Lords. As a result, proposed dates and/or details below may change accordingly.
What Is It All About?
An estimated 50,000 workers, mostly contractors, were paid by way of a modest salary, topped up with a loan, as a way to reduce their income tax and national insurance contributions.
Although this has been described as a ‘loan’, in reality the amounts advanced were never intended to be repaid.
HMRC maintains it never approved these schemes, asserting that they do not work, and referring to such loan schemes as ‘disguised remuneration’.
2019 Loan Charge
Effective from April 2019, the tax department, supported by the UK government, introduced a charge (loan charge) on unrepaid loans that contractors received instead of salaried payments.
This loan charge combines all outstanding loans accrued over the course of up to 20 years and taxes them as income in one year.
Those affected will have to pay by the end of January 2020.
A UK Based Employer
UK based employers were required to declared outstanding loan amounts by April 15th, 2019 at the latest, via their RTI returns, with all associated income tax, national insurance and student loan repayment amounts paid to HMRC by April 22nd .
Subsequently, assuming the employer operated the scheme in the first place, the employee must ‘make good’ (reimburse) the tax and national insurance to their employer by July 5th, 2019.
Failure to make good will give rise to a taxable benefit in kind, reportable as part of the 2018/19 P11D return.
It is immediately apparent that most those affected would rather incur a P11D benefit charge than repay the amount in full to their employers.
There are two instances where great care is needed:
- Where not all of the tax has been made good to the employer
The way that the legislation is written (ITEPA 2003 s.222) is as an ‘all or nothing’ scenario. This means an employee who pays back some or most, but not all of their liability will face a P11D tax liability on the full amount paid by the employer.
- Where the employer cannot afford to pay
Under Reg 81(4) of the PAYE regulations, the tax liability could get transferred to the employee, where the employer is unable to pay.
While an employee ends up paying all the tax themselves, they still incur an ITEPA 2003 s222 charge.
HMRC maintains that, provided they were advised by July 4th, 2019 that an employee wished to pay the loan charge tax to them rather than to their employer, they would not seek to apply the ITEPA 2003 s222 charge.
Furthermore, the department promised to refund anything the employer had previously paid over.
In the event of an employer either being situated abroad or no longer in existence, beneficiaries of the loan scheme must report any outstanding loans to HMRC by September 30th 2019.
To help, HMRC has established an online process supported by a paper form for those who are less tech-savvy.
Failure to report the details for all outstanding loans by September 30th 2019 may render a person liable to penalties. However, it is anticipated they will only be charged in the most severe cases.
Individuals must also report their outstanding loans as part of the 2018/19 self-assessment tax return filing process. The amount of the outstanding loans should be disclosed in box 21, located under the ‘Disguised Remuneration’ section of form SA101 ‘Self-assessment: additional information’.
Do not forget that where an affected person has not previously been required to file a self-assessment tax return, the standard section 7 (Taxes Management Act 1970) requirement to notify chargeability by October 5th following the end of the tax year concerned applies.
Remember also that the loan charge is a one-off charge. Therefore, a claim to reduce future payments on account may be in point
The basic process for dealing with trade-based schemes is similar to the employee scenario.
Where individuals are still trading, they should include outstanding loan amounts from trade-based schemes in box 75.1 under the ‘Disguised Remuneration Additions To Profits’ section of the self-employed supplementary pages (SA103 (full)) of their self-assessment tax return.
For those whose trading activity ceased before 2018/19, they should complete boxes 22 to 24 of form SA101 as appropriate.
Those in trade-based schemes will need to elect for any APNs (accelerated payment notices) to be set against the loan charge liability. At the time of writing, further HMRC guidance on the offsetting of APN’s is expected in due course.
Difficulty in Paying
Anyone who believes they will have difficulty paying the resultant tax must still complete and submit a tax return. They will otherwise be liable for failure to notify and subject to late filing penalties in addition to the loan charge.
Once the self-assessment tax return has been filed, and HMRC is aware of the extent of any loan charge debt, the department should be contacted to agree on a manageable payment plan. Their agreement will depend on an individual’s circumstances, and there is no upper time limit on how long payments can potentially be spread.
If things are left until after the January 31st, 2020 payment deadline, individuals may have to consult with HMRC’s debt management team directly about next steps.
Off-Payroll Working in The Private Sector – The Ticking Timebomb
While you might have been entertained over the last two years by the IR35-related tribunals involving celebrities such as Lorraine Kelly and Christa Ackroyd, a more significant issue closer to home has been looming large on the tax landscape. HMRC is planning to roll out their public sector version of ‘off-payroll’ working to the private sector.
Although this might risk being blown off course by the ongoing Brexit uncertainty, all medium and large private sector businesses employing off-payroll workers (contractors and freelancers) will feel the impact of the new off-payroll working rules when they become mandatory in April 2020.
As a signal-of-intent, HMRC published a consultation document on March 5th, 2019 aimed at seeking views on how the off-payroll working rules will work. This period of consultation concluded on May 28th, 2019.
Importantly, it proposed some changes to the existing public sector legislation and promised that any resulting amendments would be reverse-engineered into the 2017 public sector legislation.
Relief for Small Businesses
One piece of good news in response to feedback from AAT and other relevant parties is that HMRC has excepted operators of ‘small businesses’ from any requirement to implement the proposed rules.
HMRC has indicated that the definition of a small business will be in line with the Companies Act definition:
- Annual turnover: less than £10.2m;
- Balance sheet total: less than £5.1m;
- Number of employees: less than 50.
While the definition may be apparent for companies, the definition of ‘small business’ for un-incorporated entities still needs to be adequately defined. Moreover, although the wording in the recent consultation document concerning the core deciding-components appears to be the same, what remains unclear is just how they are to be applied.
You Must Decide
According to the consultation document, it will be your responsibility (the ‘engaging party’) to determine whether or not a contractor is an IR35 deemed worker, based on the terms of the engagement.
You will also be expected to set out the reasons for reaching a particular decision, as well as working out the practicalities, how you will be required to share this information with other parties within the supply chain and even directly with the contractor.
A New Improved CEST
To help you determine a worker’s employment status, HMRC is to revamp its much-criticised Check Employment Status Tool (CEST) tool. As part of the revision exercise, it has promised to consult with interested parties to improve the way that CEST currently works.
It will be interesting to see how the department will rise to the challenge of addressing the full range of different concerns about the existing operational shortfalls levelled at CEST. One key area of interest is the Mutuality of Obligation (MOO), and the department’s ability to improve this will be seen by many as a critical test.
Who Is Responsible?
As can be expected, any party in a lengthy supply chain that fails to meet its obligations under the proposed legislation will, at least in the first instance, be held liable by HMRC for any monies due.
However, in a move intended to protect the public purpose, HMRC proposes that any liability will transfer back up the supply chain where HMRC finds itself unable to recover the monies due. This may ultimately fall back on you in some instances. In HMRC’s view, this, therefore, requires that the right incentives are in place so that all parties in the supply chain not only comply but are also ensuring the compliance of others further down the line.
Right of Appeal
HMRC is also promising to introduce a statutory appeal process. The absence of any such process in the 2017 public sector legislation left many workers exposed to inappropriate decisions and even the subject of a blanket employment status decision without a right of appeal. This was seen as a severe oversight in AAT’s opinion.
What Action to Take
You should take steps to ensure that you’re aware of this new change and ask yourself how you might be affected.
As HMRC has only recently closed its consultation response window, the department will still be sifting through a deluge of response, and the final legislation still resembles shifting sands. Consequently, we are issuing a health warning to the effect that nothing is certain until the underpinning legislation has been passed.
Having acknowledged that our advice is built on nothing more robust than the legislative equivalent of these shifting sands, we are outlining the fundaments of what is currently proposed:
- From April 6th, 2020, medium and large businesses will need to decide whether the rules apply to an engagement with individuals who work through their own company.
- Where it is determined that the rules do apply, the business, agency, or third party paying the worker’s company will need to deduct income tax and employee NICs and pay employer NICs.
- HMRC has promised to revamp its CEST tool to help businesses determine whether the off-payroll working rules apply.
We’ll be keeping a close eye on this challenging IR35 issue and closely monitoring future developments, and if there are any updates, we’ll let you know.
A One Year Tax Break for Zero Emission Company Cars
The UK government recently announced its intention to exempt newly registered zero-emission company cars from a benefit in kind tax charge for one year from April 2020. This exemption underlines the key role that the company car has to play in helping the government achieve its zero emissions ambitions.
The move is also intended to ensure that company car tax rates are not hiked as a result of the introduction of the Worldwide Harmonised Light Vehicles Test Procedure (WLTP).
WLTP – What’s It All About?
Effective April 2020, WLTP will introduce a new CO2 emission-linked benefit in kind calculator to be applied to all new cars. It has been developed using real driving data gathered from around the world.
The aim is to introduce a universal global test cycle across different world regions. In this way, pollutants, CO2 emissions and fuel consumption values can be compared. This ensuring a level playing field.
WLTP is divided into four different average speeds: low, medium, high and extra high. Each speed has a variety of driving phases. As a result, it is considered more representative of everyday driving.
Intentionally, the new bands have been made more sensitive to changes in CO2 emissions as a way to nudge companies and their employees to opt for lower emission vehicles in the future.
Why the Change?
The new measure is intended to reduce carbon dioxide (CO2) emissions by encouraging a move towards lower emission vehicles. Whilst this ambition is to be welcomed, the Treasury has acknowledged that the WLTP measure will have significant impact on company car users.
This was also acknowledged in a recent Treasury document which stated:
“Whilst the government’s view is that vehicle tax rates should more closely reflect the environmental impacts of driving, it is important that the transition to WLTP is managed.”
In response to this, and following a period of consultation, the government announced that appropriate percentages of new zero emission models will be as follows:
- Nil in 2020-21;
- 1% in 2021-22;
- 2% rate in 2022-23.
By comparison, the appropriate percentage for most other cars registered from 6 April 2020 will be reduced by the following appropriate percentages:
- 2% in 2020-21;
- I% in 2021-22;
- 1% in 2021-22;
- 1% in 2022-23.
A small number of company cars with the greatest CO2 emissions (170g/km and over) will
continue to attract the maximum appropriate percentage of 37%.
The Treasury has acknowledged:
“Due to the range of WLTP impacts on CO2 emissions, this approach means some [new] conventionally fuelled cars will be liable to pay an equal amount of company car tax as of today, whilst others will pay more, and a small number of models could pay less.”
The government has promised that it will set company car tax rates in advance of the tax year affected by the proposed change. This has normally been the position in recent years.
In addition, it will continue to use the current NEDC-based measure for road tax (graduated vehicle excise duty, VED) for 2020/21. However, a public consultation is planned for later this year to establish the best approach to changing the wider road tax system, but avoid hikes in VED for the majority of car users.
Legislation is to be introduced in the next Finance Bill to amend the Income Tax (Earnings and
Pensions) Act 2003 (ITEPA) in order to reflect the changes to the appropriate percentage(s) that will be applied to the list price of the car.
- A zero rate of BIK tax for ‘zero emission vehicles’ from next April for tax year 2020-21, rising to 1% in 2021-22 and 2% in 2022-23;
- A 2% reduction in scale charge from next April for cars registered after April 6 2020, with a 1% discount in 2021-22;
- A freeze on existing 2020-21 BIK rates for the following two years.
The CIS Reverse Charge – Waking the Slumbering Giant
UPDATE: Since this article was written, HMRC has, in a carefully worded brief, announced the postponement of the introduction of domestic reverse charge for construction services for 12 months to 1 October 2020. As a result, proposed dates below may change accordingly.
There has been much focus in recent months on the delivery of Making Tax Digital for VAT (MTDfV), and the time is now upon us. However, in case you’re thinking about relaxing and just focussing on your standard tax compliance work for the rest of the tax year, be warned.
VAT Domestic Reverse Charge for Building and Construction Services
Otherwise known as the ‘CIS reverse charge’, this will be a significant change to the way VAT will be accounted for in the building and construction industry. Moreover, the change is coming shortly.
Why All the Fuss?
As of October 1st 2019, the responsibility for paying VAT due to HMRC will shift from the supplier to the customer for certain supplies of specified construction services.
The ‘customer’, a VAT-registered main contractor, will be required to withhold the input VAT charged to them by their ‘supplier’, where the supplier concerned is a VAT-registered sub-contractor. The ‘customer’ will then account to HMRC in respect of the VAT withheld, the ‘reverse charge‘.
6 Key Points
- The reverse charge applies throughout the supply chain to the point where the customer receiving the supply is no longer considered a business providing construction services.
- At the start of a contract, VAT-registered subcontractors should ascertain whether their customer is making payments under CIS rules to establish whether the domestic reverse charge rules apply.
- Subcontractors should assume that the reverse charge does not apply if their customer is not making payments according to CIS rules.
- Equally, if the customer is applying CIS, then suppliers will be able to use the reverse charge unless their customer has confirmed in writing that they are an ‘end-user’ for reverse charge purposes.
- Suppliers’ VAT invoices must outline clearly that their services are subject to the domestic reverse charge, clearly indicate the amount due under the reverse charge, but not include the amount shown as total VAT charged.
- For continuous supplies of specified services, invoices with a tax point before October 1st 2019 will be subject to the standard VAT rules, if paid before the December 31st. Invoices with a tax point on or after October 1st 2019 will be subject to the new domestic reverse charge rules.
Why Is HMRC Doing This?
HMRC have implemented the ‘reverse charge’ rule as an anti-fraud measure to prevent potential ‘dodgy’ suppliers from absconding with the VAT they have collected.
HMRC have already deployed the rule successfully in the telecoms industry as a means of preventing carrousel fraud or ‘missing trader fraud intercommunity fraud’ (MTIC).
HMRC and the government have calculated that by the end of the 2023/24 tax year, the new initiative will have collected more than £495m in tax revenues that would otherwise have been lost to the public purse.
When Does It Apply?
The reverse charge will apply all the way along construction industry supply chain up until the point where the customer receiving the supply is no longer considered a business supplying specified services. These businesses/individuals are referred to as the ‘end-user(s)‘.
Services Covered Under CIS
Construction services covered by the reverse charge (the ‘specified services’) are those falling within the definition of ‘construction operations’ under CIS.
GOV.UK provides a list of the following activities that are covered under CIS:
- A permanent or temporary building or structure;
- Civil engineering work, e.g. roads and bridges;
- Site preparation, e.g. the laying of foundations and the provision of access works;
- Demolition and dismantling;
- Building work;
- Alterations, repairs and decorating;
- The installation of systems for heating, lighting, power, water and ventilation;
- Post-construction cleaning work inside of buildings.
Services Not Covered Under CIS
Some services are excluded from the reverse charge. For example:
- Professional work carried out by surveyors, architects or consultants in the building industry;
- Acquisition and delivery of machinery;
- Natural gas/oil drilling/extraction activities;
- Installation of security systems which include closed-circuit television and burglar alarms.
The reverse charge will not bring businesses that supply specified services to connected parties within a corporate group structure or with a common interest in land within scope.
In such circumstances, standard VAT accounting rules apply.
Definition of ‘Deemed Contractors’
While these obligations only apply to those operating in the construction industry, non-construction businesses can be treated as ‘deemed contractors’. Under CIS rules, deemed contractors will be required to report payments if their average annual construction-related expenditure exceeds £1 million over a three-year period.
The obligations are designed to throw a net around those businesses with a significant spend on construction activities such as large retailers and public bodies.
What Needs To Be Done?
By October 1st, businesses operating within the construction industry will need to establish whether they are affected by the reverse charge.
If they indeed decide they affected, then they will need to consider the following:
- Are they affected in respect of sales, purchases or both?
- Are their accounting systems and software ready to deal with the reverse charge?
- What is the potential impact on their cash flow?
- Are there any additional training requirements for staff?
When settling an account, the VAT-registered customer must:
- withhold the VAT element of their liability (the reverse charge);
- account for the VAT withheld to HMRC on its VAT return.
The customer retains the ability to recover the associated input VAT incurred on the same VAT return, subject to standard VAT rules.
In summary, by September 30th:
- Contractors should review their contracts with sub-contractors to decide whether the reverse charge If it applies, then they should notify their suppliers immediately;
- Sub-contractors will need to contact their customers to establish if the reverse charge applies. They will also need to determine whether their customer is an end-user or intermediary supplier.
The reverse charge does not apply to consumers or final customers of building and construction services.
Any consumers or final customers who are registered for VAT and CIS will need to ensure their suppliers do not apply the reverse charge on services supplied to them.
Intermediary suppliers are VAT, andCISregistered businesses that are considered connected or linked to end-users.
To be considered ‘connected’ or ‘linked to’ end-users, intermediary suppliers must either:
- share a relevant interest in the same land, where the construction works are taking place, or;
- be part of the same corporate group or undertaking, as defined in section 1161 of the Companies Act 2006.
If several connected businesses are collaborating to purchase construction services, they are all treated as if they are end-users, and the reverse charge does not apply to their purchases. For example:
- A property-owning group may buy construction services through one member of the group and recharge those services to either other group companies, their tenants, or both.
- All the members of the property-owning group and their tenants will be considered end-users, and the reverse charge will apply.
Don’t Underestimate the Impact
You should be under no doubt that from October 1st, the domestic reverse charge will have a significant impact on cash flow management for sub-contracting businesses that are affected by this new rule.
Smaller sub-contractors should pay particular attention since historically smaller sub-contractors have relied on the VAT element of contract payments received to fund their short term cashflow needs.
While in essence, a business is free to use VAT that it has collected as working capital, HMRC would prefer for it to be ringfenced and held on deposit until payment of the related VAT has been made.
Irrespective of your view on the appropriateness of a business using government monies to fund their working capital requirements, as of October 1st, this interest-free source of funds will be withdrawn.
Calls for Delay
With the emphasis on businesses meeting compliance requirements for MTDfV, until recently, there has been scant information regarding its poor relation, the reverse charge. Consequently, there is an ongoing concern amongst those in the know that the construction industry will not be ready on time.
In an attempt to draw attention to this lack of readiness, the Chartered Institute of Taxation (CIOT) wrote to HMRC in early August and published a press release calling for the launch to be postponed until April 2020. This would enable the 150,000 affected CIS to prepare for this significant change in accounting for VAT.
In response, HMRC says it recognises the difficulties around implementing the new rules. In response, it has announced that it will apply a ‘light touch’ in dealing with related errors during the first six months.
When supplying a service subject to the domestic reverse charge, suppliers must:
- show all the information required on a VAT invoice;
- make a note on the invoice, clearly indicating that the domestic reverse charge applies and that the customer is required to account for the VAT;
- clearly state how much VAT us due under the reverse charge, or the rate of VAT if the VAT amount cannot be shown, but that VAT should not be included in the amount charged to the customer.
Where software is used to produce invoices and the system cannot show the amount of VAT to be accounted for under the reverse charge, then the invoice should clearly indicate that VAT is to be accounted for by the customer at the appropriate rate, based on the VAT-exclusive selling price for the reverse charge goods or services.
Authenticated Tax Receipt and Self-billing Invoices
Authenticated tax receipts or self-billing invoices must:
- show the supplier’s name, address and VAT registration number (as well as the usual VAT invoice details);
- contain the self-billed invoice with the self-billing reference;
- clearly state the amount of VAT due under the reverse charge, or the rate of VAT if the VAT amount cannot be displayed.
Determining Reverse Charge Treatment of Existing Contracts by The Deadline
In the run-up to the October 1st deadline, businesses with a large number of active contracts that engage sub-contractors at a variety of sites may find it difficult to establish whether or not the reverse charge applies.
For example, a construction group may be considered a property developer on some sites and a building contractor on others, therefore, their status could change.
To avoid uncertainty and delay to payments while each contract is being checked, HMRC has determined that it will be easier for one accounting treatment to be applied to all contracts with a particular sub-contractor.
For example, if a contractor determines that the reverse charge applies to more than 5% of contracts (by volume or value) after examining all its construction contracts with a particular subcontractor, then the reverse charge may be applied to all the contracts.
Switching to Monthly VAT Returns
“As a result of the reverse charge, some businesses may find that because they no longer pay the VAT on some of their sales to HMRC, they become repayment traders (their VAT return is a net claim from HMRC instead of a net payment).
Repayment traders can apply to move to monthly returns to speed up payments due from HMRC.”
Asking Customers About End-user or Intermediary Status
If in doubt and where a supplier intends to make a supply, they should ask the customer if they are an end-user or intermediary supplier, ensuring they keep a record of the customer’s answer.
It will be up to the customer to make the supplier aware that they are an end-user or intermediary supplier, and that VAT should be charged in the usual way instead of being subject to a reverse charge.
Sometimes it may be evident that the customer is an end-user. For example, if there is a repeat contract, it will be deemed acceptable for you to charge VAT in the usual way.
Examples of end-users include UK VAT-registered mainstream or deemed contractors. Under CIS rules:
- They are typically not construction businesses and are found in the retail, manufacturing, utilities and property investment sectors as well as public bodies.
- Property developers should also be end-users in cases where they do not make onward supplies of building or construction services.
- Intermediary suppliers can call themselves end-users in all communications and should be in writing (either digitally, or on paper).
HMRC also acknowledges:
“There is no set wording, but this is an example of suitable wording:
We are an end-user for the purposes of section 55A VAT Act 1994 reverse charge for building and construction services. Please issue us with a normal VAT invoice, with VAT charged at the appropriate rate. We will not account for the reverse charge.”
If the reverse charge treatment depends on the customer’s end-user status, and the treatment adopted is found to be incorrect (for example, because the customer is an end-user but has not provided written confirmation resulting in the reverse charge being applied incorrectly) HMRC will expect the customer to notify the supplier that it is an end-user and request a corrected invoice.
In the case of self-billing, a new invoice will have to be issued, and the VAT will have to be paid to the supplier.
Verifying the VAT Status of Customers
Before applying the reverse charge, a supplier must be satisfied that a customer is VAT-registered. Presently, this can be done via the European Commission website.
Verifying a Customer’s CIS registration
It is not necessary to verify the CIS registration of existing customers. If a business holds such evidence, then that evidence should be retained as part of the VAT record. With respect to all new customers, confirmation of registration or a copy of their CIS should be obtained and retained.
Change of VAT Treatment During A Contract
There are occasions during a contract when a customer no longer retains an interest in the land concerned, or a property developer sells a partly completed building but carries on supplying the construction services to the new owner to complete the building.
Where this happens, a customer should notify the supplier that the end-user exclusion no longer applies, and charges for services in future would be subject to reverse charge.
The new treatment will be considered to apply at the point the customer’s circumstances are deemed to have changed.
If this change happens during an invoice period (where there would be one invoice including both reverse charge and standard VAT rules), the supplier can opt to change to the new treatment for the entire invoice period, or wait until the next invoice period before switching to the new treatment.
Transitional Supplies for Authenticated Tax receipts or Self-billed Invoices
For authenticated tax receipts or self-billed invoices, the tax point is usually the date the supplier receives payment.
The transitional arrangements for how the VAT treatment is determined are as follows:
- For transactions recorded by October 1st, and paid by December 31st, the standard rules apply.
- For transactions recorded by October 1st, but not paid by December 31st, the domestic reverse charge rules apply.
- For transaction recorded on or after October 1st, domestic reverse charge rules apply.
Cash Accounting Scheme
The Cash Accounting Scheme cannot be used for the supply of services that are subject to the reverse charge. However, under the reverse charge, no VAT is actually paid by customers to suppliers, so there will be no additional adverse cash flow impact.
The Cash Accounting Scheme can still be used for supplies that are not within the reverse charge. However, as a business will have to pay cash out to make a claim, the scheme may no longer help.
Flat Rate Scheme (FRS)
Reverse charge supplies are not to be accounted for under the FRS scheme. Therefore, users of the scheme will have to consider if it is still beneficial to them when VAT is not being paid to them on some or all of the invoices they issue.
Flat Rate Scheme users who receive reverse charge supplies will have to account for the VAT due to HMRC.
This article only provides the key highlights of the change, and you should be aware of the specific details by visiting the HMRC’s site, which has a helpful section dedicated to ‘VAT: domestic reverse charge for building and construction services’ guidance.
Improve Task Organisation with this Simple Concept.The daily grind, for so many, can feel like a constant juggling act. You attempt to balance work, household chores, bills, family – and hopefully some leisure in between if there’s any time leftover. Trying to find time for things we enjoy – or for projects to improve ourselves – can often feel impossible. It is incredibly frustrating to not move forward with things that you truly value. It’s just as frustrating to get stuck under a tower of tasks that never seems to get any smaller. An online poll by the Mental Health Foundation found that
in the past year, 74% of people have felt so stressed they have been overwhelmed or unable to cope. A report by ACAS, the workplace experts, had similar findings. These included 66% of poll respondents had felt stressed or anxious about work over the past year – and 35% struggling to balance home and work lives. This encouraged us to look for a helpful way to improve task organisation and to make them seem less disheartening. One example is for you to embrace online apps and tools which are available, as they can support your progress in breaking down into manageable segments an expanding task list. This can prevent you from falling into the pattern of trying to complete multiple tasks simultaneously while considering other items that may need to be started soon. This common mistake can lead to us feel overwhelmed. The effort to move forward becomes mentally taxing and stagnates our progress. Some scheduling style techniques, such as Personal Kanban, and post-it note-style tools like Trello boards, encourage you to condense the mass of tasks that you may currently be working on into a more manageable and visually pleasing format. Both strategies encourage breaking down your to-do list into two main areas – which are followed by a
To Do / Options / IdeasThis column (or two columns if you would like to separate your ideas from the general to-do list) should be used for everything you currently have pending. Trello will allow you to organise this further with handy coloured labels and due dates, etc. This list, when viewed alone, can result in our slipping into the habit of trying to tackle as many tasks as possible and struggle to complete tasks at a standard we are happy with.
Doing / in progressThe
In Progresslist, according to the Personal Kanban, should be restricted to three tasks. This will allow you to focus on the tasks clearly and will give you the ability to complete them without reaching a mental block. Resist the temptation to add any more than three, or to add tasks that should be broken down into multiple tasks. For example, if your task is to start a new business or write a new business strategy, it will obstruct your progress instantly. These need to be broken down further.
Complete / DoneAlthough this column may appear self-explanatory, not all tasks are indefinitely complete. For example, self-assessment is an annual business task. Once complete, a due date can be added, and, once relevant, the card can be moved back to the To Do column. For the other completed tasks, it is simply rewarding to see them move over to the completed column. Enjoy the sense of satisfaction as the list grows! We hope this simple concept can help you manage your planning and task lists. For further guidance on business and finance-related issues, please contact us today.
Latest Employer Bulletin
The latest edition of HMRC’s Employee Bulletin was issued in June. Topics covered in the bi-monthly magazine, include some of the following:
- Guidance for employers to help their employees with tax-free childcare for the summer holidays.
- Advice on how to re-enroll staff into a workplace pension scheme process. The Pensions Regulator website has more guidance about the steps required.
- Student/Postgraduate Loan changes and repayments.
- How to confirm National Insurance numbers quickly on the HMRC App or through your personal tax account.
- Updates to HMRC toolkits: National Insurance Contributions and the expenses and benefits from employment toolkit.
- The General Data Protection Regulations/Data Protection Act and the annual data protection charge. Assessment tools are available to help determine the level of payment required: the self-assessment tool and the charge-assessment tool.
- GDPR fees
- Using loans to escape the Optional Remuneration rules.
Please contact us if you would like further guidance on any of the topics covered in the Bulletin.
Workforce Preparations for Brexit
The government has advised that EU citizens who wish to continue to work, live, or study in the UK, after it leaves the EU on 31 December 2020, should apply to the EU Settlement Scheme (EUSS).
An employer toolkit is available to assist with the application and includes posters, videos, and relevant information on how to apply to the scheme. The government has created the toolkit for employers to share when necessary. However, there is no duty to provide the toolkit information or ensure employees have applied.
A recent HMRC Agent Update includes further guidance on employer obligations and states, “employers have a duty not to discriminate against EU citizens in light of the UK’s decision to leave the EU, both as a prospective and current employer”.
Successful applicants will receive either a settled or pre-settled status. The outcome can be influenced by how long an EU citizen has been living in the UK and, when the application is submitted.
Contact us for more guidance on this matter.
New Measures to Ensure Small Businesses Get Paid on Time
A new government measure has been released to target the late payments of large businesses to smaller businesses.
The proposal by the Department for Business, Energy & Industrial Strategy, Small Business Commissioner, includes the following points:
- The government will consult on increasing the powers of the Small Business Commissioner, with a view to target larger companies who fail to make payments on time. The powers could include the ability to impose fines and to request information on payment terms and conditions where necessary. New binding payment plans could also be enforced where the current practice is deemed as unfair for small businesses.
- Company boards are to be held accountable within their companies for payment practices to small businesses. This will increase accountability and encourage fair practice and transparency.
- A new Business Basic Fund competition of up to £1 million – which aims to encourage small businesses to embrace new technology, to improve productivity and management practices.
- The amount owed in late payments has halved over the last five years.
Small Business Minister, Kelly Tolhurst, said:
Small businesses are the backbone of our economy and, through our modern Industrial Strategy, we want to ensure the UK is the best place to start and grow a business. These measures will ensure that small businesses are given the support they need and ensure that they get paid quickly – ending the unacceptable culture of late payment.
Visit GOV.UK for the full details or please speak with us for more guidance.
New Tool Launched by the Department for International Trade
A new tool has been released, which aims to assist international investors who are interested in setting up or expanding their operations in the UK.
The UK Investment Support Directory tool allows potential investors to locate experts who can assist with their move – for example, in accountancy, law, consultancy, recruitment, and more. The tool will also connect them with over three hundred businesses throughout the UK.
The Department for International Trade states that the International Support Directory has been designed to improve the accessibility of information regarding the investment process. It states that this is part of a wider plan to encourage more foreign investment in the UK.
Mark Slaughter, Director General for Investment, said:
The UK Investment Support Directory is a smart, new digital tool that innovatively connects investors to private sector expertise.This interactive platform allows investors to tailor their searches to find the specific advice they are looking for or generates a range of businesses if they aren’t sure what they’re looking for yet. It is another way DIT is helping support foreign investment by streamlining connections between UK businesses and overseas investors.
Loan Charge Reporting Requirements: Navigating the Minefield
Unless you’ve been operating in a complete vacuum, you will no doubt be aware that the loan charge is upon us. However, you might not be quite so clear on what it is and what you really need to know.
What’s it All About?
An estimated 50,000 workers, mostly contractors, were paid by way of a modest salary topped up with a loan. This was to reduce their income tax and National Insurance contributions.
While it is described as a
loan, in reality, the amounts advanced were never intended to be repaid.
HMRC said it never approved these schemes. The department affirmed that it has always said these schemes did not work and it refers to such loan schemes as
2019 Loan Charge
Effective from April 2019, the tax department, supported by the UK government, introduced a charge (a loan charge) on unrepaid loans that contractors received instead of salary payments.
The loan charge combines all outstanding loans accrued over the course of up to twenty years and taxes them as income in one year.
Those affected will have to pay by the end of January 2020.
A UK-based Employer
UK-based employers were required to declare outstanding loan amounts by 15 April 2019, at the latest, via their RTI returns. This includes all associated income tax, National Insurance and student loan repayment amounts paid to HMRC by 22 April.
Then, assuming the employer operated the scheme in the first place, the employee must have
made good (reimburse) the tax and National Insurance to their employer by 5 July 2019.
Failure to have made goodwill give rise to a taxable benefit in kind, reportable as part of the 2018/19 P11D return process.
It is immediately obvious that most of those affected would rather incur a P11d benefit charge than repay the amount in full to their employers.
There are two instances where great care is needed:
Where not all of the tax has been made good to the employer.
The way that the legislation is written (ITEPA 2003 s.222) affirms an
all or nothing scenario. This means that an employee who pays back some – but not all – of their liability will face a P11d tax liability on the full amount paid by the employer.
Where the employer cannot afford to pay.
Under Reg 81(4) of the PAYE regulations, the tax liability could get transferred to the employee where the employer is unable to pay.
While an employee ends up paying all the tax themselves, they still incur an ITEPA 2003 s222 charge.
HMRC had said, provided they were advised by 4 July 2019 that an employee wished to pay the loan charge tax to them rather than to their employer, they would not seek to apply the ITEPA 2003 s222 charge.
Furthermore, the department promised to refund anything the employer had previously overpaid.
Employer is Offshore
In the event of an employer either being situated abroad or no longer in existence, beneficiaries of the loan scheme must report any outstanding loans to HMRC by 30 September 2019.
To help, HMRC has established an online process. This is supported by a paper form – for those who are less tech-savvy.
Failure to report the details for all outstanding loans by 30 September 2019 may render a person liable to penalties. However, it is anticipated that they will only be charged in the most serious of cases.
Individuals must also report their outstanding loans as part of the 2018/19 self-assessment tax return filing process. The amount of the outstanding loans should be disclosed in box 21 found under the
Disguised remuneration section of form SA101
Self-assessment: additional information.
Don’t forget that where an affected person has not previously been required to file a self-assessment tax return, the normal section 7, Taxes Management Act 1970 requirement applies. This notifies chargeability by the 5 October following the end of the tax year concerned.
Remember the loan charge is a one-off. Therefore, a claim to reduce future payments on account may be necessary.
The basic process for dealing with trade-based schemes is similar to the employee scenario.
Where individuals are still trading, they should include outstanding loan amounts from trade-based schemes in box 75.1 under
disguised remuneration additions to profits of the self-employed supplementary pages (SA103 (full)) of their self-assessment tax return.
Those whose trading activity ceased prior to 2018/19 should complete boxes 22 to 24 of form SA101 as appropriate.
Those in trade-based schemes will need to elect whether any APNs (accelerated payment notices) are to be set against the loan charge liability. At the time of writing, further HMRC guidance on the offsetting of APNs is expected.
Difficulty in Paying
Anyone who believes they will have difficulty paying the resultant tax must, nonetheless, complete and submit a tax return. Otherwise, they will be liable for failure to notify or late filing penalties – on top of the loan charge.
Once the self-assessment tax return has been filed and HMRC is aware of the extent of any loan charge debt, the department should be contacted to agree on a manageable payment plan. What they agree will depend on an individual’s circumstances, and there is no upper time limit on how long payments can potentially be spread.
If things are left until after the 31 January 2020 deadline, individuals may have to talk with HMRC’s debt management team directly regarding the next steps.
About the author: Brian Palmer is a tax policy adviser and a UK-leading authority on Making Tax Digital. He advises, blogs, and lectures extensively on this and other important areas of taxation.
It’s That Time of Year Again!
At this time of every year, HM Revenue and Customs embark on a massive computerised reconciliation process. This is to check that those with PAYE records, but not in self-assessment, have paid the right amount of tax in the preceding tax year.
Where the department determines a taxpayer has not paid the correct amount, HMRC will issue a tax calculation. This can be a P800 or a simple assessment letter.
Reasons for a P800
GOV.UK informs taxpayers of the following:
You might get a P800 if you:
- finished one job, started a new one and were paid by both in the same month;
- started receiving a pension at work;
- received Employment and Support Allowance or Jobseeker’s Allowance.
It also states:
You will not get a P800 if you’re registered for self-assessment. Your bill will be adjusted automatically if you’ve underpaid or overpaid tax.
While this might be true for the vast majority, occasionally HMRC’s system fails to match a taxpayer’s PAYE with their self-assessment record. In this case, it will issue a P800 / simple assessment.
Reasons for a Simple Assessment letter
GOV.UK informs taxpayers:
You might get a Simple Assessment letter if you:
- owe tax that cannot be automatically taken out of your income;
- owe HMRC more than £3,000;
- have to pay tax on the State Pension.
Checking the Tax Calculation
The P800 or simple assessment letter will show the taxable income received and tax paid in a tax year.
This includes the following:
- taxable income from employment (including employee benefits);
- pensions (state and private);
- state benefits and savings interest.
Although it is not made clear, HMRC makes use of estimated figures for bank interest or nominal amounts of rental income. For this reason, as well as best practice, the departments’ figures should be checked against third-party documentation – including P60s, P11ds, P45s, bank statements, or correspondence from the Department for Work.
HMRC will combine, in the calculation, any income of a similar type into a single line.
Where this happens, you may have to contact HMRC to obtain a breakdown or ask your client to check them in their personal tax account.
What if a Calculation is Wrong?
Thankfully, PAYE usually collects the right amount of tax in cases in which you have stable employment that lasts a complete tax year. However, this might not be possible for taxpayers with more complicated affairs.
This might be the case, for example, where taxpayers:
- have more than one job, pension, or are in receipt of a taxable state benefit or another form of untaxed income;
- change jobs or retire;
- draw income flexibly from a pension;
- are widowed or lose a civil partner;
- get extra benefits or expenses payments from their employer on top of their cash wages;
- need to claim extra allowances or expenses against taxable income;
- leave the UK or arrive in the UK from overseas.
HMRC will usually try to collect any tax due through a PAYE coding adjustment.
If the tax amount owed is less than £3,000, HMRC will attempt to recover the tax due from future income paid via PAYE, rather than as a lump sum.
Where a taxpayer’s income exceeds £30,000, HMRC may seek to collect more than £3,000 via a coding adjustment.
The department must consider whether a taxpayer has sufficient taxable income to enable the extra deduction. Furthermore, the department must be mindful that total PAYE deductions must not exceed 50% of a taxpayer’s wage.
While an underpayment is usually recovered in a single tax year, collection can be spread over more than one tax year. Normally, this happens where a P800 is issued late in a tax year. In such instances, details of how the amount is to be collected should be shown on the form.
If HMRC cannot collect the tax through a PAYE code – for example, because a taxpayer has left the UK or is not working – they will contact the taxpayer to arrange payment another way. Failure to respond, or to reach an agreed method of repayment, is likely to result in HMRC issuing a simple assessment. This
letter will contain similar information found on the form P800. It also creates a legal obligation to pay the tax. This means that enforcement action can be used to collect the tax.
What Happens if You Don’t Agree?
If you don’t agree with the simple assessment, it is vital that it is queried within sixty days of receipt, setting out the reasons. This can be done by phone or in writing to HMRC.
At this stage, it is possible to ask for some or all of the tax reported as due to be postponed.
HMRC must respond to the query. If you do not agree with the response, you can appeal. Be careful, however, that there is only a thirty-day window in which to make such a response.
Again, the query can be made by phone, or in writing. You will need to state why you think the assessment is incorrect and provide what you consider to be the correct figures.
While the tax due is in dispute, HMRC might agree not to collect any or all of the tax shown as due.
When to Pay
Normally, the assessed tax is payable by the 31 January following the end of the relevant tax year. However, if it is issued after 31 October following the year of assessment, the due date is three months after the date of issue of the simple assessment.
Payment must either be made online or by cheque.
Low Income Tax Reform Group (LITRG)
Firstly, it is an informal calculation, not a tax demand.
A P800 calculation is an informal calculation, not a demand for tax.
If a taxpayer ignores a P800 which reports tax due, at some point HMRC, are likely to issue a formal assessment or even a tax return.
Secondly, do you have underpaid tax?
The 2018/19 tax year was a week
53 tax year. Thus, many of the calculations issued showing 2018/19 underpayments will be correct.
There are still a few things to bear in mind if you receive a P800 that shows you have underpaid tax:
- If it is for an earlier tax year, HMRC may be too late to collect it.
- Apart from in cases of taxpayer neglect or fraud, HMRC is not permitted to assess tax that was due more than four tax years previously.
- Therefore, the earliest tax year that HMRC can view is 2015/16 (which ended on 5 April 2016 and can be assessed until 5 April 2020).
- In most cases, the P800 will be for a more recent tax year. However, if you believe that HMRC has had the information they needed to calculate your tax correctly, but have simply not used it until now, you should ask them to consider writing off the underpaid tax. This falls under the terms of the
extra-statutory concession A19.
- If you consider the underpaid tax to be an employer or pension provider’s fault – for not operating correctly the code given to them by HMRC or for making some other mistake – then, in strict law, HMRC must first call upon your employer or pension provider to make good the shortfall.
- The calculation produced by HMRC is not necessarily the full picture of a taxpayer’s situation. They may not have matched all relevant records – for example, they may have missed out a source of income upon which tax was paid.
- HMRC might also have used estimated figures in the calculation. This will not be immediately obvious, so you need to check all the figures carefully.
Finally, LITRG can help.
The Low Income Tax Reform Group (LITRG) has a P800 factsheet. It contains information on what to do if you think a P800 is wrong or if you think a taxpayer might have difficulty paying any tax that is shown as being due.
For guidance on how to pay your P800 bill, including via your tax code or by making a
voluntary payment, please see our news piece, How to pay the tax bill shown on your form P800.
About the author: Brian Palmer is a tax policy adviser and a UK-leading authority on Making Tax Digital. He advises, blogs, and lectures extensively on this and other important areas of taxation.
It’s good for businesses to know that HMRC expects them to record digitally for every individual invoice, no matter how minor and inconsequential it might be. This stands irrespective of the fact that a business’s clients might make a single monthly payment against a statement. Often, when I’ve broken this news to the audience in one of my many lectures, it goes down like a lead balloon – and at least one Licensed Accountant will utter:
This is ridiculous! It’s going to take much more of my time to digitally record each and every invoice. How am I going to make a living? My clients won’t pay my extra time costs.
Custom and Practice
Historically, accountants and bookkeepers whose clients account for VAT according to VAT cash accounting scheme rules have simply recorded a summary, a one-line entry. This would reflect a single payment made to a supplier, based on the amount recorded as outstanding on a statement covering a myriad of different invoices.
This practice was fair game. It was accepted by HMRC and the profession alike, provided that the source VAT invoices were matched to the statement amount, that they were retained and could be produced if HMRC required.
Commonsense Wins Out
There’s always the customary rash of
we’re all doomed articles, appearing in the accountancy press at this point in the implementation cycle of any major change in our interactions with HMRC. But, now, I’m delighted to be the bearer of tidings of good news.
On the 5 May 2019, HMRC updated parts of its go-to online guide for MTDfV,
VAT Notice 700/22: Making Tax Digital for VAT. Despite what some might say, I think it’s great. As it’s online, it is a living document. By this, I mean that, unlike its hard-copy antecedents, it is capable of being regularly updated at a minimal cost.
Importantly, on this occasion, tracts of section 4, which cover
Digital record-keeping, have been updated.
A newly introduced paragraph 220.127.116.11 starts with an acknowledgement:
Some businesses record the value of each supply from a supplier statement instead of individual invoices….
At this point, it lapses into something more churlish:
In HMRC’s view, it is best practice to record digitally the individual supplies, as this means less risk of invoices either being missed completely or being entered twice – once as an invoice, and once as part of the statement. There is also less risk of the wrong rate of VAT being applied.
The paragraph concludes,
On the other hand, HMRC accepts there may be additional work for a business in capturing individual supplies digitally, and this could lead to data entry errors. Therefore, HMRC can accept the recording of totals from a supplier statement where all the supplies on the statement relate to the same VAT period, and the total VAT charged at each rate is shown. If you choose to do this, you must also cross-reference all supplies on the supplier statement to invoices received, but this can be done outside of your digital records.
I struggle with the logic of that middle section – in particular, its begrudging tone, which serves to undermine the positive impact of HMRC’s acceptance. However, I applaud HMRC for allowing an earlier common-sense practice to continue into tomorrow’s digital future. The department has relaxed its former hardline attitude to the posting of purchase and expenses data by committing to allow those accounting for VAT under cash accounting rules to digitally record supplier statement totals. The alternative is the task of entering every underlying invoice in the majority of instances.
Things to Watch Out For
Would-be exponents of the relaxation will do well to take note of the second 18.104.22.168 paragraph, in which HMRC sets the ground rules for recording transactions via supplier statements.
They are, as follows:
- All recorded transactions (invoices) must be from the same VAT period.
- If more than one VAT rate is applicable, summary totals should be prepared for each rate.
- All statemented items must be supported by the original VAT invoice.
The Force of Law
The third and final paragraph under 22.214.171.124 gives readers all the confidence they need to make use of HMRC’s change of heart:
The following rule has the force of law:where a supplier issues a statement for a period you may record the totals from the supplier statement (rather than the individual invoices) provided all supplies on the statement are to be included on the same return, and the total VAT charged at each rate is shown.
Returning from an Interstellar Journey
For those of you who’ve just returned from an interstellar trip – or are just visiting from Mars:
Making Tax Digital (MTD) is part of HMRC’s ambition to become one of the most digitally advanced tax administrations in the world. It is the UK tax department making fundamental changes to the way the tax system works, with the objective of making it:
- more effective;
- more efficient;
- easier for taxpayers to get their tax right.
Into the Future
This might not have been so obvious back in 2015 when MTD was first launched. However, in the intervening years, a growing number of the Great British Public seem to want to interact with the Revenue in the same way as they do with their bank. This means using:
- an app, firstly;
- the internet, secondly;
- the phone, thirdly; and
- never by snail-mail (conventionally known as,
MTDfV, which has already been with us for three months, is HMRC’s first tentative step toward delivering on its digital ambition.
What You Need to Do to Comply
MTDfV was introduced, firstly, for all UK businesses making annual VAT taxable supplies of more than £85,000 – for VAT periods beginning on or after 1 April 2019.
You will need to keep your business records digitally, from the start of your VAT accounting period starting after the 31 March 2019. If you already use software to keep your business records, check your software provider’s plans to introduce MTD-compatible software.
About the author: Brian Palmer is a tax policy adviser and a UK-leading authority on Making Tax Digital. He advises, blogs, and lectures extensively on this and other important areas of taxation.