End of bulk appeals for tax fines in May
If you are unlucky enough to be fined for a late filing, then the way in which any appeal can be made changed as of May 7.
Prior to this, HMRC had temporarily reintroduced the ability to bulk appeal late filing penalties for income tax in 2020 and 2021. But from now onwards, all such appeals need to be made individually.
To be fair, if you keep in close contact with your accountant and give sufficient time for all of the paperwork to be done, then you should not be in a position where you are facing a late filing penalty. But if you have either filed paperwork late yourself or had a late filing penalty for some other reason, then each appeal now must be made individually.
Even though you use an accountant to deal with your tax liabilities, you are still ultimately legally responsible for the correct and timely filing of your returns. There are several different penalties that could apply too.
Types of penalties
For example, there is an ‘inaccuracy penalty’ which can be applied across specific taxes, including income tax, PAYE, capital gains tax, inheritance tax and corporation tax. This penalty could be anything from 0% to 30% of the extra tax due if the error occurred due to a ‘lack of reasonable care’.
If the error is considered deliberate, this rises to between 20% and 70% of the extra tax due, and if it is both deliberate and concealed, it could rise to between 30% and 100% of the extra tax due.
You could also face a penalty for a failure to notify HMRC of a change in your liability to tax. This could be, for example, if your company makes a profit and becomes liable to corporation tax. Or it could be because your business has reached the turnover for the VAT threshold (£85,000) and you have not registered for VAT.
Other penalties could include ‘Offshore penalties’ and ‘VAT and Excise wrongdoing penalties’ – so it is important if any of these could potentially apply to you, that you speak to your accountant immediately. You can find more information on the types of penalties that could apply on the GOV.UK website.
We can help you meet your obligations
If you think there is a chance that you could fall foul of any of these rules and face a penalty, or that there is any other issue you need advice on to make sure you comply with all your HMRC requirements, please contact us as soon as possible. We will help you navigate any problems that arise.
Currency exchange – why it can pay to not rely on your bank
International trading is something many businesses are involved in, whether it’s because you are selling your good or services abroad or buying raw materials in from overseas to help with manufacturing.
Either way, exposing yourself and your business to currency risk is a reality for many businesses, and how you reduce that risk as much as possible is something to think seriously about. For most businesses, the default option is to simply transfer money from your business bank account to the account of the company you are working with abroad. It’s easy, yes, but you could be paying more than you need to and cutting your profit margins as a result.
How much do you transfer abroad each year?
The best way for you to make your international money transfers depends very much on how much, and how often, you transfer overseas. If you make a one-off payment each year, then you will most likely need to take a different approach to a company making regular payments abroad every month.
So, the first thing to do is look at how and when your company is transferring money overseas. By checking through your bank statements, assuming you are using your business bank to make the transfers currently as many businesses do, you should also be able to get a sense of what the exchange rates you have been getting are, and how much you are paying in fees per transaction.
How much does it cost to send money internationally?
The problem you have is that when it comes to sending money internationally, pinning down the costs involved is not easy. This is because different companies will charge different amounts and will give you different exchange rates depending not just on how much you are transferring at a time, but also, they will each take a ‘margin’ on the exchange rate. This is a way of increasing the amount of money they can make on the international transfer.
For example, let’s say you want to transfer £100,000 to a company in Germany. Your transfer will go from sterling to euros and your bank may charge you, say, £25 to make that payment if you use telephone banking to make the transfer. It could be lower, say, £15 if you make the transaction online.
The company receiving the money may also be charged by their bank, which could add another, say, £6 to the cost of the transaction. So, without taking any currency exchange values into account, you and your receiving party could already be paying up to £31 just to move money overseas.
Exchange rates and other products
Then, you need to take into account the exchange rates you are going to pay. These can vary considerably from company to company. Banks will typically offer worse rates than international money transfer specialists, who do nothing other than currency transfers day in, day out.
Let’s say you are moving money from sterling to euros. If you want to send £100,000 then the Barclays rate at the time of writing was €1.1234. This would give you €112,340 in euros. Remember, you would need to pay the additional fees on top of this.
Compare that with a money transfer specialist such as OFX, and you would receive €1.1778 for the same transaction at the time of writing. This would give you €117,780 – an extra €5,440. Plus, you would not need to pay the extra fees charged by most banks.
The foreign exchange specialists also have a variety of products that will help you save more money, especially if you make regular payments overseas. There is something called a ‘forward contract’ that allows you to fix the exchange rate you will get for a period of time, taking the guesswork out of exchange rates and can help businesses set their budgets more effectively.
There are other products that can help you mitigate risks and boost the chances of getting a better exchange rate for the transfers your business needs to make. Remember, these products are also available to individuals if you need to make regular transfers to deal with bills associated with an overseas property, for example.
Let us help you
If you want to learn more about how you can reduce the risk you take when making currency transfers, then please contact us for more details.
Where is the best place to hold your tax money?
Putting aside the tax money due each time you have an invoice paid is sensible planning, but is that money working as hard for you as it could be?
Many current accounts are paying no interest whatsoever, and when it comes to savings accounts, you would still be struggling to get anything meaty when it comes to interest payments. Businesses, in particular, will often leave this money sitting in an account that is paying nothing or next to nothing on the money building up.
However, when these amounts run into tens of thousands of pounds – if not hundreds of thousands of pounds depending on your personal or business status – not having this money work for you is a big opportunity to miss.
So, if you are currently using a separate current account paying no interest, or worse leaving the money in your existing business account without separating it out, then it would be sensible to look at what you can do to boost your returns.
Business easy access accounts
Let’s say you have around £250,000 sitting in your tax account waiting to be paid to the taxman. If you were to put it into an easy access account for businesses, you could currently get 1% interest on this, according to financial statisticians Moneyfacts at the time of writing. Over the year, that would give you £2,500 extra to play with for no effort on your part.
Business notice accounts
However, if you are prepared to give some notice before you make a withdrawal – which would mean not being able to access it whenever you wanted – you would be able to get more in interest. For example, by agreeing to give 95 days’ notice, you could get 1.3% at the time of writing. So, you would increase the amount you could earn from that same £250,000 to £3,250.
Remember, this is money you do nothing to get other than spend a bit of time on paperwork to open the account. For the time that takes, it is a return worth having.
There are even companies that provide services for businesses to help them boost the returns on their business income by finding the best accounts for their funds. In short, a specialist will manage these accounts for you, to maximise the returns you can make.
One firm that offers this type of service highlighted that if a company failed to move £903,000 in cash accounts to the best-paying accounts over five years, this could result in a loss of income of as much as £41,538 over that period. This would be enough to hire an additional part-time member of staff for most businesses.
These companies should never hold your money in their own accounts, they should simply be working under your direction to move funds to the best-paying bank accounts and you pay a fee for this service. This ensures you are still covered by the Financial Services Compensation Scheme (FSCS).
We can help you
As your accountant, we are likely to have services that will help you to increase the returns you can make on the money you hold in your business accounts. So, please contact us for details on how we can help you make your money work harder for your business.
Deal with your tax return early and help with your cashflow
There is a tendency for many of us to leave our tax returns until the last minute. It’s human nature to want to delay dealing with something we find uncomfortable.
However, if you get your tax return for the 2021/22 tax year completed sooner rather than later, you will have some benefits that could help you through the cost-of-living crisis.
A primary benefit to dealing with your tax return early is knowing it is out of the way. For some this may be less of an issue, but as accountants get busier as the tax payment deadlines approach, it can be difficult to give a return as much attention as we could at other times.
By getting your tax return calculations done early, not only are you helping your accountant to spread his or her workload in a more manageable way, more importantly for you, you will know exactly what your bill is going to be early in the year. This may make it possible to free up some of the money you had set aside to pay the bill if it is lower than you had expected.
For businesses, this could mean having extra cash to invest in expanding the business, paying off debt, or hiring an extra full or part-time employee to move the business forwards. For individuals, this money could help offset the current cost-of-living crisis we are in by giving you extra cash to cover rising energy or food bills.
Paying tax early
Remember, just because you have had the tax return completed, it does not mean you have to file it with HMRC straightaway. If you want your accountant to hold off on this part and file it later in the year – especially if you think there may be any changes necessary to the tax return down the line – then that is not a problem.
If you prefer to pay early and get it out of the way, then that is also fine. The big benefit to you is that you have the option. It may be that you do not have enough money put aside for your tax bill when you find out what it is. So, the extra time you have built in before the tax needs to be paid means you have time to get those funds together. It could be the difference between setting aside an extra amount each month to pay the bill while storing money for the next tax year or having to saddle your company with a loan that will cost in interest payments too.
It will also ensure your accountant can maximise any tax reliefs you or your business can benefit from. This could include pension payments or offsetting costs against tax that may otherwise be difficult to include if the information is not given to him or her in a timely manner, in the last-minute rush to get the data to the accountant.
It may also mean, depending on how your accountant works, that you could benefit from having more time to pay your accountant’s bill too. Spreading this cost will also help with cashflow.
Take your time
Overall, it will mean that tax is a much more leisurely affair than it often is and that is never a bad feeling. Stress is not good for any of us and building in time to deal with something that is – for many – inherently stressful anyway is a good plan.
If you want us to start working on your tax return now or have a question about ways in which we can make your tax less taxing, please get in touch.
Payments on account due July 31
Some taxpayers must pay a tax more than once a year, and if this is you then you are facing a second tax bill before July 31.
Those exempt from making a payment on account in July include those who had a self-assessment tax bill of less than £1,000 for the previous tax year, or if you have paid more than 80% of your tax bill through your tax code or your bank has deducted interest from your savings.
It is easy to forget the July 31 deadline
While most of us think of the January 31 payment deadline as the main one, it is easy to forget that there is another payment due on July 31 – and now is the time to consider how much you need to have set aside to cover it.
How the payment on account works
Your bill for the 2020 to 2021 tax year is £3,000. You made two payments on account last year of £900 each (£1,800 in total).
The total tax to pay by midnight on January 31, 2022 is £2,700. This includes:
- your ‘balancing payment’ of £1,200 for the 2020 to 2021 tax year (£3,000 minus £1,800)
- the first payment on account of £1,500 (half your 2020 to 2021 tax bill) towards your 2021 to 2022 tax bill
You then make a second payment on account of £1,500 on July 31, 2022.
If your tax bill for the 2021 to 2022 tax year is more than £3,000 (the total of your two payments on account), you’ll need to make a ‘balancing payment’ by January 31, 2023.
We can help you meet your obligations
If you have to make a payment on account, then please get in touch with us soon so we can let you know how much it is going to be to help you ensure you have enough money set aside to make the payment.
MTD D-Day has arrived – here’s how to make sure you comply
Anyone filing VAT returns from April 1, 2022 onwards now has to file their return digitally as HMRC’s Making Tax Digital reaches its next phase.
All businesses registered for VAT – even if they have turnover below the threshold – must file their returns this way from now on. The premise for changing to the MTD regime is to reduce the number of common mistakes made, according to HMRC, and will save taxpayers time when it comes to managing their tax affairs.
However, it is also a key plank of digitising the UK’s tax regime, and MTD is likely to have increased revenue to HMRC thanks to reduced errors in both 2019 and 2020, said HMRC.
Sign up now if you haven’t yet
Nearly 1.6m taxpayers had already joined MTD for VAT as of December 2021, and more than 11m returns have already been submitted this way. Around a third of those businesses with a turnover below the £85,000 VAT threshold signed up before April 1, 2022 and “thousands more are signing up each week”, said HMRC.
Lucy Frazer, Financial Secretary to the Treasury, said: “Businesses using MTD are saving time on their tax affairs, streamlining their processes, and boosting their productivity as a result.
“[This is] our first move towards a modern, digital tax service – MTD makes it easier for businesses to get their tax right first time. There is a range of support and information available for those that need it – including accessible online content such as YouTube videos, GOV.UK help pages and HMRC’s Extra Support service.
“Agents can sign up on behalf of a business, although businesses remain responsible for meeting their VAT obligations. Those who do not join may be charged a penalty for failure to do so.”
Businesses must sign up before they send their next VAT return
Any businesses that have not yet signed up need to before they file their first VAT return after April 1, 2022. There are a number of software options that can be used, including free options for the easiest of calculations, or more advanced for more complex affairs, said HMRC.
There are some exemptions
Some VAT-registered businesses can receive exemptions, primarily where it is not reasonable or practical for them to use digital tools for their tax. These include reasons based on age or disability, or a religious objection to using computers. But any other reasonable basis for exemption will be considered by HMRC. You can find more information on whether an exemption may apply on Gov.UK.
While you are waiting for a final decision, continue to file your returns as you usually do.
MTD for income tax 2024
MTD is being extended to 4.2m income taxpayers who are landlords, sole traders and partnerships from 2024. Anyone with business and/or property income over £10,000 will be brought into the regime then. So, it is worth starting to plan ahead with your accountant to make sure this transition is as smooth as possible.
Please get in touch with us to find out how we can help you if you are yet to sign up for MTD. We can help you comply with the new rules.
Get a business health check at the start of the tax year
Using up personal allowances is not the only reason you should see your accountant at the start of the tax year, it is also the best time to get a health and wealth check for your business too.
The end of the tax year is the busiest time for your business and your accountant, meaning devoting time and effort to checking whether your business is on track is sadly lacking.
Take the time while you have the time
However, the complete opposite is the case at the start of the tax year, so now is the time to make the most of the chance to review your business strategy, cashflow and plans for the coming year to ensure your company has the best chance of success.
What can your accountant help you with?
Your accountant is perfectly placed to help you put an effective plan in place to give your business the boost it needs at the start of the tax year. He or she can help you with everything from saving tax and paying the right amount of tax, right the way through to helping you comply with relevant regulations and improving your cashflow.
A good accountant can also help you access relevant funding – whether that is a grant that your business would qualify for or an investor that would help your business to grow.
Setting out an effective business plan at the beginning of your financial year is like creating a road map for the coming months, allowing you to follow that map to achieve your goals.
We can help your business run smoothly
When things get tough, your accountant is there to help you with everything from advice to reality checks so your business can continue to run smoothly.
If you want help to set your business on the right path for this tax year, then please get in touch and find out how we can help you.
Use up your tax allowances early in the tax year
If you are one of those people who is always racing to use up your tax allowances, such as Individual Savings Accounts (ISAs) at the last minute before the end of April 5, then you are not alone. But you could be making a big mistake.
When it comes to mopping up tax allowances, it is best to use your allowances at the beginning of each tax year than the end. If you have not managed to use all or any of your allowance coming up to April 5, well, it is better late than never. But if you can take advantage of using your ISA allowance, for example, at the start of the tax year, then you will benefit from an additional year of investment growth.
Benefit from an extra year of growth
It may not seem like it matters that much, but that extra period of growth – assuming markets rise over the year – will add up over time. Even if the markets dip, the adage ‘it’s about time in the markets, not timing the markets’ still holds because trying to time the market is usually not a good idea.
In addition, you get a full year of growth that is free of capital gains tax and free of income tax. By holding your assets outside of an ISA for the year, you could face a tax charge on any dividend payments from equities.
Early use gives other benefits
Starting to use your allowance at the start of the tax year also gives you other benefits. You can choose whether you put the entire £20,000 allowance into your ISA in one go, or whether you ‘drip feed’ money into the market over the full 12 months.
The latter can be an effective method to help smooth out ups and downs in the stock market, known in the trade as ‘pound-cost averaging’. Let’s take an example of you putting money into a unit trust. If you are buying units every month with the same amount of money, you will be buying more or fewer depending on the value of the units you are buying that month.
Market performance is affected by a range of factors
These values will go up and down depending on a number of factors that impact the stock markets – everything from political will to social and economic changes.
The same principle applies to your pension allowance – most people can put up to £40,000 a year into a pension and get tax relief – if you can put money aside to go into your pension each month, you are benefiting from the same investment smoothing process outlined above.
The other drawback of waiting until the end of the tax year to use your allowances, is that you are forced to put a lump sum into markets at what could be a terrible time. So, giving yourself a head start means you can benefit from the highs and the lows over the year.
Let us help you
If you want to find out more about how you can benefit from your ISA and pension allowances by taking action early, get in touch with us now and see how we can help you.
Basis Period Reform – what it is and how it could affect you
Unincorporated businesses – including sole traders, trusts and those businesses working as partnerships, and anyone else that pays tax on trading income – face a major change that will affect the way and the time they are taxed on their profits.
The so-called Basis Period Reform will ultimately take effect from the 2024/25 tax year, but sole traders and other organisations need to start thinking about how this change could impact them sooner rather than later.
The 2023/24 tax year is going to be a transitional period, and the new rules will change the time that underlying profits or losses become subject to tax and bring forward when tax due on profits needs to be paid.
The aim of the rule change, which was set out initially in the Finance Bill 2022, is to remove complexity relating to basis periods and overlap profit, and make sure tax payments are made closer to when profits are generated.
Implementation has been delayed by a year
Originally, the changes were due to be made a year earlier, but after a consultation period the Government delayed the proposals to allow taxpayers to prepare for the transition to the new basis period.
New end-of-year account period
The change will move the taxation periods for all sole traders, partnerships and trusts from dealing with tax on an accounting-date basis ending in a tax year, to taxing profits on these businesses that arise in a tax year.
For the 2023/24 tax year, there will be additional tax liabilities on the additional profit to be taken into account. Any taxpayer or organisation in this position should plan ahead for these additional bills that will be coming sooner than might have been expected.
Difficult for international partnerships
There are some difficulties that remain, particularly for large international partnerships that cannot change their accounting date to match the tax year, according to the ICAEW, which is engaging with HMRC to explore the possibility of additional changes being introduced to mitigate these problems.
If your business has an accounting year date ending outside of March 31 to April 5, then you need to pay attention. You will have two elements to be considered for taxable profits:
- The standard part which covers the full 12 months of trading in the transitional year based on your existing basis period.
- Plus, the transitional part of the profits which go directly from the end of the basis period end up until April 5, 2024.
A business has a 12-month accounting period ending 30 April 2023. In the 2023/24 transitional year it will recognise:
The profits arising in the 12-month period ended 30 April 2023 (the standard part).
The profits arising in the period from 1 May 2023 to 5 April 2024 (the transitional part).
If any business has overlap profits, these must be offset against the profits of the 2023/24 tax year, according to the ICAEW.
There are many other aspects to consider with this transition, including how to deal with losses in the 2023/24 tax year, and whether it will be possible to spread these transition profits across five tax years to help with cashflow, although this could impact on any credit claimed for overseas taxes.
We can help you
This is a very complex area and if you are affected by this, you should contact us so we can help you navigate this change in good time, and with the least amount of difficulty.
End of year tax planning – what you need to consider
The new tax year on April 6 is accelerating quickly towards us, and now is the time to make sure that any last-minute allowances you may not have made the most of in the 2021/22 tax year are mopped up.
There are plenty of allowances that have a time limit on each tax year, and if you can use these last few days to maximise the benefits, then it would be a good deed done.
Individual Savings Account (ISA) Allowance
Each year, we can put up to £20,000 into an ISA, and if you have not put the full amount into your ISA for this year, then consider adding any additional funds to it before April 5.
Putting your savings and investments into an ISA wrapper allows the funds to grow free of tax, and when you take those funds out at the other end, you don’t pay any tax on them then either. You can spread this across a number of different types of ISAs – for example a cash ISA, Stocks and Shares ISA, Innovative Finance ISA, which is peer-to-peer lending, or a Lifetime ISA (although you can only invest £4,000 in this type as a maximum, which would leave you £16,000 of your allowance to invest elsewhere).
If you fail to use your full ISA allowance within the tax year, then you will lose it once we hit April 6, so make sure you maximise this tax benefit.
Avoiding a 60% effective tax rate for higher earners
Once you reach £100,000 of earnings, you begin to lose your personal allowance at a rate of £1 for every £2 of earnings above this threshold. This means that by the time you reach £125,140 you no longer have a personal allowance. Between £100,000 and £125,140, your effective tax rate is 60%.
However, you can reduce the impact of this by making payments into your pension, or by donating money and benefiting from Gift Aid on the payments. Pension contributions and Gift Aid payments are made from gross income, which means you reduce the amount of taxable income you have. You cannot put more than £40,000 into your pension each year and receive tax relief, and you cannot reclaim more in tax in a single year than you would have paid.
This annual allowance as it is known will also reduce by £1 for every £2 earned above £240,000 and will stop reducing at £312,000 – leaving everyone with a minimum annual allowance of £4,000.
If you have any unused allowance from any of the three previous tax years, then you can carry this forward for one year to help you reduce your tax liabilities and maximise your pension contributions.
There are a few caveats to this, including:
- You must have been in a registered pension scheme for each of these previous three years.
- You must have already used all your allowance for the current tax year.
- The carried forward annual allowance from the first year must be used first.
- The amount you can carry forward may be subject to the tapered allowance if your earnings were high enough for this to apply in any of the previous three years.
Taking more than your tax-free lump sum out of a money-purchase pension scheme will also mean your annual allowance is reduced to £4,000.
However, if you have any annual allowance available from the three previous tax years and have used your full allowance for the current tax year, then this is another way you can reduce your taxable income and put extra into your pension pot. But make sure you remain within the Lifetime Allowance, which is currently set at £1,073,100.
If you take dividends from your company, then you can take up to £2,000 each year at 0% tax, but if you miss this within a tax year, it is not possible to roll this over to the next year. Any dividend income after this between £12,570 and £50,270 is subject to 7.5% tax up to April 5 and 8.25% from April 6 – due to the addition of the equivalent of the 1.25% Health and Social Care Levy – so if you can bring any dividend payments into the current tax year, you may be able to avoid the additional tax.
The Corporation Tax rate is set to increase from 1 April 2023, and while this is a year away, it makes sense to plan ahead to make sure you make the most of the lower rate of 19% for the coming year.
Companies with profits between £50,000 and £250,000 will continue to pay corporation tax at 19% even after 1 April 2023, but companies with profits above this will face a tapered rate up to 25%.
For this reason, it would be wise to plan ahead for the next trading year to consider how you may be able to effectively mitigate this tax. But it is not something you should do without expert advice.
If you are interested in benefiting from either personal or business tax advice, then please contact us and we will be happy to help you make the most of your tax breaks.
Spring Statement round-up
The Chancellor’s Spring Statement on March 23 was limited on giveaways, but there were some measures designed to help people struggling with the highest rates of inflation in 30 years.
The Office for Budget Responsibility (OBR) has forecast that inflation will average 7.4% this year, and there are many people who are already struggling with everything from filling their cars with fuel to keeping the heating on.
Fuel Duty cut but NI increase
One cut came in the form of a 5p a litre reduction in the price of fuel thanks to a fall in fuel duty to help offset the spiralling cost of oil.
Yet despite many experts imploring the Chancellor to postpone the 1.25% hike in National Insurance for 2022/23 – the Health and Social Care Levy – Rishi Sunak refused to do this. The one change he made was raising the NI threshold by £3,000 rather than the planned £300, to bring it in line with the £12,570 personal allowance. He described this as a “£6 billion personal tax cut for 30 million people”.
Employment Allowance increase for small businesses
The Employment Allowance will increase to £5,000 for small business, which is a tax cut of £1,000 for around 500,000 firms which starts in April.
Businesses can also expect to benefit from tax cuts on business investment during the Autumn Budget, and there will be an increase in business research and development tax credits to boost productivity.
Income tax cut in 2024
The basic rate of income tax will fall from 20% to 19% from April 2024, the first cut in this tax in 16 years according to the Chancellor. But he refrained from bringing this cut in for the coming tax year as there is too much uncertainty in the economy.
We can help you
Even if you or your business did not see anything in the Spring Statement to help you, there are likely to be ways you can benefit from existing tax efficiencies to maximise your money. Get in touch with us to find out how.
Reclaim Married Couple’s Allowance before 5 April
Married Couple’s Allowance can be transferred between spouses and civil partners, and while 2m couples have claimed this since it was introduced back in 2015, there are many more people who are entitled to claim it.
Go back four years
The allowance, which is worth up to £1,220 for each year, can be reclaimed back for every year to the 2017/18 tax year right the way through to the 2021/22 tax year. For those entitled to the maximum amount, this could create a windfall of £4,880.
Claim it now
However, these payments need to be claimed before 5 April 2022. Married couples and those in civil partnerships can transfer 10% of their personal allowance to their spouse or partner if one is a non-taxpayer and the other is a basic-rate taxpayer. This could apply if one partner loses hours or sees a significant reduction in their salary due to reduced hours – entirely possible during the Covid-19 pandemic – retirement or a change of job. It also applies if someone takes a career or study break.
The lowest earning spouse or partner would make the claim for this transfer of personal allowance, and even if your spouse or civil partner has died since 5 April 2017, then the remaining spouse or partner can still claim this allowance. This is done via the income tax helpline. If the claim is made via the online service, they will automatically roll on to the following years.
But if you make the claim via a self-assessment, this does not automatically roll on. If a couple no longer qualifies, then they need to cancel their claim.
We can help you reclaim what is due
If you think you are entitled to the Married Couple’s Allowance or any other benefit, such as the Blind Person’s Allowance, Tax Relief for Employment Expenses – which includes the £6 per week allowance for employees required to work from home in 2020/21 and 2021/22 – and could benefit from going back up to four years with your claim, then please contact us for more information.
Strong Customer Authentication (SCA) rules – what they mean for businesses and consumers
You may have already noticed when you are buying things online that you are now being asked to confirm your purchase in more than one way to improve security, and this is the result of the new Strong Customer Authentication (SCA) regulations which came into effect on 14 March 2022.
What are the SCA regulations?
The SCA regulations create an additional layer of security for card payments which involve a second method of identification. This could be a text message with a code that needs to be added to a purchase, a phone call to a landline, or via a card reader or smartphone app. The aim is to reduce the amount of fraud and make customer transactions safer.
The effect on businesses
There is, of course, an impact on customers directly. But all companies who sell directly to consumers via card purchases have had to make some changes to their technology too. Retailers should have already upgraded their payment gateways and payment services providers have been working towards helping achieve this.
From 14 March 2022, any transaction that is not SCA compliant will be declined, which would be costly to retailers. If you are still having problems with this for your business, then you urgently need some help.
Find out how we can help you
If you want to know more about SCA or have any problems implementing it, then please get in touch and we will do what we can to help you.
Bank of England (BoE) base rate rises to 0.75% – what it means for consumers and businesses
The Bank of England (BoE) base rate rose to 0.75% in March in response to Consumer Prices Index (CPI) inflation rising to 5.5% – almost triple the BoE’s target of 2%. Inflation is set to continue rising throughout the year (see Spring Statement round-up) with the Russian invasion of Ukraine creating increased pressure on already rising prices.
What does it mean for you?
Any rise in the base rate has an impact on borrowing rates for businesses and individuals, and on savings rates. Each is likely to rise – great news for savers, not such great news for borrowers.
How will borrowers be affected?
Any loan you have that does not have a fixed rate – such as some mortgages, personal loans or credit card debt, for example – could face a rise in interest rates if the company providing this chooses to pass this rate on. And many will.
However, if you have a fixed-rate mortgage, unsecured personal loan or other loan, for example, then you will not see these rates change until you reach the end of the offer term or until the loan is paid off.
How are savers affected?
If you have savings in a fixed-rate account, these will not rise either. But if your savings are in a non-fixed interest rate account, then you could see the interest you are paid on this rise.
If you see a better rate than you are being paid elsewhere, then it is worth considering moving your savings to the better-paying account. But bear in mind if you are in a fixed-rate account, you could face a penalty for doing this which could negate the benefit of moving. So, check with an expert before taking any action.
You also need to consider how much of your money is in each institution. The Financial Services Compensation Scheme (FSCS) covers your money on deposit with a single institution up to £85,000. But you need to be aware that various brands come under one institution – such as Halifax and TSB coming under the Lloyds Banking Group.
You would be covered up to £85,000 across all these accounts, not in each. It only becomes relevant if one of the banks goes bust, but we know from experience that however unlikely, this can happen. So, it is something to bear in mind.
Find out how we can help you
If you are unsure about whether your money is working as hard for you as it could, then please feel free to get in touch and we will help you in any way we can.
Stamp Duty Land Tax – why this will increase as house prices rise and what you can do to reduce it
Stamp Duty Land Tax (SDLT) receipts were somewhat skewed in the last year as the SDLT holiday for properties worth up to £500,000 was phased out on June 30, 2021, and the holiday for properties worth between £125,000 and £250,000 ended on September 30.
These two deadlines resulted in a flurry of activity as people tried to complete purchases under the wire and avoid having to pay SDLT on their purchases. The result, according to Government data, was that transactions in October to December last year were 10% lower than the previous quarter, and 13% lower than Q4 2020.
Total receipts up in Q4 2021
However, despite this, total receipts in Q4 2021 were 22% higher than Q3 2021, and 55% higher than Q4 2020. This change in receipts will have largely been impacted by the lower residential nil-rate band of £125,000 for Q4 last year compared to £250,000 for Q3 2021 and £500,000 for Q4 2020.
House prices continue to rise, and while the thresholds stay the same, the receipts are likely to increase if property sales continue at the same pace.
2% SDLT surcharge for non-residents
One additional consideration is the application of additional taxes on properties bought by people who are non-resident in the UK. These purchases have faced a 2% SDLT surcharge since April last year. To the end of Q4 last year, this had resulted in 8,500 transactions paying £86m.
Possible ways to reduce SDLT
There are a few things you can do to mitigate your SDLT, including buying a property in a lower price bracket or negotiating a different price with the seller that brings you below a threshold. But beware, HMRC would be likely to take a dim view of any price cuts that mean you are buying a property for what would not be considered the full market value.
If you bought a second home and paid the additional 3% SDLT as a result, then if you sell your main residence within three years of completing on the second property, you may be able to reclaim a refund of the 3% surcharge amount. This could be a substantial sum and is worth considering if you plan to sell your main home soon after buying a second home.
You can also negotiate a price for removable fixtures and fittings that the seller is prepared to leave behind, as you only pay SDLT on the property purchase itself. This could reduce the price to drop you into a lower tax band, but HMRC insists this is done on a “just and reasonable basis” so you would need to make sure you get legal advice on how to do this properly.
First-time buyers also currently do not pay SDLT on properties worth up to £300,000 so providing you buy a property below this level, you will not pay SDLT.
You can also build your own property if that is something that appeals to you. You would pay the SDLT purely on the cost of the land purchased, which is likely to be considerably lower than buying a property already on the land. Extreme, yes, but an option for the right person.
Find out how we can help you
If you have a query about SDLT and how you can deal with tax, then please give us a call and we can guide you through what you can and cannot do to mitigate this tax.
IHT receipts up by £700m – but why you should see this as a ‘voluntary’ tax
Inheritance tax (IHT) is one of the most hated taxes there is, mainly because for many people their estate faces a 40% tax rate which is higher than they would have paid during their lifetime.
HMRC’s latest figures reveal there has been a £700m increase in IHT receipts in the financial year to January 2022, with £5 billion going into Treasury coffers. Much of this additional revenue will have come from property price inflation, which has increased the value of many estates, especially as the £325,000 personal IHT allowance has stayed at the same level since 2009. Had it been left to rise with inflation, it would have been worth £428,000 in 2022/23 according to Quilter.
Transfer of allowances
Any remaining allowance can be transferred on the first death between spouses or civil partners, meaning a married couple where the first spouse or civil partner uses none of his or her NRB leaves a £650,000 allowance for the second spouse or civil partner.
The Residence Nil Rate Band (RNRB) of £175,000 is also available – and can also be transferred in the same way as above – but this has added complexity to IHT. In fact, for those who have no children, the RNRB cannot be used at all, which increases the complexity around advising on this.
However, with the average house price now at £288,000 – just £37,000 shy of the £325,000 threshold – many more people look likely to get drawn into this tax net without some prior planning.
You can mitigate this tax
Given the ways that IHT can be mitigated during our lifetimes, this can be considered a ‘voluntary tax’ and one that richer people have been planning to mitigate for years. Yet it is still considered solely a tax on the rich by many, even though those with relatively modest estates that include a property can be caught in this trap.
So, using every available way you can reduce your estate’s exposure to IHT before you pass makes sense, even if you feel you are someone of relatively modest means.
Ways to reduce your IHT liability
There are a number of ways you can lower your IHT bill, including making gifts during your lifetime to reduce your estate to below these thresholds so there is no IHT for your beneficiaries to pay.
You can make gifts to spouses or civil partners without any IHT, but you can also gift up to £3,000 a year to other people using your annual exemption. For a couple, this means they can gift up to £6,000 a year with no IHT impact.
You can also gift unlimited amounts above your normal expenditure, providing it does not alter your standard of living. If you want to make larger gifts, then providing you survive them by seven years, it will be considered a potentially exempt transfer and free of IHT.
If you die within this seven-year period, a tapered amount of IHT would be applied.
We can help you mitigate IHT
There are many more ways you can reduce your IHT liabilities, but IHT planning is a complex area, and you can easily fall foul of the rules without expert help. So, if you would like to find out more about how you can reduce your liabilities for your beneficiaries, then please do get in touch.
Bounce-back loans – where are we now?
The bounce back loans, CBILS and CLBILS for larger companies were some of the most generous schemes available to businesses suffering from the impact of lockdowns due to the Covid-19 pandemic, paying out a total of £80 billion to help keep businesses afloat.
The Bounce Back Loan Scheme was the largest of these, paying out £47.36 billion in total to around 1.6m recipients, with amounts up to £50,000 available to companies that would have faced real financial difficulty without them.
Fraudulent loan claims
Due to the speed that these loan schemes were implemented, and the fact that the Government backed them 100% – meaning taxpayers would pick up the tab for any loans that were not repaid – there was predicted to be a considerable amount of fraud. PwC initial suggested there would be around £4.9 billion of fraud associated with the Bounce Back Loan Scheme, which it subsequently reduced to £3.5 billion.
Lord Agnew, the former minister for counter-fraud described the oversight of the loan payments by the British Business Bank as “nothing short of woeful” when he spoke about his resignation from that role in the House of Lords. He highlighted what he described as “schoolboy errors” such as more than 1,000 companies receiving these loans despite not even trading when the pandemic hit.
What to watch out for if you need additional business loans
However, for the millions of companies these loans helped, there has been considerable benefit. They were applied for through business banks and you could get up to 25% of the self-certified annual turnover, or £50,000 – whichever was less. The biggest appeal for many though was the 2.5% interest rate – lower than many other business loans available – and the option to repay the loan over six years, although you can request that this is extended to 10 years, with the Government covering interest payments for the first 12 months.
One important thing for companies to remember is that the interest on these loans can be offset against tax, which is one benefit. But there are a few banana skins to avoid if you need additional lending within the period that you have the loan, according to the Association of Taxation Technicians (ATT).
It said: “Be particularly careful if your business needs any other source of funding during the life of the BBL taking any form of security, mortgage, charge pledge, lien or encumbrance over its assets whatsoever. You must check this is allowed under the loan terms, and often it is not.”
Be careful if your business becomes insolvent
It was possible to use the BBLS to pay dividends if the business has retained profits but was struggling with cash flow, but if your company was to become insolvent then you may be asked to repay these dividends as it is not possible to pay a dividend from an insolvent company. Any personal use of these loans could also result in the requirement to repay the money used, which potentially puts your personal assets at risk.
We can help you
If you are concerned that your BBLS may not have been used for the correct purpose, or that business risks could leave your company insolvent and you personally exposed due to the way the loan was used, then please contact us and we will explain the best course of action.
NI to increase by 1.25% from April to fund the Health and Care Levy – what you can do about it
The Government is set to increase National Insurance Contributions (NICs) by 1.25% from April to fund the Health and Social Care Levy, and while this may be a laudable aim, it is going to hit all of us in the pocket.
Costly increase when finances are being squeezed
The NICs hike means that someone earning £30,000 a year will pay an additional £255 into Government coffers – equivalent to 10% more than they are currently paying – while someone earning £50,000 will pay an extra £505. The lowest earners are set to be hit hardest because of the point at which NICs is applied on lower wages.
Despite numerous calls to delay this rise, especially as the cost of living is increasing at rates not seen in nearly 30 years – the Consumer Prices Index rose to 5.5% in January – the Government has insisted it is ploughing ahead with the change.
What can you do?
Unless we see a change of heart in the Spring Statement, this further reach into the pocket of employers and employees is going to sting. But there are some things you can do. For example, as the NICs are paid on your salary, if your employer has – or can offer – the option to do salary sacrifice for another benefit, you may be able to reduce the impact this has.
Salary sacrifice schemes involve your employer cutting your salary in return for paying the equivalent amount into benefits which have both tax and NICs benefits. These can include pensions, pension advice, car leasing schemes, and even cycle to work schemes.
While you get less money in your hand at the end of the month, overall you will be better off because you are getting benefits that make up that value difference, and you will pay less tax and NICs.
Dealing with a benefit in kind
For example, if you leased an electric car through your employer, the payments can be made direct from your gross salary, which means your salary is reduced, cutting the cost of the 1.25% rise. The other benefit is that there will be less income tax to pay too, while you benefit from the use of the car.
There is, of course, the benefit in kind cost to consider. But for electric cars this is only 2% from April 2022, compared to as much as 25% for even a relatively low-emission non-electric car, according to calculations from Loveelectric.cars. So, it might make financial sense to explore this with your employer or employees.
While electric cars can be expensive, the salary sacrifice scheme can make them more appealing. For example, a higher-rate taxpayer earning £60,000 a year chooses a Tesla Model 3 with a lease term of 48 months and annual agreed mileage of 5,000 miles.
Typically, the lease price would be around £524 per month, but combining the price of a lease with salary sacrifice could reduce this to £267 per month, making it much more affordable.
Company owners or directors who may not be primarily paid via a salary can use a business contract hire option which allows them to deduct the full cost of a rental from profits and then recover half of the VAT paid if it is used for personal use, or 100% if it is solely used for business purposes.
If you are interested in taking advantage of salary sacrifice or discussing other ways you can mitigate the impact of the 1.25% rise in NICs, please get in touch with us.
Businesses must prepare as wider creditor action protections end in March
Companies with debts outside of their rental arrears face the removal of protection against creditor actions from March 31, 2022.
Other debts outside rental arrears affected
Currently, rent arrears built up because of forced closures as a result of COVID-19 are excluded from these measures, as they are covered by other legislation
Any debts outside of rent arrears, must reach a £10,000 threshold before a winding-up petition can be filed. Before the filing, the creditor must have given the debtor a notice – called a Schedule 10 Notice – which states that if a proposal for payment of the debt has not been made within 21 days of the notice, then the creditor intends to file a winding-up petition.
Firms must prepare to deal with possible litigation from April 2022
However, these restrictions end on March 31, so any business with debts of more than £10,000 that are not related to rent arrears needs to be sure it is prepared for these protections to be removed, unless more legislation is passed before that date.
Challenges could be made for as little as £750 owed
Law firm Freshfields Bruckhaus Deringer highlighted that the Government has not changed the threshold to serve a statutory demand for winding-up from £750. So, while the current legislation is in place there are two thresholds in place for the compulsory winding-up process. But once Schedule 10 notices are repealed, the lower level of £750 remains.
Find out how we can help you
If you have debts outside of rental arrears that have built up due to difficult trading conditions during the pandemic, or because of forced closures, then please contact us to find out how we can help you manage this most effectively for your business.
Landlords and tenants face legally binding arbitration over rent arrear disputes
Companies forced to close due to Coronavirus restrictions are currently protected from eviction by landlords until March 25, but a Government Bill currently before Parliament is expected to create binding arbitration following this date.
Code of Practice
The Commercial Rent (Coronavirus) Bill, which was originally announced alongside a Code of Practice by Kwasi Kwarteng on November 9, 2021 protects commercial tenants in arrears from being evicted. The aim is to encourage landlords and tenants to negotiate how to deal with these arrears and to share the cost of commercial rent debts caused as a result of closures during the pandemic.
The Code of Practice outlines the process for tenants and landlords to settle outstanding debts. But any ongoing disputes after March 25 could be settled by binding arbitration if the Bill successfully passes through Parliament.
Debts built up by the likes of pubs, gyms and restaurants as a result of their forced closure during the pandemic will be within the scope of the legislation. Any debts built up outside of these times will be excluded, as will debts resulting from the voluntary closure of a business where it would not have been forced to close under the emergency measures.
Protection from legal action will end
Since November 10, 2021, the existing legislation has protected commercial tenants from County Court Judgements, High Court Judgements and bankruptcy petitions issued against them because of rent arrears accruing during the pandemic.
However, if no agreement can be reached, then either the tenant or landlord can apply for arbitration unilaterally. The arbitration can be applied for within six months of the legislation coming into force with the tenant expected to repay the final agreed amount within 24 months.
Business Secretary Kwasi Kwarteng said at the launch: “We encourage landlords and tenants to keep working together to reach their own agreements ahead of the new laws coming into place, and we expect tenants capable of paying rent to do so.”
Support for the moves, but ‘devil is in the detail’
Kate Nicholls OBE, CEO of UK Hospitality, said: “It is in the long-term interests of landlords and tenants to come together and find solutions that ensure business survival and that do not undermine the economic recovery.
“We share government’s view that arbitration should be a last resort and this process must take into account the exceptional and existential level of pain that hospitality businesses have faced over the last 18 months. It must not impact this industry’s ability to rapidly recover and create jobs throughout the country.”
However, while Helen Dickinson OBE, Chief Executive of the British Retail Consortium, supports the principle of compulsory arbitration, she said the “devil will be in the detail on issues around what tenant viability really means in practice and the power of arbitrators”.
She added: “We will engage closely and constructively with government to help ensure their proposals protect otherwise viable businesses, secure the recovery, and protect jobs.”
We can support you if you have rental arrears
If you have rental arrears due to forced closures during the pandemic, then please get in touch so we can help support you through this difficult time.
Taxpayers get extension to self-assessment filing dates
Millions of taxpayers who are yet to submit their completed Self-Assessment tax return which is due before January 31 are being given a grace period to file until February 28.
More than 12.2 million customers are expected to complete a tax return for the 2020/21 tax year according to HMRC, and would usually face a penalty and interest if the return and payment in full is not made by January 31.
Deadline extended but not without cost
However, HMRC has announced it will waive penalties for a month, meaning those who cannot file before January 31 will not receive a penalty if they file before February 28, and will not receive a late payment penalty if they pay their tax in full or set up a payment arrangement before April 1. But they will still face interest payments of 2.75% on outstanding balances from February 1, so where possible it is best not to delay payment.
Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We know some customers may struggle to meet the Self-Assessment deadline on 31 January which is why we have waived penalties for one month, giving them extra time to meet their obligations. And if anyone is worried about paying their tax bill, they can set up a monthly payment plan online – search ‘pay my Self-Assessment’ on GOV.UK.”
Remember to include all SEISS payments in your return
Like businesses, any self-assessment taxpayer who has benefited from COVID-19 support payments will need to ensure they are also included in their tax return. Any payments made under the Self-Employment Income Support Scheme (SEISS) or any other COVID-19 support payments must be included in a self-assessment. Taxpayers who have benefited from these payments and need to file a self-assessment can check what changes might need to be made on their tax return to ensure all these payments are correctly included as income.
Which payments must be included?
The payments that need to be included in the 2020/21 tax return if they were paid before April 5, 2021, according to HMRC are:
- Self-Employment Income Support Scheme;
- Coronavirus Job Retention Scheme;
- other COVID-19 grants and support payments such as self-isolation payments, local authority grants and those for the Eat Out to Help Out scheme.
However, anyone receiving the £500 one-off payment for working households receiving tax credits does not need to report this payment.
It is particularly important for those receiving SEISS grants to make sure they are included as they were paid directly to the individual rather than to a business, so these are not included in the accounts of a sole trader or partnership. Instead, they need to be added back in as an adjustment to profits in the self-assessment tax return.
HMRC has also said it will not charge late filing penalties for paper-based SA700s, SA970s that are received in February, or for SA800s and SA900s if these are filed online before the end of February.
There are a number of online facilities that HMRC has set up for anyone who needs support in relation to filing their tax returns. You can access live webinars or recordings on GOV.UK, and HMRC has also produced resources to help customers meet their obligations including YouTube videos and Self-Assessment guidance.
We can help you
If you would prefer to let someone else take the strain of dealing with your accounts, then please get in touch with us. We will help you make sure all of the relevant information is included and work to maximise your allowances, so you only pay the tax due, no more.
Businesses helped by COVID-19 support could face unexpected tax bills
Businesses and self-assessment taxpayers are being reminded they need to include all grants paid as part of the COVID-19 support payments in their tax returns, as some may think these were non-taxable.
Have you set money aside to deal with tax on support grants?
HMRC has highlighted that all money paid for test and trace or self-isolation payments in England, Scotland or Wales are taxable, as are Coronavirus Statutory Sick Pay Rebates. The Coronavirus Business Support Grants – also known as local authority grants or business rate grants – must also be included on tax returns as these are considered income for tax purposes.
Companies that received the Coronavirus Job Retention Scheme (CJRS) grant or a payment under the Eat Out to Help Out payment scheme will need to include both as income in their CT600 tax return and reported in the relevant boxes on their Company Tax Return.
Myrtle Lloyd, HMRC’s Director General for Customer Service, said: “We want to make sure companies are getting their tax returns right first time, including any COVID-19 support payment declarations. Support and guidance is available on GOV.UK, just search ‘file my company tax return’.”
Many companies will have been communicating with their accountants throughout the year and realise these grants are taxable. But there are concerns that those who deal with their accountant less often may not realise they should have been putting some of this money aside for tax purposes. This would leave them exposed to a bill that has not been planned for.
An outline of the costs employers could face for CJRS
While the CJRS scheme helped to reduce the number of redundancies companies may otherwise have been forced to make during COVID-19 lockdowns, there were a number of hidden costs involved with these grants. These include employer’s National Insurance contributions and employer’s pension contributions.
For example, if an employee had a normal monthly salary of £2,000 and was on full furlough, then based on 80% of their salary this would have fallen to £1,600 gross. At the rates applied in the 2020/21 tax year, the costs to the employer for this CJRS grant would be:
- £119.78 of Employer’s Class 1A National Insurance;
- £32.40 of Employer’s Pension Contributions (based on the 3% minimum under auto-enrolment);
- There is also the potential cost of accrued holiday, which is £153.80 – calculated based on 4/52 weeks (this is the maximum amount of holiday that can be carried forward into the following year) x monthly salary.
Where holiday has been carried forward to the following year, businesses that are struggling to recover from the pandemic also have to contend with up to four weeks of holiday that can be passed into the following tax year. If an employee leaves the business, this could result in the employer having to find sums potentially into the thousands of pounds to account for this in the employee’s final payslip.
HMRC said to be sympathetic to companies struggling to pay tax bills
Reports suggest that HMRC is being sympathetic in relation to any tax bills that are difficult for companies to meet, with even debt collectors looking to offer solutions to deal with the debt rather than collecting it on the spot.
The deadline for customers or agents filing company tax returns (CT600) is 12 months after the end of the accounting period it covers. The deadline to pay Corporation Tax will depend on any taxable profits and when the end of the accounting period occurs. Information on which support payments need to be reported to HMRC and any that do not is available on GOV.UK.
If you think you will struggle to meet any of your tax liabilities this year, then please contact us as soon as possible to get advice on the best course of action.
HMRC have published a call for evidence on the case for reforming the rules for registering for Income Tax Self Assessment (ITSA). The call for evidence is interested in hearing views on whether it would be beneficial to bring forward the deadline by which landlords and the self-employed must register for ITSA.
Currently, there is no statutory obligation to register for ITSA; instead, the requirement is to notify HMRC where a tax liability exists. This must be done within six months from the end of the tax year in which the liability arose, i.e., by 5 October after the end of the tax year. This requirement is met by registering for ITSA. Where the taxpayer is self-employed, registering for ITSA also registers the taxpayer for Class 2 National Insurance.
If a taxpayer who is already within ITSA has a new source of income, there is no requirement to tell HMRC separately about that new source. Instead, it is reported on the self-assessment tax return.
The notification window depends on when in the tax year the self-employment starts or the taxpayer becomes a landlord. For example, if you started your self-employment on 6 April 2021, you must notify HMRC (normally by registering for ITSA) by 5 October 2022 – a window of 18 months. However, if you start your self-employment on 31 March 2022, you still have to notify by 5 October 2022 – a window of just over six months. This is because the notification deadline relates to the tax year in which the trade started rather than the date on which the trade started.
The call for evidence sets out options for a possible reform of the rules. The first option is to reform the existing requirement to notify rules so that the taxpayer is required to notify HMRC of the liability to tax within a set window after the source first arose. Potential notification windows of two, three or four months are suggested.
The second option is to remove the current statutory obligation to notify, and to replace it with a requirement to register for ITSA within a specified period after the start of the self-employment or property business. Alternatively, the obligation to register could be triggered once turnover reaches a certain level, for example, £1,000 to align with the trading and property income allowances.
HMRC may also explore ways in which third-party data could be used to identify those who have recently started in business so that they can be made aware of the need to register, if they have not already done so.
Get in touch
If you have recently started a business or become a landlord, please get in touch. We can help you register for tax.
To help employers affected by the spread of the Omicron variant of COVID-19, the Statutory Sick Pay (SSP) rebate scheme for small employers is being reintroduced. In addition, the period for which an employee can self-certify a sickness absence is increased temporarily from seven days to 28 days.
SSP rebate scheme
The SSP rebate scheme for small employers allowed employers who had fewer than 250 employees on their payroll on 28 February 2020 to reclaim up to two weeks’ SSP per employee in respect of Coronavirus absences. Normally, employers must meet the cost of any SSP paid to an employee in full. The original scheme applied in respect of Coronavirus absences prior to 30 September 2021, with a deadline for making rebate claims of 31 December 2021.
To help employers affected by staff absences as a result of the surge in COVID-19 cases following the emergence of the Omicron variant, the SSP rebate scheme for small employers is being resurrected. You will be able to use the scheme if you are based in the UK and you had a PAYE scheme with fewer than 250 employees as of 30 November 2021. As previously, you will be able to claim back the cost of up to two weeks’ SSP paid to an employee for Coronavirus-related absences. The claim period is being reset; consequently, a claim can be made in respect of SSP paid to an employee, regardless of whether a claim was made under the original scheme. Claims under the resurrected scheme can be made retrospectively from mid-January 2022.
The period for which an employee is able to self-certify an absence for SSP purposes has been increased temporarily from seven days to 28 days. This means that rather than needing a Fit Note from a GP for absences of more than seven days, employees will only need a Fit Note once they have been absent for 28 days. This will reduce the pressure on GPs.
Regulations have been introduced to give statutory effect to the relaxation, which applies for periods of sickness which begin on or after 17 December 2021 and end on or before 26 January 2022. Thereafter, the self-certification period will revert to seven days.
Speak to us
To find out more about how to make a claim under the SSP rebate scheme, or to learn more about the temporary self-certification rules, please speak to us.
Help if you are struggling to pay your tax bill
Financially, 2021 has been a difficult year for many, and you may be struggling to pay your January tax bill in full. Any tax and National Insurance that remains unpaid for 2020/21 must be paid by 31 January 2022, along with the first payment on account for 2021/22.
If you cannot pay your tax bill on time, you should contact HMRC as soon as possible – you do not need to wait until the payment is late, and it is advisable not to do so. You will be able to discuss the help that is available to you, and may be able to pay what you owe in instalments by setting up a Time to Pay arrangement.
Time to Pay arrangements
A Time to Pay arrangement is an agreement with HMRC to pay the tax that you owe in instalments. The procedure for setting up a Time to Pay arrangement depends on the type of tax that you owe and the amount that you owe.
If you are unable to pay your self-assessment tax bill, you may be able to set up a Time to Pay arrangement up online via your Government Gateway account. You can do this if:
- you have filed your latest tax return;
- you owe less than £30,000;
- you are within 60 days of the payment deadline; and
- you plan to pay off your tax debt within the next 12 months, or less.
This is the most straightforward way to arrange to pay what you owe in instalments. To avoid triggering unnecessary late payment penalties, if you know that you will struggle to meet your 31 January 2022 tax bill, it is advisable to ensure that your return is filed in good time so that a Time to Pay arrangement can be in place by this date.
Unable to make an online arrangement?
If you are unable to set up a Time to Pay arrangement online, for example, if the tax that you owe is more than £30,000, you may be able to agree an instalment payment plan by calling HMRC’s self-assessment helpline on 0300 200 3822.
Other types of tax
If you owe tax other than that due under self-assessment, or if your company cannot pay tax that it owes, you can contact HMRC’s Payment Support Service on 0300 200 3835 to discuss setting up a Time to Pay arrangement.
To set up a Time to Pay arrangement you will need to have the following information to hand:
- your unique tax reference number;
- your VAT registration number if you are a VAT-registered business;
- your bank account details; and
- details of any previous payments that you have missed.
HMRC will ask you a number of questions, including:
- how much you can afford to repay each month;
- whether you are able to pay what you owe in full;
- whether there are any other tax bills that you need to pay;
- how much money you earn;
- how much you usually spend each month; and
- what savings and investments you have.
HMRC expect that if you are able to pay the tax that you owe, you will do so. Also, if you have any savings or assets, they expect that you will use those to meet your tax obligations.
Where you are unable to pay what you owe in full, HMRC will usually set your monthly payments at about 50% of the money you have left over each month after you have paid your bills.
Once a Time to Pay agreement is in place, it is important that you pay at least the agreed amount each month. If you are able, you can pay more than the agreed amount if you want to clear the debt more quickly.
Unable to agree a Time to Pay arrangement?
If you are unable to agree a Time to Pay arrangement with HMRC, for example, if HMRC do not think you will stick to the agreement because you have defaulted in the past, you will be asked to pay what you owe in full. If you are unable to do this, HMRC may take enforcement action to collect the debt.
We can help
If you are struggling to pay tax that you owe or are worried about being able to pay your January self-assessment bill, talk to us. We can help you set up a plan to pay in instalments.
Payments on account
Payments on account are advance payments towards your tax and, where relevant, your Class 4 National Insurance bill. You may need to make them if you are self-employed or if you are a landlord. You may also need to make them if you operate your business through a personal or family company and extract the bulk of your profits in the form of dividends.
Payments on account for 2021/22
You will need to make payments on account of your 2021/22 tax liability if your self-assessment tax bill for 2020/21 was at least £1,000, unless at least 80% of the tax that you pay is collected at source, for example, under PAYE. Two payments on account are made for each tax year.
Calculating your payments on account
Each payment on account is 50% of your income tax and Class 4 National Insurance liability for the previous tax year. You do not need to take into account Class 2 National Insurance when working out your payments on account. If, for example, your 2020/21 income tax and Class 4 National Insurance liability was £3,000, you will make two payments on account of your 2021/22 liability of £1,500 each.
Making payments on account
Payments on account are payable on 31 January in the tax year and 31 July after the end of the tax year, with any balance being due by 31 January after the end of the tax year. This means that if you are liable to make payments on account for 2021/22, you must make the first payment by 31 January 2022 (along with any remaining 2020/21 tax and Class 4 National Insurance, and your Class 2 National Insurance for 2020/21). The second payment on account must be made by 31 July 2022. If there is any remaining balance to pay, this is due, together with your Class 2 National Insurance for 2021/22, by 31 January 2023 (along with the first payment on account for 2022/23).
If your final liability for 2021/22 is less than you have paid on account, the excess can be set against your 2022/23 liability, or refunded.
Reducing payments on account
If you think your tax liability for 2021/22 will be less than in 2020/21, for example, because you have lost business following the COVID-19 pandemic, you can elect to reduce your payments on account. This can be done online through your self-assessment tax account, in your tax return or by post. However, if you reduce the payments below the eventual liability, interest will be charged on the amount underpaid.
Talk to us
If you are unsure whether you need to make payments on account of your 2021/22 tax liability or are unsure how to calculate them, we can help.
File your 2020/21 tax return by 31 January 2022
If you need to file a self-assessment tax return for the year to 5 April 2021, you have until midnight on 31 January 2022 to file your return if you have not already done so. You must also pay any tax that you owe for 2020/21 by the same date.
Do I need to file a return?
You will normally need to file a tax return if you have income in respect of which the associated tax is not collected at source. This will be the case if you are self-employed, or if you are a partner in a partnership. You will also need to file a self-assessment tax return if you have income from property, or if you have realised capital gains in the tax year, or if you have other sources of untaxed income, such as dividends, investment income or foreign income.
You can also choose to file a self-assessment tax return if you want to claim income tax reliefs.
If you or your partner received child benefit in 2020/21, check whether you fall within the scope of the high income child benefit charge. If you do, you will also need to file a return.
New source of income
If you started trading in 2020/21 or became a landlord, you should have registered for self-assessment by 5 October 2021. If you have not done so, you should register as soon as possible so that you can file your return without delay.
COVID-19 support payments
If you received COVID-19 support payments in 2020/21, for example, grants under the Self-Employment Income Support Scheme (SEISS) or hospitality and leisure grants, you will need to report these on your 2020/21 tax return. The support payments are taxable. Grants received under the SEISS should be entered in the dedicated box in your self-assessment tax return, while any other taxable COVID-19 payments should be entered in the ‘any other business income’ box. Remember, to enter the amount that you received between 6 April 2020 and 5 April 2021, regardless of the date to which you prepare your accounts.
If you are employed and received grant payments under the Coronavirus Job Retention Scheme (CJRS), you do not need to enter these payments separately on your return – they are included in the figures on your P60.
Later deadline where notice to file received after 31 October 2021
The tax return filing deadline is the later of 31 January after the end of the tax year and three months from the date on which the notice to file a return was issued by HMRC. Where this is after 31 October 2021, the filing deadline will be later than 31 January 2022. For example, if the notice to file a return was issued on 1 December 2021, the return must be filed by 1 March 2022.
The deadline for filing a paper tax return was 31 October 2021 (or three months from the date of the notice to file where this was received after 31 July 2021). If a paper return is filed after that date, even if it is filed before 31 January 2022, it will be deemed to be filed late and a late filing penalty will be charged. Consequently, if you are filing your return to meet the 31 January 2022 deadline you must file it online. Remember that you must be registered with the Government Gateway and will need your details to login – make sure that you have these available in good time.
If you file your tax return online after midnight on 31 January 2022 (unless an extended deadline applies because the notice to file was issued after 31 October 2021) you will receive an automatic penalty of £100, even if you have no tax to pay. If you think you have a reasonable excuse for filing late, you can appeal against the penalty. However, HMRC usually take a harsh line on what they consider a reasonable excuse. Further penalties are triggered if your return remains outstanding three months, six months and 12 months after the deadline.
If you need help in filing your 2020/21 tax return, please get in touch. However, we suggest that you do not leave it until just before the filing deadline.
Company cars and vans
A tax charge may arise if an employee is able to use a company car or van for private use. A further charge will arise if you provide the fuel for any private use. The taxable amounts that will apply for 2022/23 have now been announced.
Where an employee has a company car, if that car is available for their private use, they are taxed on the benefit of that private use.
The amount that is charged to tax is a percentage (the appropriate percentage) of the car’s list price and any optional accessories (as reduced for any capital contributions up to £5,000). The charge is reduced where the car is not available for the full year, and also for any private use contributions made by the employee.
The appropriate percentage depends on the car’s carbon dioxide (CO2) emissions. A supplement of 4% applies to diesel cars not meeting the RDE2 standard. The appropriate percentage is capped at 37%.
The appropriate percentages applying for 2022/23 are available on the Gov.uk website.
For 2022/23, electric cars are taxed on 2% of their list price, regardless of the date of first registration.
If the employee is provided with fuel for private journeys, a separate fuel benefit charge applies. The taxable amount is the appropriate percentage used to calculate the car benefit charge multiplied by the set figure for the tax year. For 2022/23, this is £25,300.
There is no charge if you pay for electricity for private use of an electric company car.
If you provide an employee with a company van, and they have unrestricted private use of that van, unless the van is an electric van, a tax charge will arise. For 2022/23, the taxable amount is £3,500. If you also provide fuel for private journeys, a separate fuel charge arises. For 2022/23, this is valued at £688.
There is no charge where an employee uses an electric company van for private use.
Get in touch
We can help you understand how to provide tax efficient company cars and vans to your employees.
Seasonal gifts to employees
Christmas is a time of giving, and you may wish to give your employees a small token of your appreciation for their work during the year. To prevent the gift being accompanied by an unwanted tax liability, you can take advantage of the trivial benefits exemption to keep the gift tax-free.
Scope of the exemption
Where you provide an employee with a low-cost benefit, the employee is not taxed on the provision of that benefit as long as the following conditions are met:
- the benefit is not cash or a cash voucher;
- the cost of the benefit is not more than £50;
- the benefit is not made available to the employee under a salary sacrifice arrangement or under a contractual obligation; and
- the benefit is not provided in recognition of particular services being performed, or in anticipation of them being performed.
Benefits that meet these conditions are known as trivial benefits.
Where the conditions are met, if the recipient is a director of a close company, the total value of tax-free trivial benefits that they can enjoy in the tax year is capped at £300. Otherwise, there is no limit on the number of trivial benefits which can be given to an employee tax-free each year.
Application of the exemption to Christmas gifts
The trivial benefits exemption can be used to ensure that gifts typically given to employees at Christmas, such as chocolates, wine, a turkey or a hamper, can be given tax-free. The key is to keep the cost below £50.
It will normally be straightforward to work out the cost of an item, but where it is difficult to determine the individual cost, the average cost can be used instead.
The trivial benefits exemption only applies if you give modest gifts costing £50 or less; lavish gifts will fall outside the exemption. The £50 limit is not a tax-free allowance, and if the cost of the gift is more than £50, the full amount will be taxable, not just the excess over £50. For example, if you give your employees a Christmas hamper costing £200, the taxable amount is £200, not £150 (the excess over £50).
If you do wish to give your employees an expensive Christmas gift, you may wish to pay the associated tax on their behalf by including it within a PAYE Settlement Agreement.
The gift card trap
To enable employees to choose their own gift, you may prefer to give a gift card or access to an app which lets them choose a treat. However, it is necessary to tread carefully here. If an employee uses an app or is given a gift card which may be topped up, the cost of the benefit is the total cost in the tax year, not the cost each time the app or gift card is used. This may mean that while each individual item purchased from the app or gift card costs less than £50, if the annual cost is more than £50, the benefit will not be a trivial benefit, and the exemption will not be available.
Speak to us
To check whether your Christmas gifts fall within the scope of the exemption, please get in touch.
Keeping the Christmas party tax-free
If you are holding a Christmas party for staff this year, you may want to take advantage of the tax exemption for annual parties and functions to prevent your employees from suffering a benefit-in-kind tax charge. Keeping the Christmas party tax-free will also mean that there is no Class 1A National Insurance for you to pay either. The exemption applies to both in-person and virtual events.
Nature of the exemption
The availability of the tax exemption is contingent on the associated conditions being met. These are as follows:
- the event is an annual event or similar annual function;
- the event is provided for an employer’s employees generally, or for those at a particular location; and
- the cost of the function, or where more than one such function is held in the tax year, the cost of the functions in aggregate, is not more than £150 per head.
If these conditions are not met, the provision of the party will trigger an associated benefit-in-kind tax charge.
The exemption only applies to annual functions. This requirement may catch out the unwary.
An annual function is a recurring event that is held each year. Consequently, if you hold a party for staff each year, the event will be an annual event and, as long as the other conditions are met, will fall within the scope of the exemption. However, the exemption does not apply to one-off events. Unfortunately, this means that if you hold a Christmas party this year as a one-event, the exemption will not apply; a tax charge will arise on the benefit provided to the employees by virtue of their attendance at the party (and that of any guests that they bring).
Open to all employees
The annual party exemption features an ‘all employee’ condition. This means that the exemption will only apply if all your employees are able to attend the party. If you operate from more than one site, the condition is met if you have a party for all the employees at a particular location. HMRC have confirmed that where your workforce is split into teams or departments, annual team or departmental events will qualify for the exemption as long as all your employees, or all those at a particular location, are able to attend a party.
The exemption does not apply to an event for a limited number of employees only, for example, a party for senior management.
Cost per head limited to £150
Annual events that fall within the ambit of the exemption are subject to a financial limit of £150 per head. The cost per head is found by dividing the total cost of the event, including any associated transport or accommodation which may be provided, by the number of people attending. This is the total number of people, not just the number of employees, and includes any guests who may have been invited. The cost includes VAT, even if this is subsequently recovered.
Limit not allowance
It is important to note that the £150 cost per head figure is a limit not an allowance. If the cost per head figure is more than £150, the total amount is taxable, not just the excess over £150.
If you hold more than one annual function each tax year and each event meets the all-employee condition, all of the events will fall within the scope of the exemption provided that the aggregate cost is not more than £150 per head.
If the aggregate cost of all the events is more than £150 per head, you can choose how best to use this limit. Remember, it can only be used to shelter ‘whole’ events. For example, if you have three events in the year, and the cost per head of the events is £90, £70 and £50, the exemption is best used to shelter the events costing £90 and £50 (total £140), leaving the £70 event in charge. The ‘unused’ £10 cannot be set against the event costing £70 per head to reduce the taxable amount to £60.
If guests are invited to some functions and not to others, the impact of the guest’s attendance should be taken into account. If the event is taxable and the employee brings a guest, the taxable amount will be the cost of both the employee’s and their guest’s attendance.
Consider a PSA
If it is not possible to provide your Christmas party within the terms of the exemption, you may wish to consider using a PAYE Settlement Agreement (PSA) to meet the resulting tax liability on your employees’ behalf.
We can help
We can help you work out whether the terms of the exemption are met in relation to your Christmas party.
New MTD timetable
Making Tax Digital (MTD) is a Government initiative that aims to provide the UK with one of the most digitally advanced tax administrations in the world. Under MTD, taxpayers are required to keep electronic records and report to HMRC digitally. MTD is being implemented in stages. However, the timeline has recently been revised, delaying the start date of MTD for Income Tax by one year.
MTD for VAT
If you are a VAT-registered business with turnover above the VAT registration threshold of £85,000 a year, you will already be within MTD for VAT. If your turnover is below this level, you may have joined voluntarily. However, if you have not done so, you will need comply with MTD for VAT from the start of your first VAT accounting period beginning on or after 1 April 2022. MTD for VAT becomes compulsory for all VAT registered traders from that date.
For example, if you are registered for VAT but your turnover is below the VAT registration threshold of £85,000 and your VAT quarters end on 31 May, 31 August, 31 October and 31 January, you will need to start complying with MTD for VAT from 1 June 2022 – this is the first day of the first VAT quarter which starts on or after 1 April 2022.
As you do not need to be registered for VAT if your turnover is below the VAT registration threshold, if you do not want to comply with MTD for VAT, you have the option of de-registering. However, this will mean that you are unable to reclaim back any VAT suffered on your purchases.
MTD for Income Tax
The next phase of the MTD programme is MTD for Income Tax. Initially, this will apply to self-employed businesses and landlords with annual business or property income in excess of £10,000. MTD for Income Tax was due to come into effect from April 2023. However, the start date has now been delayed by one year, and businesses and landlords that fall within its scope will need to comply with the rules from 6 April 2024 onwards.
Under MTD for Income Tax, businesses and landlords will need to keep business records digitally and send quarterly income tax updates, an end of period statement and a final declaration to HMRC using MTD-compatible software. This will replace the need to file a self-assessment tax return.
As part of the preparation for the introduction of MTD for Income Tax, the basis period rules for unincorporated businesses are being reformed. Businesses will be taxed on the profits for the tax year, rather than on the profits for the period ending in the tax year (the current year basis). The tax-year basis will apply from 2024/25, with 2023/24 being a transitional year.
MTD for Corporation Tax
No date has yet been set for the start date of MTD for Corporation Tax. However, the Government have stated that MTD for Corporation Tax will not become mandatory before 2026.
Talk to us
We can help you understand what MTD will mean for you and your business. Please get in touch to discuss what you will need to do to prepare.
Paying employees early at Christmas
Under Real Time Information (RTI), you must report payments made to employees and associated deductions to HMRC on a Full Payment Submission (FPS) at or before the time at which you make the payment to your employee. However, special rules apply which modify this rule if you pay your employees earlier than usual over the Christmas period. This may be the case if you shut down over Christmas and New Year.
Use your normal payday
Even if you pay your employees earlier than usual in December, you should use the normal payday as the payment date on the FPS, and submit the FPS by this date. In this instance, the FPS may well be submitted after the date that you paid your employees. However, as the submission deadline is the normal payday, as long as you send your FPS in by that date, it will not be treated as being late.
For example, if you normally pay your employees monthly on the 28Th of the month, but in December you are shut for two weeks and pay them on 17 December 2021 instead, when you send the FPS to HMRC, you should still enter ’28 December 2021’ as the payment date. You must ensure that you send the FPS to HMRC by 28 December 2021; although it will probably be more convenient to send it on 17 December 2021 when you do your payroll and pay your employees, you do not have to submit the FPS by this date.
Impact on Universal Credit
It is important that you follow the rules set out above if you pay your employees early at Christmas to ensure that any employees who receive Universal Credit will receive the correct payments. You should also use the normal payment date if you pay employees early because the usual payday falls on a bank holiday. Following these rules prevents two months’ payments being taken into account in one Universal Credit assessment period and none in another assessment period, and stops Universal Credit claimants losing out on the work allowance. This is an amount of earnings that the claimant is able to keep before earnings start to be deducted from their Universal Credit entitlement.
As Universal Credit is a means tested benefit, the amount paid is reduced when income rises.
Court of Appeal decision
In November 2020, the Court of Appeal issued a judgment in the case of Johnson and Others. Following the case, where people are paid monthly and as a result of a payment being made earlier than usual (for example, at Christmas), two payments are made in one assessment period and none in another, one set of earnings is taken into account in each assessment period so that the claimant does not lose the work allowance.
The reallocation of earnings only happens where people are paid monthly. Where people are paid weekly, fortnightly or four-weekly, there will always be assessment periods where additional payments of earnings are taken into account. For example, employees who are paid four-weekly will normally only receive one payment in a Universal Credit assessment period, but in one period each year, two payments of earnings will be taken into account as employees who are paid four-weekly receive 13 payments each year. Moving earnings to another period would simply change the assessment period in which two payments are taken into account.
If you will be paying your employees on a day other than your usual payday in December and are unsure how and when to report the payments to HMRC, please get in touch. We can help.
The Chancellor presented his Autumn Budget and Spending Review on 27 October 2021. Some of the highlights are discussed below.
Income tax rates and thresholds
The rates and thresholds applying for 2022/23 were confirmed.
As previously announced, the personal allowance remains at £12,570 for 2022/23. The allowance is reduced by £1 for every £2 by which adjusted net income exceeds £100,000. This means that where income exceeds £125,140, the personal allowance is lost in its entirety.
Rates and bands
The basic rate remains at 20%, the higher rate remains at 40% and the additional rate remains at 45%.
The basic rate band remains at £37,700. This means that where a person receives the standard personal allowance of £12,570, they will start to pay higher rate tax of 40% once their income exceeds £50,270.
The additional rate of 45% is payable on taxable income in excess of £150,000.
The rates applying to the non-dividend, non-savings income of Scottish taxpayers will be announced at the time of the Scottish Budget in December.
Dividend tax rates
As previously announced, the rates at which dividends are taxed are to rise by 1.25% from 6 April 2022. The increase will provide funding for health and adult social care.
Consequently, for 2022/23, the ordinary dividend rate is 8.75%, the upper dividend rate is 33.75% and the additional dividend rate is 39.35%.
National Insurance rates and thresholds
The rates and thresholds applying for 2022/23 have been confirmed.
Employees and employers
As previously announced, the upper earnings limit for primary Class 1 purposes will remain at £967 per week for 2022/23. This is aligned with the point at which higher rate tax becomes payable. The upper secondary thresholds that are linked to the upper earnings limit, namely, the upper secondary threshold for employees under the age of 21, the apprentice upper secondary threshold and the upper secondary threshold for armed forces veterans in the first year of their first civilian employment since leaving the armed forces, also remain at £967 per week.
A new secondary threshold for new Freeport employees is introduced from 6 April 2022. This is set at £481 per week.
The remaining thresholds are increased in line with the increase in the Consumer Price Index. The effect of this is that the lower earnings limit is set at £123 per week for 2022/23, the primary threshold is set at £190 per week and the secondary threshold is set at £175 per week.
As previously announced, the rates of primary and secondary Class 1, Class 1A and Class 1B contributions are increased by 1.25% for 2022/23 only pending the introduction of the Health and Social Care Levy. The main primary rate is 13.25% and the additional primary rate is 3.25%. Employers will pay secondary Class 1, Class 1A and Class 1B contributions at 15.05%. The rates are due to revert to their 2021/22 levels from 6 April 2023 when the Health and Social Care Levy comes into effect.
The Employment Allowance remains at £4,000 for 2022/23.
The self-employed pay Class 2 and Class 4 contributions.
Class 2 contributions are weekly contributions payable where profits exceed the small profits threshold. For 2022/23, the small profits threshold is £6,725 and the Class 2 contribution rate is £3.15 per week.
The self-employed also pay Class 4 contributions on their profits. The upper profits limit (which is aligned with the upper earnings limit for Class 1 and the rate at which higher rate tax becomes payable) is frozen at £50,270, while the lower profits limit is increased to £9,880.
Pending the introduction of the Health and Social Care Levy, the Class 4 rates are increased by 1.25% for 2022/23. As a result, the main Class 4 rate is set at 10.25% and the additional Class 4 rate is set at 3.25%. The rates are due to revert to their 2021/22 levels from 6 April 2023 when the Health and Social Care Levy comes into effect.
Cars and vans
The rates of company car tax already announced for 2022/23 will continue to apply for 2023/24 and 2024/25.
The fuel scale multiplier used for working out the fuel benefit charge is set at £25,300 for 2022/23 (up from £24,600 for 2021/22).
The amount on which tax is charged in respect of a taxable company van is increased to £3,600 for 2022/23. The amount is £3,500 for 2021/22.
A separate fuel charge applies where fuel is provided for private journeys in a company van. This is set at £688 for 2022/23 (up from £669 for 2021/22).
Residential capital gains tax
Where a residence has not been your only or main residence throughout the time that you have owned it, you may have to pay capital gains tax if the chargeable gain is more than your annual exempt amount. This may be the case if you sell an investment property or a second home.
From 27 October 2021, the window for reporting a residential capital gain and making a payment on account of the tax that is due is increased from 30 days to 60 days.
The Chancellor also announced a welcome freezing of certain duties that had been expected to rise.
Fuel duty rates are to remain frozen for 2022/2023.
Alcohol duty rates will remain at their current levels. However, change is on the cards.
The Government are consulting on reforms to alcohol duty which will reduce the number of rates from 15 to six, and which will see higher duty charged on stronger drinks. The consultation will run until 30 January 2022.
Air passenger duty
A new lower band of air passenger duty (APD) is being introduced from 1 April 2023 for flights within the UK. In addition, a new ultra long-haul band will apply to destinations with capitals more than 5,500 miles from London.
Get in touch
To find out what the Budget announcements mean for you, please get in touch.
File your tax return by 30 December 2021 to have underpayments coded out
The deadline for filing your 2020/21 self-assessment tax return is midnight on 31 January 2022. However, if you have underpaid tax and you are employed and would prefer HMRC to collect that underpayment through your tax code, you will need to file your return online by midnight on 30 December 2021. You can also have an underpayment coded out if you filed a paper return by 31 October 2021.
Paying tax through your tax code
If you owe tax for 2020/21, rather than paying the underpaid tax in full by 31 January 2022, you may be able to have the underpayment collected through PAYE. This is done by adjusting your 2022/23 tax code (known as ‘coding out’). The effect of this is that collection of the underpayment will be spread throughout the 2022/23 tax year and deducted from your pay or your pension.
The option to have a tax underpayment coded out is only available if all of the following conditions are met:
- you owe less than £3,000;
- you already pay tax under PAYE (for example, as an employee or on a company pension); and
- you submitted a paper tax return by 31 October 2021 or an online tax return by 30 December 2021.
If you owe more than £3,000, coding out is unavailable; you will need to pay what you owe by 31 January 2022.
Talk to us
If you are likely to have a tax underpayment for 2020/21 and want to pay the tax that you owe through an adjustment to your tax code, talk to us about what you need to do to meet the 30 December 2021 filing deadline.
Tax checks for licence renewal applications
From 4 April 2022, applicants applying to renew certain licences will need to pass a tax check before their licence application can be considered. Initially, the requirement will only apply in England and Wales. However, the Government have consulted on extending the requirements to Scotland and Northern Ireland from 2023.
Tax conditionality (the need to pass a tax check before a licence is renewed) will apply to licences to:
- drive taxi and private hire vehicles (such as mini cabs);
- operate a private hire vehicle business;
- carry on the business of a scrap metal dealer on a site; and
- carry on business as a mobile collector of scrap metal.
The check will only apply to licence renewal applications, not to first-time applications. However, the licensing authority will need to provide first-time applicants with information on what they need to do to comply with their tax obligations, and check that the applicant has received that information, before considering the licence application.
Nature of the tax check
The new tax check will apply in addition to the existing requirements imposed by the licensing authority. The purpose of the check is to confirm that the applicant is registered for tax. The check should only need to be completed about once every three years.
If you are applying to renew a licence on or after 4 April 2022, you will be able to complete the check, which will comprise a few short questions, via your Government Gateway account. The Government are to make guidance on completing the check available on the Gov.uk website. A helpline will also be available.
Once you have completed the check, you will be given a code. The code is important, and you must give it to your licensing authority as they are unable to progress your licence renewal application without it.
HMRC will inform the licensing authority whether you have passed the tax check. However, they will not provide them with any details of your tax affairs.
In preparation for the introduction of tax conditionality, it is advisable to ensure that your tax affairs are in order, and get them up to date if they are not. HMRC have published a communications pack explaining what this will mean for licence applicants. It is worth a read.
We can help
If you will be required to pass the tax check in order to renew a licence that you need to operate your business, we can help you ensure that your tax affairs are in order.
New VAT rate for hospitality and leisure
To help the hospitality and leisure industries recover from the impact of the COVID-19 pandemic and associated lockdowns, a reduced rate of VAT of 5% applied from 15 July 2020 until 30 September 2021. This rate has now come to an end, and a new reduced rate of 12.5% applies from 1 October 2021 until 31 March 2022. The rate of VAT applicable to this sector will return to the standard rate of 20% from 1 April 2022.
Supplies benefitting from the reduced rate
You are able to take advantage of the reduced rate of 12.5% if you make supplies of any of the following:
- food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs;
- hot takeaway food and hot takeaway non-alcoholic beverages;
- sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities; and
- admissions to cultural attractions that do not already benefit from the cultural VAT exemption, such as theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and other similar cultural events and facilities.
However, if the admission to an attraction is within the existing cultural VAT exemption, the exemption applies rather than the reduced rate of VAT.
If you operate in the hospitality and leisure sector, please get in touch with us to check that you are applying the correct rate of VAT to any supplies that you make.
AIA transitional limit extended
The Annual Investment Allowance (AIA) is a capital allowance that enables you to claim an immediate deduction against your profits for qualifying capital expenditure up to the available limit. The AIA limit was temporarily increased from £200,000 to £1 million from 1 January 2019 to 31 December 2021. It was due to return to its permanent level of £200,000 from 1 January 2022. However, the Chancellor announced in his Autumn Budget that the temporary limit will be extended until 31 March 2023.
Take advantage of the higher limit
The announcement allows more time to take advantage of the higher temporary limit. If you are intending to spend more than £200,000 on plant and machinery that qualifies for the AIA, you now have until 31 March 2023 to benefit from the higher allowance and immediate relief for your expenditure.
Calculating the AIA limit for your accounting period
The AIA limit for your accounting period depends on when that period falls and on the length of that period. The limit is proportionately reduced for accounting periods of less than 12 months.
Accounting period ends on or before 31 March 2023
If your accounting period is 12 months in length and falls wholly within the period running from 1 January 2019 to 31 March 2023, the AIA limit for the period is the temporary amount of £1 million.
Consequently, if your accounting period ends on or before 31 March 2023, you will be able to benefit from the £1 million limit.
Accounting period spans 31 March 2023
Calculating your AIA limit is more complicated if your accounting periods spans 31 March 2023 as transitional rules apply.
If you are planning capital expenditure in an accounting period that spans 31 March 2023, you will need to be aware of the transitional rules. Depending on the level of investment planned, it may be advisable to incur it prior to 31 March 2023, rather than after this date.
Super-deduction for companies
Companies are able to benefit from a ‘super-deduction’ equal to 130% of qualifying expenditure incurred in the period from 1 April 2021 to 31 March 2023. It applies where the expenditure would be eligible for main rate writing-down allowances of 18%. This is a better option than the AIA as it secures a higher rate of relief. However, unincorporated businesses are unable to benefit from the super-deduction.
Companies can also benefit from a 50% first-year allowance for expenditure incurred in the same window where the expenditure would qualify for reduced rate writing-down allowances of 6%. However, where the AIA is available, this is preferable to claiming the first-year allowance as will give relief at the rate of 100% of the expenditure, rather than at the rate of 50%.
To benefit from both the super-deduction and the 50% first-year allowance, companies must incur the qualifying expenditure on or before 31 March 2023.
Speak to us
If you are planning significant capital expenditure, speak to us to find out how to maximise your available capital allowances. The timing of the expenditure will affect the allowances that are available to you.
Paying tax and National Insurance due under your PSA
If you agreed a PAYE Settlement Agreement (PSA) with HMRC for 2020/21, you will need to pay the tax and Class 1B National Insurance that is due in October 2021. The deadline for paying the tax and National Insurance is 22 October if you make your payment electronically, or 19 October if you pay by cheque. Remember, your payment must reach HMRC by the deadline. Payment can be made online via the Gov.uk website. Alternatively, you can make your payment by online or telephone banking, at your bank or building society, using a debit or corporate credit card, or by cheque.
Calculating the tax and Class 1B National Insurance due
A PSA allows you to meet the tax liability on certain benefits and expenses on behalf of your employees. As payment of tax on an employee’s behalf is itself a benefit in kind, you also need to pay tax on that tax. Consequently, when working out the tax due under the PSA, you need to gross up the tax payable at your employees’ marginal rates of tax.
Class 1B National Insurance is due on items included within a PSA that would otherwise be liable for Class 1 or Class 1A National Insurance. It is also payable on the tax due under the PSA. Class 1B National Insurance is payable at the rate of 13.8%.
Contact us to find out how to work out what you need to pay under your PSA for 2020/21, and how to make the payment.
Extension of Making Tax Digital for VAT
Making Tax Digital (MTD) for VAT is currently only compulsory for VAT-registered businesses whose turnover for VAT is above the VAT registration limit of £85,000. However, this is set to change from April 2022.
Extension to all VAT-registered businesses
Currently, if you are registered for VAT, but your turnover for VAT purposes is less than the VAT registration threshold of £85,000, you can join MTD for VAT voluntarily.
From 1 April 2022 onwards, MTD for VAT will become compulsory for all VAT-registered businesses, regardless of their turnover. If you are registered for VAT, your turnover is below the VAT registration threshold of £85,000 and you have not joined MTD for VAT voluntarily, MTD for VAT will apply to you from the start of your first VAT accounting period which begins on or after 1 April 2022.
If you will fall within the scope of MTD for VAT on or after April 2022, you will need to plan ahead. Under MTD for VAT, you must maintain digital VAT records and file your VAT returns using MTD-compatible software. HMRC publish details of compatible software packages which can be used.
You will also need to sign up for MTD for VAT.
We can help
We can help you get ready for MTD for VAT. Why not get in touch?
End of the CJRS
The Coronavirus Job Retention Scheme (CJRS) came to an end on 30 September 2021. The scheme has provided financial help to employers and employees during the COVID-19 pandemic, allowing employers to claim grants with which to pay furloughed and flexibly furloughed employees. If you still have employees who are on furlough, or who are flexibly furloughed, the last month for which you can make a claim is September 2021. You also need to decide what to do with furloughed employees now that the scheme has come to an end.
The last month for which a claim can be made under the scheme is September 2021. The deadline for claiming grants in respect of employees who were furloughed or flexibly furloughed during September is 14 October 2021. As previously, claims can be made online through the claim portal.
For September 2021, as previously, the employee will receive a grant of 80% of their usual pay for their furloughed hours, subject to the cap of £2,500 per month. You can claim 60% of the employee’s usual wages for their furloughed hours. This is subject to a cap of £1,875 for the month. You must make up the difference between the amount to which the employee is entitled and the amount that you have claimed under the scheme. The maximum contribution that you will be required to make for September 2021 is £625 per employee. You will also need to pay any associated employer’s National Insurance and employer pension contributions. Amounts paid to employees are liable to PAYE tax and National Insurance in the usual way.
If you miss the claim deadline, you may be able to make a late claim under the scheme if you have a reasonable excuse for missing the deadline, you have taken reasonable care to make the claim on time, and you claimed without delay as soon as you were able. HMRC may accept that you had a reasonable excuse for failing to make the claim on time if, for example:
- your partner or a close relative died shortly before the claim deadline;
- you had an unexpected stay in hospital which prevented you from dealing with the claim;
- you had a serious or life-threatening illness which prevented you from making your claim;
- a period of self-isolation prevented you from making your claim;
- your computer or software failed just before, or while, you were making your claim;
- service issues with HMRC prevented you from making a claim;
- a fire, flood or theft prevented you from making your claim;
- unforeseen postal delays prevented you from making a claim;
- you were unable to make the claim due to delays related to a disability that you have; or
- an HMRC error prevented you making your claim on time.
If you have missed the claim deadline and have a reasonable excuse for doing so, you should make the claim as soon as you are able, using the service as normal.
Amending the claim
If you have not claimed enough and you need to amend your claim for September, you have until 28 October 2021 in which to do this.
What to do when the scheme closes
At the end of the scheme, if you still have employees who are furloughed or flexibly furloughed, you will need to decide whether:
- to bring them back to work on their agreed terms and conditions;
- terminate their employment; or
- agree any changes to their terms and conditions.
If you terminate an employee’s employment, remember that normal redundancy rules apply.
Talk to us
If you are still using the CJRS, we can help you decide your next steps.
Plan ahead for increases in the dividend tax rates
As part of the Government’s funding strategy for health and social care, the dividend tax rates are to be increased from April 2022, alongside the temporary increases in National Insurance, and, from April 2023, the introduction of the Health and Social Care Levy. The increases in the dividend tax rates will affect you if you operate your business through a personal or family company and extract profits in the form of dividends. It will also affect you if you receive dividends from investments in shares.
Dividend tax rates from April 2022
The dividend tax rates are to increase by 1.25% from 6 April 2022. Once the dividend allowance (currently set at £2,000) and the personal allowance have been utilised, dividends are currently taxed at 7.5% where they fall within the basic rate band, at 32.5% to the extent that they fall within the higher rate band, and at 38.1% where they fall within the additional rate band.
Where the strategy is to extract profits in the form of a small salary plus dividends, typically little or no National Insurance is payable. To ensure that those extracting profits as dividends contribute towards the cost of social care, from 6 April 2022, the dividend tax rates are increased by 1.25%, in line with the temporary increases in National Insurance contributions and the rate of the Health and Social Care Levy. From 6 April 2022, once the dividend allowance and the personal allowance have been used up, dividends will be taxed at 8.75% where they fall within the basic rate band, at 33.75% where they fall within the higher rate band, and at 39.35% where they fall within the additional rate band.
Plan ahead for the increases
As the increases in the dividend rates of tax do not take effect until 6 April 2022, you have time to plan ahead. If you have sufficient retained profits, you may want to consider extracting further profits as dividends in 2021/22, rather than waiting until after 6 April 2022. This will enable you to take advantage of the current, lower, rates of dividend tax. This is likely to be advantageous if you have not used up all of your basic rate band for 2021/22. If you have an alphabet share structure, dividends can be tailored to take advantage of any unused dividend allowances and basic rate bands of other family shareholders.
In deciding whether to extract additional dividends in 2021/22, you will, however, need to take account of your marginal rate of tax. If taking additional dividends now means that they will be taxed at the upper dividend rate of 32.5%, but taking those dividends in 2022/23 would mean that they will fall within the basic rate band, it will be better to take them in 2022/23 despite the rate increase as they will be taxed at 8.75% rather than 32.5%.
Speak to us
We can help you formulate a tax-efficient profit extraction policy for your business. Please get in touch.
National Insurance rises and the Health and Social Care Levy
On 8 September 2021, the Prime Minister outlined the Government’s plans for health and social care, including a new funding strategy designed to meet social care costs. A new tax, the Health and Social Care Levy, is to be introduced from 2023. However, as a temporary measure prior to its introduction, National Insurance contributions will rise for 2022/23 only. This will affect you if you are employed, self-employed or an employer.
Temporary National Insurance increases
For 2022/23 only, the rates of primary and secondary Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions will all rise by 1.25%. The revenue raised as a result will go directly to support the National Health Service and equivalent bodies across the UK. From 6 April 2023, the rates will revert to their 2021/22 levels consequent on the introduction of the new Health and Social Care Levy.
Primary Class 1 National Insurance contributions
Employees currently pay primary Class 1 National Insurance at the rate of 12% on their earnings to the extent that they fall between the primary threshold (currently £184 per week) and the upper earnings limit (currently £967 per week). For 2022/23 only, the main primary rate will increase to 13.25%.
Employees also pay primary Class 1 National Insurance contributions at the additional rate on any earnings in excess of the upper earnings limit. For 2021/22, the additional rate is set at 2%. This will increase to 3.25% for 2022/23 only.
Contributions payable by an employee cease when the employee reaches state pension age.
Secondary Class 1 National Insurance contributions
Employers pay secondary Class 1 National Insurance contributions on the earnings of their employees to the extent that they exceed the secondary threshold or the relevant upper secondary threshold, as appropriate. Contributions are payable at the secondary rate. For 2021/22, this is set at 13.8%. For 2022/23 only, the secondary rate will increase to 15.05%.
For 2021/22, the secondary threshold is set at £170 per week.
Where the employee is under the age of 21, an apprentice under the age of 25, or an armed forces veteran in the first year of their first civilian job since leaving the armed forces, employer contributions are only payable to the extent that the earnings of the employee or the apprentice exceed the relevant upper secondary threshold. For each of these groups, the relevant upper secondary threshold is set at £967 per week for 2021/22. From 2022/23, employers in Freeport tax sites will only pay secondary Class 1 employer contributions on the earnings of new Freeport employees to the extent that these exceed a new upper threshold for Freeport employees. This is to be set at £25,000 a year.
Unlike employees, employers continue to pay secondary contributions on the earnings of any employees who have reached state pension age.
Class 1A National Insurance contributions
Class 1A National Insurance contributions are employer-only contributions, payable on most taxable benefits in kind, and also on taxable termination payments in excess of £30,000 and taxable sporting termination payments in excess of £100,000.
The Class 1A rate is the same as the secondary rate of Class 1 National Insurance contributions, payable by employers on employees’ earnings. Consequently, this is set at 13.8% for 2021/22. It will increase to 15.05% for 2022/23 only.
Class 1B National Insurance contributions
Class 1B National Insurance contributions are payable by employers on items included within a PAYE Settlement Agreement (PSA) in place of the Class 1 or Class 1A liability that would otherwise be due. They are also payable on the tax due under the PSA.
The Class 1B rate is also aligned with the secondary Class 1 rate, at 13.8% for 2021/22, rising to 15.05% for 2022/23 only.
Class 2 and 4 National Insurance contributions
There are two Classes of National Insurance contributions payable by the self-employed – Class 2 and Class 4. Class 2 are flat rate contributions. Class 4 are payable on profits where these exceed the lower profits limit, set at £9,568 for 2021/22. Class 4 contributions are payable at the main Class 4 rate on profits between the lower profits limit and the upper profits limit, set at £50,270 for 2021/22, and at the additional Class 4 rate on profits in excess of the upper profits limit. For 2021/22, the main Class 4 rate is 9%. For 2022/23 only, it will increase by 1.25% to 10.25%. The additional Class 4 rate is currently 2%. It will increase by 1.25% for 2022/23 only, to 3.25%.
Class 2 National Insurance contributions are not affected by the temporary increase applying for 2022/23.
Class 3 National Insurance contributions
Class 3 National Insurance contributions are voluntary contributions which a contributor may choose to pay to make up for a shortfall in their National Insurance record. Class 3 National Insurance contributions are unaffected by the temporary increase in National Insurance contributions applying for 2022/23.
Health and Social Care Levy
A new tax, the Health and Social Care Levy, is to be introduced from April 2023. Funds raised from the levy will be ring-fenced to support UK health and social care bodies.
The levy is set at 1.25%. It will be payable on the earnings on which an employee, an employer or a self-employer person is liable to pay a qualifying National Insurance contribution. Qualifying National Insurance contributions are Class 1, Class 1A, Class 1B and Class 4. However, unlike National Insurance contributions, the Health and Social Care Levy will be payable on earnings and profits of individuals who are above state pension age.
The new Health and Social Care Levy will operate in the same way as National Insurance contributions for administrative purposes.
Get in touch
We can explain what the National Insurance increases and the new Health and Social Care Levy will mean for you.
You may be able to benefit from funding under the Kickstart Scheme if you are looking to create new jobs for young people. Information on the scheme can be found in the Kickstart Scheme Employer Prospectus.
Nature of the scheme
The scheme aims to create jobs for young people who are unemployed. The job must be a new job and must be for at least 25 hours a week for six months. The job cannot replace existing or planned vacancies, or cause existing employees, apprentices or contractors to lose their jobs or to have their hours reduced. In addition, you must help the young person to become more employable, for example, by helping them to develop their skills in the workplace or providing support with job applications and interview preparation.
Employers using the scheme can apply for funding, which will cover:
- 25 hours at the National Living Wage or National Minimum Wage appropriate for the person’s age;
- any associated employer’s National Insurance;
- minimum automatic enrolment pension contributions; plus
- a grant of £1,500 to cover set-up costs and employability support.
Applications can be made online or via a Kickstart Gateway.
Find out more
If you would like to know more about the scheme and whether it is for you, we can help.
Get ready for the plastic packaging tax
The plastic packaging tax is a new tax which is being introduced from 1 April 2022. The tax aims to provide a financial incentive to use recycled plastic in plastic packaging, which in turn will boost recycling and divert plastic away from landfill.
You may have to pay the tax if you manufacture or import plastic packaging that does not contain at least 30% recycled plastic by weight. However, the tax will not apply to businesses that manufacture or import less than 10 tonnes of plastic packaging a year.
HMRC have published guidance for businesses that may fall within the scope of the tax to help them prepare for its introduction.
Scope of the tax
The plastic packaging tax applies to finished plastic packaging components that are manufactured or imported into the UK which contains less than 30% recycled plastic by weight. If you import goods in plastic packaging, for example, drink in plastic bottles, you may have to pay the tax. However, the tax only applies to the weight of the plastic packaging, not to the goods that it contains.
Certain types of plastic packaging are exempt from the tax, irrespective of the amount of recycled plastic packaging that they contain. The exemptions apply to:
- plastic packaging that is manufactured or imported for use in the immediate packaging of medicinal products;
- transport packaging used on imported goods;
- packaging used as aircraft, ship or rail stores; and
- components that are permanently set aside for a use other than a packaging use.
Goods for export
Liability for the tax can be deferred for up to 12 months if you import plastic packaging for export. The liability for the tax is cancelled if the packaging is exported within 12 months of importation.
A tax credit will be available if packaging within the scope of the tax is converted into other packaging. This is to prevent a double liability on the same packaging.
Amount of the tax
The tax will be payable at a rate of £200 per tonne of plastic packaging which does not contain at least 30% recycled plastic.
Registering for the tax
Manufacturers and importers of plastic packaging will need to register for the tax. You will need to register if:
- at any time after 1 April 2022, you expect to manufacture or import at least 10 tonnes of plastic packaging in the following 30 days. Where this the case, you have 30 days in which to register; or
- the business has manufactured or imported at least 10 tonnes of plastic packaging in a 12-month period ending on the last day of a calendar month. You are liable for the tax from the first day of the next month, and must register by the first day of the following month.
In each case, only plastic packaging manufactured or imported on or after 1 April 2022 is taken into account.
It is important to note that when working out whether you need to register, the weight of all plastic packaging that you manufacture or import is taken into account, not just that containing less than 30% recycled plastic.
If you manufacture or import plastic packaging, you will need to keep records, even if you manufacture or import less than 10 tonnes annually as you will need to demonstrate to HMRC that you do not need to register for the tax. You will need to keep records of the weight of plastic packaging manufactured or imported, how much (by weight) is recycled plastic, and the amount by weight covered by an exemption.
HMRC have said that reduced record-keeping requirements will apply to businesses that manufacture or import less than 10 tonnes of plastic packaging each year, details of which are to be published in due course.
Get in touch
Talk to us if you manufacture or import plastic packaging to find out how the new tax will affect your business.
Check you are paying the NMW
The Government have recently named and shamed well-known employers who have fallen foul of the National Minimum Wage legislation. They have also published a list of ‘outrageous excuses’ cited by employers who have failed to pay the minimum wage.
Legal requirement to pay at least the minimum wage
As an employer, you have a legal requirement to pay a worker at least the statutory minimum wage for their age. Check that you are paying your workers the correct amount, and that you understand how to calculate the minimum amount that you need to pay the worker depending on the type of work that they do.
National Living Wage and National Minimum Wage
The National Living Wage (NLW) is the legal minimum that you must pay a worker who is aged 23 and over. The NLW is £8.91 an hour.
Workers under the age of 23 and above compulsory school age must be paid at least the National Minimum Wage (NMW) for their age. This is £8.36 per hour for workers aged 21 and 22, £6.56 per hour for workers aged 18 to 20, and £4.62 per hour for workers who have reached school leaving age and who are under the age of 18.
A separate NMW rate applies to apprentices. This is currently £4.30 per hour. The apprentice rate of the NMW should be paid to apprentices under the age of 19, and to apprentices over the age of 19 who are in the first year of their apprenticeship. You must pay apprentices aged 19 and over who have completed the first year of their apprenticeship at least the NMW for their age.
Despite the legal requirement to pay apprentices at least the relevant NMW, the Low Pay Commission found that only around 1 in 5 apprentices received the NMW. Mistakes made by employers include continuing to pay the apprentice rate to apprentices once they had reached the age of 19 and completed the first year of their apprenticeship, and failing to pay apprentices for their training time.
If you provide your workers with accommodation, you can reduce the minimum wage to provide for a contribution to the cost of the accommodation. The permitted reduction – the accommodation offset – is set at £58.52 per week (£8.36 per day).
Speak to us if you are unsure whether you are complying with the NMW legislation.
Reclaiming SSP for periods of self-isolation
The recent ‘pingdemic’ has resulted in large numbers of employees self-isolating. Where an employee meets the qualifying conditions, you must pay them SSP while they are self-isolating. As qualifying periods of self-isolation count as a Coronavirus-absence, if you are a small employer, you may be able to reclaim the SSP paid to self-isolating employees from HMRC under the Coronavirus Statutory Sick Pay Rebate Scheme.
Relaxation of the SSP rules for Coronavirus-absences
The SSP rules have been relaxed in respect of Coronavirus absences. The relaxations mean that if an employee is absent from work for a Coronavirus absence and qualifies for SSP, you must pay SSP from the first working day of the absence – the three waiting days which normally have to be served before SSP is payable are waived in relation to Coronavirus absences. However, there must be a period of incapacity for work (PIW) for SSP to be payable. This means that the employee must have COVID-19 or be self-isolating for at least 4 days, including non-working days, to create a PIW.
Period of self-isolation
The following periods of self-isolation count as Coronavirus absences:
- periods of self-isolation where the employee is self-isolating because they live with someone who has Coronavirus symptoms or who has tested positive for COVID-19;
- periods of self-isolation where the employee has been notified by the NHS or public health bodies that they have come into contact with someone with Coronavirus. This includes employees who are pinged and those contacted by NHS track and trace; and
- employees who have been notified by the NHS to self-isolate before surgery.
However, a period of self-isolation following the return to the UK from a country on either the amber list or the red list does not count as a Coronavirus absence, and employees who are self-isolating for this reason are not eligible for SSP unless they qualify on other grounds.
If you are a small employer, you may be able to reclaim SSP paid to employees who are self-isolating for the reasons outlined above. You will be a ‘small employer’ for these purposes if you had a PAYE payroll scheme on 28 February 2020 and, at that date, you had no more than 250 employees on your payroll. If you have more than one PAYE scheme, the 250-employee limit applies across all of your PAYE schemes.
Under the scheme, you can claim a maximum of two weeks’ SSP per employee for Coronavirus absences. This means that if an employee has more than one period of self-isolation, you will need to meet the cost of some of the SSP that you pay to them while absent.
For 2021/22, the weekly rate of SSP is £96.35.
Claims for SSP rebates can be made online.
Talk to us
If you have been affected by the ‘pingdemic’, talk to us to find out whether you are eligible for an SSP rebate.
Basis period reform
HMRC have been consulting on the reform of the basis period rules in preparation for the introduction of Making Tax Digital for Income Tax Self-Assessment (MTD ITSA), which comes into effect from April 2023. A consultation paper was published in July 2021, which sets out new simplified basis period rules. Comments were sought by 31 August 2021 on how best to implement the reforms.
Existing rules – the current year basis
Once an unincorporated business is established, it is taxed on the current year basis. Special rules apply in the opening and closing years of the business. Under the current year basis, the profits that are taxed for a particular tax year are those for the accounting period that ends in that tax year. Consequently, if the business prepares its accounts to 30 June each year, for the 2021/22 tax year, it will be taxed on its profits for the year to 30 June 2021, as this is the year that ends between 6 April 2021 and 5 April 2022.
Under the existing rules, some of the profits of the business may be taxed twice in the opening years. These profits are known as ‘overlap’ profits. Relief for the double taxation of these profits, known as ‘overlap relief’, is given when the business ceases, or earlier if there is a change of accounting date.
New rules – tax year basis
The reforms will mean that unincorporated businesses will be taxed on the profits arising in the tax year – i.e., the profits for the period from 6 April to the following 5 April. Where the business prepares accounts to 31 March, these will be deemed to correspond to the tax year (as will the preparation of accounts to any date between 31 March and 5 April).
If you prepare accounts to a date other than 31 March/5 April, you will need to apportion your profits so that they correspond to the tax year. For example, if you prepare your accounts to 30 June, for 2023/24, you will be taxed on 3/12th of the profit for the year to 30 June 2023 (covering the period from 6 April 2023 to 30 June 2023) plus 9/12th of the profit for the year to 30 June 2024 (covering the period from 1 July 2023 to 5 April 2024).
The tax year basis will apply from 2023/24, with 2022/23 being a transitional year.
Estimation of profits
If you have an accounting date late in the tax year and prepare accounts other than to 31 March/5 April, you may not have the second set of accounts available when you come to complete your tax return. For example, if you prepare your accounts to 28 February, for 2023/24 you will be taxed on 11/12th of your profit for the year to 28 February 2024 and 1/12th of your profit for the year to 28 February 2025. The accounts to 28 February 2025 will not be available by 31 January 2025, and you would be expected to file a provisional return, which would be amended later when the information is available.
This will create extra work, and HMRC are looking at alternative estimation approaches, such as making an estimate based on the profits for the quarterly updates submitted under MTD ITSA, extrapolating the profits for the ‘known’ part of the tax year, and allowing the final figures to be provided as part of the following year’s return.
To overcome this, you may prefer to change your accounting date and prepare accounts to 31 March/5 April. This will avoid the need for an apportionment calculation and reduce your workload.
Transitional rules are needed to move from the current year basis to the tax year basis. The transition year is 2022/23.
For the transition year, the taxable profits for a business that does not have a 31 March/5 April year end will comprise the sum of:
- the standard component (which is the profit assessable in 2022/23 under the current year basis); and
- the transition component (which is the profit for the period from the end of the current year basis period to the end of the 2022/23 tax year).
Any historic overlap relief can be claimed in the transition year by deducting overlap profits from the result of the above calculation.
For example, if you prepare accounts to 30 June each year, for 2022/2023, you will be taxed on the profits for the year to 30 June 2022 (the basis period for 2022/23 under the current year basis) plus profits for the period from 1 July 2022 to 5 April 2023 (the transition component), less any overlap profits. The overlap relief will cover the period from the date on which the business started to the following 5 April.
Spreading excess profits
In the transition year, your profits may be higher than normal. This will be the case if your transition component is more than your overlap relief. If you started your business some time ago, the impact of inflation may mean that your overlap profits are considerably less than the profits of the transition component, even if they both cover the same number of months. If your profits are higher than normal, your tax bill will also be higher, and you may pay tax at a higher marginal rate as a result.
To mitigate the effect of the transition year on cash flow, HMRC plan to allow businesses to elect to spread any excess profits in the transition year over five years.
As part of the simplification reforms, HMRC propose that the statutory rule which deems 31 March to be equivalent to 5 April in the first three years of a trade is extended so that it applies to all the years of the trade. This will mean that where accounts are prepared to 31 March, the business would not need to make small adjustments for the profits of the business to correspond to the tax year, which runs to 5 April. The consultation sought views on whether this equivalence rule should be extended to property businesses.
We can help
Please talk to us about what the reforms will mean for your business, and what you need to do to prepare for the introduction of MTD ITSA.
Back to the office
Now that the ‘work from home if you can’ guidance has been lifted, employees are returning to the office. If, following their return, you allow employees to keep their homeworking equipment for personal use, there may be tax consequences to consider.
If you provided homeworking equipment to your employees to enable them to work from home, no tax charge arose on the provision of the equipment, as long as you retained ownership of it. However, there may be tax to pay if you allow the employee to keep the equipment for their personal use when they no longer need it to work from home. The nature of the tax charge depends on whether ownership of the equipment is transferred to the employee.
A tax charge will arise if you transfer ownership of the equipment to the employee, unless the employee pays at least the market value for the equipment. The amount charged to tax is the market value at the date of the transfer, less any amount paid by the employee.
No transfer of ownership
If, instead, you retain ownership of the equipment but allow the employee to use it for their personal use, the tax charge is based on the ‘annual value’ of the equipment. This is 20% of the market value of the equipment at the date on which it is first made available for the employee’s personal use.
You may have chosen to adopt a flexible working policy under which employees continue to work from home some of the time. Where this is the case, as long as the homeworking equipment remains available predominantly to allow the employee to work from home, no tax charge will arise on insignificant private use.
At the start of the pandemic, many employees were required to work from home at very short notice. In many cases, it was easier for the employee to buy the equipment that they needed to work from home, and claim the cost back from the employer.
If you took this route and reimbursed employees for the cost of homeworking equipment, as long as the ownership of the equipment was not transferred to you, there is no tax to pay if the employee retains the equipment for personal use when they return to the workplace.
If you are unsure whether a tax charge arises in respect of retained homeworking equipment when your employees return to the office, please get in touch to discuss this with us.
NMW reminder for summer staff
If you take on temporary staff over the summer, you will need to pay them at least the National Living or Minimum Wage appropriate to their age.
Workers aged 23 and over
Workers aged 23 and over are entitled to be paid at least the National Living Wage (NLW). This is set at £8.91 per hour.
Workers under the age of 23
Workers under the age of 23 are not entitled to the NLW; instead, you must pay them at least the National Minimum Wage (NMW) for their age. This is set at £8.36 per hour for workers aged 21 and 22, at £6.56 per hour for workers aged 18 to 20, and at £4.62 per hour for workers aged under 18 but over school leaving age.
Get in touch
Talk to us if you are unsure whether you are complying with the National Minimum Wage rules.
Collection of tax debts after COVID-19
During the COVID-19 pandemic, HMRC paused much of their debt collection work, both to divert resources to administering the various COVID-19 support schemes and to help taxpayers whose finances were adversely affected by the pandemic. However, as the country emerges from the Coronavirus crisis, HMRC have restarted their tax debt collection work and will be contacting taxpayers who have fallen behind with their payments.
Talk to HMRC
If you have unpaid tax debts and HMRC contact you to discuss those debts, the best course of action is to speak to them to agree a repayment plan. Ignoring the problem will not make it go away, and HMRC may start enforcement proceedings against taxpayers who ignore their attempts to contact them.
Pay if you can
If you have outstanding tax debts and are able to pay them, HMRC’s expectation is that you will. In assessing your ability to pay, HMRC will expect you to make use of the various COVID-19 finance schemes, such as the Recovery Loan Scheme, to raise the necessary funds. If you need time to arrange the finance, HMRC may offer a short-term deferral of your tax debt. If this is agreed, HMRC will not take any action until that period had elapsed, and you will not need to make any payments during the deferral period.
If you are unable to clear your outstanding tax debts in full, you may be able to agree a time-to-pay arrangement with HMRC.
There is no standard agreement; time-to-pay arrangements are based on an individual’s circumstances. HMRC will establish your ability to pay by looking at your income and expenditure. They will also want to know why you are struggling to pay, and what action you have taken to try and pay some or all of the bill.
If you do not pay your outstanding tax debts or come to an agreement with HMRC to pay what you owe in instalments, from September 2021, HMRC may use their enforcement powers to collect tax that is owed to them. Avenues available to them include taking control of goods, summary warrants and court action, including insolvency proceedings.
While HMRC will, where possible, aim to support viable businesses, if a business has little chance of recovery, HMRC will take action to recover any tax that they are owed.
Talk to us
If you have tax debts that you are struggling to pay, speak to us. We can help you agree a repayment plan with HMRC.
EU e-commerce package for VAT
The EU e-commerce package came into effect on 1 July 2021. It introduced reforms in respect of the movement of goods from Northern Ireland to the EU and imports of low value goods into the EU or Northern Ireland.
Who is affected?
The changes will affect you if you:
- sell or supply goods from Northern Ireland to non-VAT registered customers in the EU;
- make supplies of goods from the EU to non-VAT registered customers in Northern Ireland;
- send low value goods to Northern Ireland or the EU from Great Britain or elsewhere outside the EU and Northern Ireland; or
- are a non-EU business with goods located in Northern Ireland at the point of sale.
New distance selling threshold
A new pan-European distance selling threshold of €10,000 (£8,818) applies from 1 July 2021.
The new distance selling threshold will apply to you if you are a business selling goods to consumers based in Northern Ireland. You will fall within the scope of the rules if the annual value of your sales of goods across the EU exceeds this level. There is no need to take account of sales of services as these do not count towards the threshold.
One Stop Shop
A new One Stop Shop (OSS) has been introduced to prevent businesses falling within the scope of the rules from having to register in each EU member state in which they have customers. If you are a Northern Irish business selling goods in excess of the new €10,000 threshold to EU consumers, you can register for the OSS, rather than registering for VAT in each member state in which you have customers. Registering with the OSS is optional, but it will enable you to declare and pay VAT for EU goods quarterly via one online portal. You can register either in the UK or in a member state with which you do business. If you register in the UK, you will need to be registered for UK VAT, even if your turnover is below the VAT registration threshold.
Low value consignment relief
Low Value Consignment Relief (which provided an exemption from import VAT for consignments of goods valued at less than €22 which were sold online to customers in the EU) was abolished with effect from 1 July 2021. This means that if you sell goods online to EU customers, you will now need to pay import VAT in the country in which the customer is based.
Import One Stop Shop (IOSS)
The Import One Stop Shop (IOSS) was introduced from 1 July 2021. The IOSS, which can only be used for consignments valued at €150 (£135) or less, allows registered businesses to collect the import VAT on business-to-customer (B2C) orders at the point of sale. If you do not register to use the IOSS, VAT will be collected on importation into the EU, as for high value consignments.
If your business is established outside the EU, to use the IOSS, you will need to appoint an intermediary to act on your behalf. This will be the case if your business is established in the UK.
The package also introduces new rules for supplies made to online marketplaces importing goods into the EU and Northern Ireland. These are similar to the rules that have applied for imports into Northern Ireland from outside the UK and the EU since 1 January 2021.
We can help
We can help you understand what the reforms mean for you, and what you need to do. We can also explain how the rules apply to you if you use an online marketplace to import goods.
Reporting SEISS payments on your tax return
If you have received one or more grants under the Self-Employment Income Support Scheme (SEISS), it is important that you report the payments correctly on your tax return.
2020/21 self-assessment tax return
SEISS grants that were received in the 2020/21 tax year (i.e., between 6 April 2020 and 5 April 2021) should be reported on your 2020/21 self-assessment tax return, regardless of the date to which you prepare your accounts. The return must be filed online by midnight on 31 January 2022 (or by 31 October 2021 if you file a paper return). The first three grants under the scheme were paid in the 2020/21 tax year.
If you have already filed your 2020/21 tax return, HMRC may adjust your return if the information that they hold on the SEISS payments that have been made to you does not match what is shown on your return.
How to report SEISS payments
Grant payments received under the SEISS should not be included in turnover. Instead, they should be reported separately on the 2020/21 tax return in the box for Self-Employment Income Support Scheme grants. The location of the box depends on which self-assessment tax return is completed. It can be found:
- on page 2 of the ‘other tax adjustments’ section on the self-employment pages (SA103F) of the full return;
- in the ‘other tax adjustments’ section of the self-employment (short) page (SA103S);
- on page 2 of the ‘trading or professional profits’ section of the partnership return; and
- in section 3.10A of the SA200 short tax return.
HMRC will check the SEISS grants payments reported in the return against their records of the grants that have been paid to you.
If you have already submitted your 2020/21 tax return, and the amount of the SEISS payments that you reported on your return did not tally with HMRC’s records, HMRC will adjust your return to match their records and they will send you a revised tax calculation.
It is advisable that you check the figures on HMRC’s revised calculation against your records of the grants received. You can check the amounts that you have received either by logging into the SEISS claims service or against your bank statements for the account into which the payments were made.
If you do not agree with HMRC’s revised figures, you should contact their Coronavirus (COVID-19) helpline for businesses and self-employed people.
Failure to report SEISS payments
If you received one or more grants under the SEISS in 2020/21 and do not include them on your self-assessment tax return for that year, HMRC will adjust your return to reflect the payments and send you a revised tax calculation. As a result, you may find that you owe more tax than you expected, have an unexpected tax bill, or that the tax repayment you were expecting is reduced.
SEISS payments reported in the wrong box
If you included SEISS payments in your 2020/21 tax return, but did not enter the amount that you received in the designated box, for example, because you included it in turnover or entered it in one of the ‘other income’ boxes, you will need to amend your self-assessment tax return so that the grants are entered in the correct box and removed from the wrong box. If you do not do this, the grant income will be assessed twice, as HMRC will adjust the return to enter details of grants received in the correct box (but will not remove the income from elsewhere in the return).
Failure to complete a self-employment or partnership page
To qualify for the SEISS grants for 2020/21, you had to be trading in that tax year. If you have not completed a self-assessment or partnership page, HMRC will assume that you were not trading, and therefore ineligible for the grants. Consequently, they will seek to recover any grants that were paid to you.
If you were trading, but omitted to complete the relevant pages, you should amend your tax return to reflect this.
Appeal if you disagree with HMRC’s adjustments
If you do not agree with the changes that HMRC have made to your tax return in respect of your SEISS grant payments, you can appeal. However, you must do this within 30 days of the date on the SA302 letter advising you of the changes that they have made to your return.
HMRC have not yet taken account of changes that were made to 2020/21 tax returns before 19 June 2021. If you corrected your return before that date, you do not need to contact HMRC as they will process the amendments separately.
Speak to us
Contact us if HMRC have adjusted the SEISS payments reported in your 2020/21 tax return. We can help you check whether the figures are correct, and take action if they are not.
Accessing the Government Gateway
From 15 June 2021, all businesses and organisations will need multi-factor authentication in order to sign into the Government Gateway.
Businesses and organisations that use HMRC’s online services and which do not currently receive an access code by text or voice call, or direct to an authenticator app, will need to add a device, such as their mobile phone number, to their Government Gateway account in order to be able to sign in. Once a device has been added, you will receive an access code every time you sign in. The changes are being made to further protect Government Gateway accounts from fraud.
You do not need to do anything until the next time that you sign in. At this point you will be asked to add your new device.
Already have multi-factor authentication?
If you already have multi-factor authentication on your business’s or organisation’s Government Gateway account, nothing will change. You can continue to sign in as usual, receiving your access code in the normal way.
If your business or organisation needs to allow employees to access your Government Gateway account, this can be done using multi-factor authentication. To do this, use the administrator and assistant functionality in your Business Tax Account to create additional users. Each user will have their own multi-factor authentication, and will need an access code to sign in.
Individuals and agents
The changes do not apply to individuals accessing their own account, or to agents.
Talk to us
Contact us to find out how to set up and use your Government Gateway account.
Paying CJRS grants back
As the Coronavirus Job Retention Scheme (CJRS) enters its final months, now is the time to review grants that you have claimed under the scheme, and pay back any amounts claimed in error. You may also choose to repay voluntarily funding that you have received under the scheme if your business does not need it. Some notable large companies in the retail and hospitality sectors have opted to do this.
The CJRS allows employers to claim grants to pay employees who are furloughed or flexibly furloughed. Under the scheme, the employee must be paid 80% of their usual pay for their unworked hours, subject to a cap of £2,500 a month or equivalent. The employer can claim some or all of this back from the Government under the CJRS. If the amount that you have claimed is less than the amount you need to pay the employee (as will be the case for July, August and September 2021), you must make up the shortfall.
If you have claimed too much or you want to make a voluntary repayment, you can either:
- correct the overpayment in your next claim; or
- get a payment reference from HMRC and repay the money within 30 days.
HMRC have published guidance which explains how to make a repayment.
Making a correction in your next claim
If you still have employees who are furloughed or flexibly furloughed and you will be making another claim under the CJRS, you can correct the overclaim when you do your next claim. If you have another claim to make, you should adjust that claim rather than making a repayment direct to HMRC.
To correct an overclaim, you should initially work out your next claim as usual. If you are sending a file containing your claim details, you should prepare this as normal without taking account of the amount overclaimed.
You will then need to work out the amount you have overclaimed, and deduct this from the amount that you are claiming this time. The result is the amount that you will need to enter in the ‘claim amount’ box on the claim form. You will also need to enter the amount that you have overclaimed in the ‘overclaim’ box. For example, if you are making a claim for July 2021 for £20,000 and you have realised that you overclaimed £2,000 for June 2021, you will need to enter ‘£18,000’ in the claim box. This is the net amount that you are claiming for July 2021 after adjusting for the overclaim. You will also need to enter ‘£2,000’ in the overclaim box.
Paying HMRC back
You should only make a payment direct to HMRC if you do not have further claims to make and are not able to repay the amount that you owe by adjusting a subsequent claim. Before making a payment, you will need to get a payment reference from the online service. It is important that you use the correct reference.
Payments can be made to the following HMRC account using faster payments, CHAPS or Bacs:
- sort code: 08 32 10;
- account number: 12001039;
- account name: HMRC Cumbernauld.
Payments can also be made by debit card or using a corporate credit card (but not a personal credit card).
If you have overclaimed, you must tell HMRC by the later of:
- 90 days after the date on which you received the money to which you were not entitled; and
- 90 days from the date on which you ceased to be eligible to keep the grant because your circumstances changed.
To avoid being charged a penalty, you will need to notify HMRC and repay the overclaimed grant within this time frame.
We can help
Get in touch to find out how we can help you sort out any mistakes you have made when claiming grants under the CJRS.
New lower temporary SDLT threshold
The residential stamp duty land tax (SDLT) threshold applying in England and Northern Ireland was temporarily increased to £500,000 from 8 July 2020 to 30 June 2021 (extended from the original end date of 31 March 2021). From 1 July 2021 to 30 September 2021, a new temporary residential threshold of £250,000 applies. The threshold reverts to its usual level of £125,000 from 1 October 2021. Details of the rates can be found on the Gov.uk website.
Nature of the temporary threshold
To help boost house sales during the COVID-19 pandemic, the SDLT residential threshold was temporarily increased. Similar measures were introduced in Scotland in relation to land transaction tax (LTT) and in Wales in relation to land and buildings transaction tax (LBTT).
SDLT: 8 July 2020 to 30 June 2021
A higher temporary residential SDLT threshold of £500,000 applied in England and Northern Ireland where completion took place between 8 July 2020 and 30 June 2021. The usual rates applied to any consideration in excess of £500,000.
SDLT: 1 July 2021 to 30 September 2021
From 1 July 2021, the SDLT residential threshold drops to a new temporary level of £250,000. If you are in the process of buying a house and missed the 30 June 2021 completion deadline, you will be able to save SDLT of up to £2,500 if you complete by 30 September 2021.
The residential rates applying during this period are as set out in the table below.
|Consideration||Only or main home||Second and subsequent properties|
|Up to £250,000||0%||3%|
|The next £675,000 (£250,001 to £925,000)||5%||8%|
|The next £575,000 (£925,001 to £1.5 million)||10%||13%|
From 1 July 2021, the threshold for first-time buyers reverts to £300,000 where the consideration is £500,000. First-time buyers pay no SDLT on the first £300,000 and pay SDLT at the rate of 5% on any consideration in excess of £300,000 up to £500,000. If the consideration is more than £500,000, the above rates and residential threshold apply.
SDLT: From 1 October 2021
The residential SDLT threshold reverts to its usual level of £125,000 from 1 October 2021. Purchasers will pay SDLT at a rate of 2% on the portion from £125,000 to £250,000. Above £250,000, the rates are as in the table above.
Second and subsequent properties
Investors and second-home owners also benefit from the temporary residential thresholds as the 3% supplement is added to the residential rates as reduced.
The LTT threshold in Scotland was increased to £250,000 from 15 July 2020 until 31 March 2021. However, this period was not extended, and the threshold reverted to £145,000 from 1 April 2021. As in England and Northern Ireland, those buying second and subsequent properties benefited from the higher threshold; the 4% supplement was applied to the reduced residential rates.
The LBTT threshold in Wales was increased to £250,000 from 27 July 2020 to 30 June 2021, reverting to £180,000 from 1 July 2021. Unlike the rest of the UK, purchasers of second and subsequent properties in Wales did not benefit from the higher threshold.
Speak to us
If you are thinking of moving home or buying a holiday or investment property, speak to us to find out whether you can save SDLT.
NIC relief for employers of armed forces veterans
A new relief has been introduced for employers of armed forces veterans which allows them to benefit from a zero rate of secondary National Insurance contributions on the earnings of the veteran up to a new upper secondary threshold. However, while the relief applies from 6 April 2021, for 2021/22 employers must pay secondary contributions as normal and claim the relief retrospectively from 6 April 2022.
Nature of the relief
To encourage employers to employ armed forces veterans, no secondary Class 1 National Insurance contributions are payable on the veteran’s earnings during the first 12 months of their first civilian employment since leaving the armed forces, unless their earnings exceed a new upper secondary threshold. The new upper secondary threshold for veterans will be set at the same level as the existing upper secondary thresholds for employees under the age of 21 and apprentices under the age of 25. For 2021/22, this is £967 per week, £4,189 per month and £50,270 per year. The threshold is also aligned with the upper earnings limit applying for primary (employee’s) Class 1 National Insurance purposes.
If earnings exceed the new upper secondary threshold, employer’s contributions are payable as normal on the excess at the usual rate of 13.8%.
The relief applies from 6 April 2021. Where the veteran’s first civilian employment after leaving the armed forces started after 6 April 2020 but before 6 April 2021, the relief will apply from 6 April 2021 until the first anniversary of the start date.
Subsequent and concurrent employers will also be able to benefit from the relief during the relief period.
Who counts as a veteran?
For the purposes of the relief, an armed forces veteran is someone who has served at least one day in the regular armed forces. This includes someone who has undertaken at least one day of basic training.
Giving effect to the relief
The relief is available from 6 April 2021 and applies for 2021/22, 2022/23 and 2023/24 (although the Treasury have the power to extend the relief to later tax years). However, the way in which the relief is given depends on the tax year. HMRC have published guidance for employers who hire armed forces veterans explaining how the relief works.
For 2021/22 only, employers who take on an armed forces veteran in the first year of their first civilian employment since leaving the armed forces will need to pay secondary Class 1 National Insurance on the veteran’s earnings as usual to the extent that they exceed the secondary threshold (set at £170 per week, £737 per month and £8,840 per year for 2021/22). Employers will be able to claim the relief retrospectively from 6 April 2022.
For 2022/23 and 2023/24, employers will be able to apply the relief in real time through the payroll, as is the case for the reliefs available to employers of employees under the age of 21 and employers of apprentices under the age of 25.
Talk to us
Talk to us to find out whether you are able to benefit from the relief, and how much it is worth to you.
SEISS grant 5
Claims for the fifth grant under the Self-Employment Income Support Scheme (SEISS) will open from late July. If, based on your tax returns, HMRC think that you are eligible for the grant, they will contact you in mid-July and give you a date from which you can submit your claim. The fifth grant will cover the period from May 2021 to September 2021. However, unlike previous grants, the amount of this grant will depend on the extent to which you suffered a reduction in your turnover in the year from April 2020 to April 2021 as a result of the impact of the COVID-19 pandemic.
If you are a self-employed individual or an individual member of a partnership and you meet the eligibility criteria, you will be able to claim the fifth and final SEISS grant. To qualify, you must have traded in 2019/20, and also in 2020/21. You must either be trading currently, or have been trading but are unable to do so temporarily as a result of COVID-19 restrictions. In addition, you must have filed your 2019/20 tax return by midnight on 2 March 2021.
As previously, you will only qualify for the grant if your trading profits are not more than £50,000 and they account for at least 50% of your total income. In deciding whether this test is met, HMRC will look first at your return for 2019/20. If you are not eligible based on your 2019/20 income, HMRC will then look at your returns from 2016/17 to 2019/20 inclusive and work out whether you are eligible based on your average income for those years.
When making your claim, you must declare that:
- you intend to trade; and
- you reasonably believe that there will be a significant reduction in your trading profits due to reduced business activity, capacity, demand or the inability to trade as a result of COVID-19 during the period from May 2021 to September 2021.
Amount of the grant
If you meet the eligibility conditions, the amount of your grant will depend on the extent to which your turnover fell as a result of the COVID-19 pandemic during the year to April 2021.
Turnover fallen by at least 30%
If your turnover fell during this period by at least 30% as a result of the impact of the pandemic, your fifth grant will be worth 80% of three months’ average trading profits, subject to a maximum grant of £7,500.
Turnover fallen by less than 30%
If your turnover fell in the year to April 2021 as a result of the impact of COVID-19, but by less than 30%, you will be able to claim a grant worth 30% of three months’ trading profits, subject to a maximum grant of £2,850.
Need to keep records
You should keep evidence in support of your claim, showing how your business has been affected by the COVID-19 pandemic, and the extent to which your turnover and profits have fallen as a result.
Get in touch
Although HMRC’s rules do not allow us to claim the grant on your behalf, we can check whether you are eligible, and, if you are, help you work out the extent to which your turnover has fallen as a result of the pandemic, and the amount that you are able to claim.
Claim relief for shares of negligible value
If you have some shares that have become worthless, you can make a negligible value claim. This will allow you to set the associated loss against any chargeable gains that you make in the same, or a later, tax year, potentially reducing the amount of capital gains tax that you pay.
Making a claim
A claim can be made either in your self-assessment tax return or by writing to HMRC.
If you are making a claim in respect of unquoted shares, you will need to provide the following information in support of your claim:
- a statement of affairs for the company and any subsidiaries;
- a letter from the liquidator or receiver showing whether any return will be made to the shareholders;
- details of how this decision was reached (for example, a balance sheet where liabilities are significantly greater than assets); and
- evidence that no recovery or rescue is likely (for example, a statement that the company has ceased trading).
If your claim is in respect of shares in a company that is not in liquidation or receivership, comprehensive evidence to support the claim that the shares are of negligible value should be provided.
For quoted shares, HMRC produce a list of shares that they accept being of negligible value.
Talk to us
Talk to us to find out how you can benefit from making a negligible value claim for shares that have become worthless.
Voluntary Class 2 NICs where 2019/20 tax return filed after 31 January 2021
If you are self-employed, you will pay Class 2 and Class 4 National Insurance contributions if your profits exceed the relevant thresholds. Class 2 National Insurance contributions are the mechanism by which you build up qualifying years to earn entitlement to the state pension and certain contributory benefits. If your profits are below the small profits threshold, you can opt to pay Class 2 National Insurance contributions voluntarily to maintain your National Insurance record.
Extended deadline for filing 2019/20 tax return
The normal filing deadline for the 2019/20 self-assessment tax return was 31 January 2021. However, to help taxpayers affected by the COVID-19 pandemic, HMRC waived the late filing penalty that would usually apply where a return was filed after 31 January, as long as the return was filed by midnight on 28 February 2021. This effectively extended the filing window by one month.
This had unintended consequences for self-employed taxpayers who opted to file their 2019/20 tax return in February 2021, and who chose to pay Class 2 National Insurance contributions voluntarily where their profits for 2019/20 were below the small profits threshold for that year of £6,365.
Nature of the problem
HMRC’s systems were unable to deal with the payment of voluntary Class 2 contributions where the 2019/20 tax return was filed after 31 January 2021. They did not have time to implement alternative procedures either.
The normal deadline for paying Class 2 National Insurance contributions for 2019/20 was 31 January 2021.
If you opted to pay Class 2 National Insurance Contributions voluntarily and paid by this date but before the return was filed, they could not be processed as HMRC were unaware of what the payment related to. This may be the case if you made the payment before the 31 January 2021 deadline, but filed your tax return in February 2021.
If you filed your return in February 2021 and paid your voluntary Class 2 National Insurance contributions when you filed your return, the contributions were paid late as they were paid after 31 January 2021. In this situation, HMRC corrected your return to remove the voluntary contributions.
Payments made in respect of voluntary Class 2 contributions in these circumstances were allocated elsewhere, held on account or refunded.
If you have been affected by this issue, you should contact HMRC on 0300 200 3500 as soon as you become aware that this is the case, for example, when you receive a refund, or see from your personal tax account that your contributions have been allocated against another payment.
If you have already received a refund, HMRC will let you know how you can pay Class 2 contributions voluntarily. If you have not already received a refund, they will ensure that the payment is correctly recorded as Class 2 National Insurance contributions.
Check your National Insurance record
It is advisable to check your National Insurance record to see if you have any gaps. Failure to contact HMRC if you have been affected by the above issue may mean that you do not receive a credit for 2019/20, resulting in a gap in your contributions record.
Contact us if you paid voluntary Class 2 National Insurance for 2019/20 and filed your return in February 2021 to check that your contributions have been credited to your account.
Claim tax relief for expenses of working from home
If you are an employee and you are, or have been, working from home as a result of the COVID-19 pandemic, you may be able to claim tax relief for the additional household costs that you have incurred as a result. HMRC are now accepting claims for the current (2021/22) tax year.
Nature of the relief
You can benefit from the relief if you are an employee and you were told by your employer to work from home as a result of the COVID-19 pandemic and, as a result of working from home, your household costs have increased. For example, your electricity bill may be higher because you are using your computer all day and your gas bill may be higher because you have the heating on while you are working.
You can also claim the relief if you work from home other than because of the pandemic, as long as the nature of your job requires you to work from home. However, you are not able to claim the relief if you simply choose to work from home rather than at your employer’s workplace.
If your employer has met the cost of your additional household costs (to which a separate tax exemption applies), you are not entitled to claim the relief as well.
Amount of the relief
A claim for tax relief for additional household costs of £6 per week (£26 per month) can be made without the need to provide evidence to support the claim. The claim is worth £62.40 a year if you pay tax at the basic rate, £124.80 a year if you pay tax at the higher rate, and £140.40 a year if you pay tax at the additional rate.
If your household bills have risen by more than £6 per week as a result of working from home, you can claim tax relief based on the actual additional costs. However, you will need evidence, for example, copies of bills showing how costs have increased, to back up your claim.
Making a claim
You can claim relief via the dedicated HMRC portal.
Relief is given for the whole tax year, regardless of the number of weeks for which you worked from home. Once HMRC have approved your claim, they will amend your tax code to take account of the relief.
If you worked from home as a result of COVID-19 during 2020/21 and have yet to make a claim for tax relief for your additional household costs, it is not too late – HMRC will accept backdated claims for up to four years.
Get in touch
Why not get in touch to find out whether you can claim tax relief for the additional costs of working from home.
Amending a PSA for COVID-19 benefits
You can use a PAYE Settlement Agreement (PSA) if you wish to settle the tax liability arising on the provision of a benefit-in-kind or an expense on an employee’s behalf. This can be useful if you wish to preserve the goodwill nature of a particular benefit.
Nature of a PSA
Where a PSA is in place, the employer pays tax and Class 1B National Insurance contributions on the items included within the PSA, while the employee enjoys the benefit free of tax and National Insurance.
A PSA is not suitable for all benefits-in-kind. To qualify for inclusion, the benefit must fall within one of the following categories:
- it is minor;
- it is provided irregularly; or
- it is provided in circumstances where it is impractical to apply PAYE or to apportion the value of a shared benefit.
As payment of tax on an employee’s behalf is itself a taxable benefit, the amount of tax that you must pay on items included within your PSA is grossed up to reflect the marginal rates of tax of the employees to whom the benefits are provided. The relevant Scottish and Welsh rates are used for employees who are Scottish and Welsh taxpayers.
You must also pay Class 1B National Insurance contributions at 13.8% on items included within your PSA in place of the Class 1 or Class 1A liability that would otherwise arise, and also on the tax due under the PSA. The tax and Class 1B National Insurance must be paid by 22 October if you make the payment electronically, or by 19 October if you pay by cheque.
Setting up a new PSA
If you do not already have a PSA in place and want to set one up for 2020/21, you need to do this before 6 July 2021. Guidance available on the Gov.uk website explains what you need to do.
An enduring agreement
Once you have set up a PSA, it remains in place until it is cancelled or amended by you or by HMRC. Therefore, if you already have a PSA set up, you should review it to make sure that it is still valid. This should be done in sufficient time for any changes to be made before 6 July 2021.
Adding in COVID-19 benefits
The COVID-19 pandemic changed the way in which many employees worked, and you may have changed the benefits that you provided to your employees during the 2020/21 tax year as a result. If you have provided taxable benefits as a result of the pandemic, and you want to include them within your PSA, you will need to do this by 6 July 2021.
To amend your PSA, you will need to send details of the changes that you would like to make to the HMRC office that issued your PSA. Normally, HMRC will send you a revised P626 (the PSA). However, where the changes relate only to benefits provided as a result of the COVID-19 pandemic, they will instead add an appendix to your existing PSA.
Remember, you do not need to include exempt benefits within your PSA. There are a number of time-limited exemptions for Coronavirus-related benefits, such as those for employer-provided and reimbursed antigen tests.
Speak to us
Talk to us about whether a PSA is for you, and about what you need to do if you want to meet the tax liability on benefits provided to employees during the COVID-19 pandemic.
Reporting expenses and benefits for 2020/21
If you are an employer and you provided taxable expenses and benefits to your employees during the 2020/21 tax year, you will need to report these to HMRC on form P11D, unless all benefits were payrolled or included within a PAYE Settlement Agreement. You will also need to file a P11D(b). Both forms must reach HMRC by 6 July 2021.
A form P11D is needed for each employee to whom you provided taxable expenses and benefits in the 2020/21 tax year (which ended on 5 April 2021) and which you need to report to HMRC. You do not need to include any benefits or expenses which have been dealt with through the payroll, or those which you have been included within a PAYE Settlement Agreement. Likewise, you do not need to report any benefit or expense that is fully exempt. However, remember that an exemption only applies if all the associated conditions have been met.
The information that you will need to provide depends on the nature of the benefit. Some sections of the P11D are relatively brief, requiring only details of the cost of providing the benefit, any amount made good by the employee, and the taxable amount, while more information is required in respect of certain benefits, most notably company cars and employment-related loans.
Taxable amount: the cash equivalent value
Where the benefit is made available to an employee other than through a salary sacrifice or other optional remuneration arrangement (OpRA), the taxable amount is its cash equivalent value. The calculation of the cash equivalent value depends on the particular benefit. Some benefits have their own benefit-specific rules for calculating the cash equivalent value. Where the benefit or expense is of a type for which there is no specific rule, the cash equivalent value is calculated in accordance with the general rule. This is the cost to the employer, less any amount made good by the employee.
HMRC produce working sheets that can be used to calculate the cash equivalent value for some benefits in kind.
Taxable amount: alternative valuation rules
Where the benefit or expense is made available through an optional remuneration arrangement (OpRA), such as a salary sacrifice arrangement, alternative valuation rules apply to all but a handful of benefits. Under the alternative valuation rules, the taxable amount of the benefit is determined by reference to the salary given up, less any amount made good by the employee, where this produces a value that is higher than the cash equivalent value. The alternative valuation rules have the effect of negating any associated exemption. They do not apply to childcare and childcare vouchers, pension contributions and advice, employer-provided cycles and cyclists’ safety equipment, and low emission cars with CO2 emissions of 75g/km or less. These benefits continue to be taxed according to their cash equivalent value and retain the associated exemptions where the qualifying conditions are met.
Under transitional arrangements, the alternative valuation rules do not apply for 2020/21 to living accommodation, school fees or cars with CO2 emissions of more than 75g/km which are provided under an arrangement that was in place on 5 April 2017 and was not renewed, varied or amended prior to 6 April 2021. Variations as a result of the COVID-19 pandemic are ignored for these purposes. The transitional arrangements came to an end on 5 April 2021, and the alternative valuation rules apply for 2021/22 and later years.
Any amount that the employee is required to contribute (‘make good’) to the cost of the benefit is taken into account in calculating the taxable amount, as long as the amount is ‘made good’ by 6 July 2021. This can be done by deducting the relevant amount from the employee’s salary, or by the employee making a payment direct to you.
You must file a P11D(b) by 6 July 2021 if you provided taxable expenses to your employees in the 2021/22 tax year which have either been payrolled or reported to HMRC on your employees’ P11Ds. Form P11D(b) serves two functions – it is your declaration that all required P11Ds have been submitted to HMRC, and also your Class 1A National Insurance return. You will need to file a P11D(b) even if you have no P11Ds to file because you have payrolled all taxable benefits and expenses that you provided to your employees during the 2020/21 tax year. Payrolled benefits need to be taken into account in working out your Class 1A National Insurance liability.
If you did not provide any taxable benefits in 2020/21, but have been sent either a paper P11D(b) or a reminder letter to complete one, you will need to make a nil declaration online to avoid being charged a penalty. This may be required if you provided taxable benefits in 2019/20 as HMRC’s expectation is that they were also provided in 2020/21.
There are various ways in which you can file forms P11D and P11D(b). They can be filed online using HMRC’s Online End of Year Expenses and Benefits Service, HMRC’s PAYE Online Service (up to 500 employees only), or via a suitable commercial software package. You can also complete paper forms and send them to HMRC by post.
Forms for the 2020/21 tax year must reach HMRC by 6 July 2021. You must also give your employees a copy of their P11D (or details of the taxable expenses and benefits provided to them in 2020/21) by the same date.
You must pay your Class 1A National Insurance by 22 July 2021 if you make your payment electronically. If you opt to pay by cheque, this must reach HMRC by 19 July 2021.
We can help
We can help you meet your filing obligations and help you minimise the risk of receiving a penalty for late or incorrect returns.
Higher residential SDLT threshold extended
Stamp duty land tax (SDLT) is payable when you buy a property in England or Northern Ireland. Last year, the SDLT residential threshold was temporarily increased to £500,000 with effect from 8 July 2020. The threshold was due to revert to its normal level of £125,000 from 1 April 2021, but this has now been delayed.
The residential threshold applying in Scotland for Land and Buildings Transaction Tax (LBTT) was also increased for a temporary period, but reverted to its normal level of £145,000 from 1 April 2021. In Wales, the residential Land Transaction Tax (LTT) threshold was increased to £250,000 from 27 July 2020. It will remain at this level until 30 June 2021, reverting to its usual level of £180,000 from 1 July 2021.
SDLT residential threshold – 8 July 2020 to 30 June 2021
The SDLT residential threshold will remain at £500,000 until 30 June 2021. The rates applying until that date are set out below.
|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%|
SDLT residential threshold – 1 July 2020 to 30 September 2021
From 1 July 2021 until 30 September 2021, a lower temporary residential SDLT threshold of £250,000 will apply. The first-time buyer threshold (which applies where the consideration does not exceed £500,000) reverts to £300,000 from 1 July 2021.
The SDLT rates applying for this period are set out below.
|Property value||Main home||Additional properties|
|Up to £250,000||Zero||3%|
|Next £675,000 (£250,001 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%|
SDLT residential threshold from 1 October 2021
The SDLT residential threshold returns to £125,000 from 1 October 2021. The residential rates applying from that date are set out below.
|Property value||Main home||Additional properties|
|Up to £125,000||Zero||3%|
|The next £125,000 (£125,001 to £250,000)||2%||5%|
|Next £675,000 (£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%|
If you are looking to buy a property this year, speak to us to find out what you can save by completing the sale by 30 June 2021 or, if this is not possible, by 30 September 2021. Remember, if you are looking to buy an investment property, you will also benefit from the higher thresholds as the 3% supplement is added to the residential rates, as reduced.
Taxation of company cars in 2021/22
If you are an employee with a company car, you will be taxed on the benefit derived from the car being available for your private use. If you are an employer who makes company cars available to your employees, they will be taxed on the associated benefit. The amount that is charged to tax depends predominantly on the list price of the car and its appropriate percentage. There are some changes to the appropriate percentages for 2021/22.
You can find details of the appropriate percentages applying for 2021/22 here.
Electric company cars
For 2020/21, it was possible to enjoy the benefit of an electric company car tax-free as the appropriate percentage for zero-emissions cars was set at 0%. The appropriate percentage for zero-emission cars is increased to 1% for 2021/22. Although a tax-free company car is no longer an option for 2021/22, an electric company car remains a very attractive benefit. The cash equivalent value (the amount on which tax is charged) for an electric car with a list price of £30,000 is only £300 for 2021/22, costing a higher rate taxpayer £120 in tax and a basic rate taxpayer £60 in tax. If you are an employer, your Class 1A National Insurance hit will be £41.40.
Cars first registered on or after 6 April 2020
The way in which CO2 emissions are measured changed for cars first registered on or after 6 April 2020. From that date, the car’s CO2 emissions are determined using the Worldwide harmonised Light Vehicle Test Procedure (WLTP). For cars first registered prior to that date, the car’s CO2 emissions were determined in accordance with the New European Driving Cycle (NEDC).
For 2020/21, the appropriate percentage for cars first registered on or after 6 April 2020 (and whose CO2 emissions are determined using the WLTP), was two percentage points lower than that for cars first registered prior to 6 April 2020 (and whose CO2 emissions were determined using the NEDC).
The differential is reduced by one percentage point for 2021/22. This means that, subject to the maximum charge of 37%, the appropriate percentage for cars first registered on or after 6 April 2020 is one percentage point higher than its 2020/21 level. Thus, where the appropriate percentage was, say, 15% for 2020/21, it is 16% for 2021/22. The increase will mean that if you have a company car which was first registered on or after 6 April 2020, you will pay slightly more tax in 2021/22 than in 2020/21.
The diesel supplement remains at 4% for diesel cars not meeting the RDE2 emissions standard (subject to the maximum charge of 37%).
Cars first registered before 6 April 2020
There is no change to the appropriate percentages for cars first registered prior to 6 April 2020. This means that if you have a company car that was registered before this date, your tax bill for 2021/22 will be the same as for 2020/21.
Talk to us
If you are thinking of changing your company car or making changes to your company car fleet, we can help you understand the associated tax costs.
Recovery loan scheme
If you need to access finance to help your business recover from the effects of the COVID-19 pandemic, the Recovery Loan Scheme may be for you.
Nature of the scheme
The Recovery Loan Scheme is designed to provide access to finance in order to support businesses as they recover from the disruption caused by the COVID-19 pandemic. Although, as the borrower, you will remain liable for 100% of the debt, to encourage lenders to participate in the scheme, the Government provides a guarantee to the lender for 80% of the finance.
You may be eligible for a Recovery Loan if your business is trading in the UK. To qualify, you must be able to demonstrate that your business would be viable were it not for the pandemic and that your business has been adversely affected by the pandemic. Furthermore, you must not be in collective insolvency proceedings.
You can still apply for a Recovery Loan if you have already taken out a Bounce Back Loan or a Coronavirus Business Interruption loan.
Finance is available under the Recovery Loan Scheme for:
- term loans and overdrafts of between £25,001 and £10 million per business; or
- invoice or asset finance of between £1,000 and £10 million per business.
You will not need to provide a personal guarantee on facilities of up to £250,000, and where a personal guarantee is required, your main residence will not be taken as security.
The loan period depends on the type of finance provided. The maximum period is set at three years for overdrafts and invoice finance facilities and at six years for loans and asset finance facilities.
How to apply
Applications are made direct to the lender. You can find an accredited lender offering Recovery Loans on the Business Bank website.
We can help
Contact us to find out how we can help you address your financing needs.
Family companies and the optimal salary for 2021/22
If you run your business as a personal or family company, you will need to decide how best to extract profits for your personal use. A typical tax-efficient strategy is to pay yourself a small salary and then extract any further profits as dividends. Where this approach is adopted, you will need to determine your optimal salary level of 2021/22.
Benefits of paying a salary
Unless you already have the 35 qualifying years needed for the full single-tier state pension when you reach state pension age, paying yourself a salary that is at least equal to the lower earnings limit for Class 1 National Insurance purposes (set at £6,240 for 2021/22) will ensure that the year is a qualifying year for state pension and contributory benefit purposes. A further benefit of this approach is that employee contributions between the lower earnings limit and the primary threshold (set at £9,568 for 2021/22) are payable at a zero rate (although employer contributions are payable on earnings in excess of the secondary threshold (set at £8,840 for 2021/22)).
Determining the optimal salary level
The optimal salary level (from a tax and National Insurance perspective) for 2021/22 will depend on whether your personal allowance remains available, and also on whether your company is able to claim the National Insurance Employment Allowance. The Employment Allowance is set against your employer’s Class 1 National Insurance liability.
The Employment Allowance is not available to companies where the sole employee is also a director. This means that if you operate as a personal company where you are the only employee and director, you will be unable to claim the allowance. However, if you operate as a family company and have more than one employee (or the only employee is not also a director), you should be able to claim the allowance. The allowance is set at £4,000 for 2021/22. It is not available where the Class 1 National Insurance bill for 2020/21 was £100,000 or more.
Optimal salary where the Employment Allowance is unavailable
If you are operating a personal company or if the Employment Allowance is otherwise unavailable, assuming that you have not used your personal allowance elsewhere, your optimal salary for 2021/22 is one equal to the primary threshold of £9,568. Remember, that as a director, you have an annual earnings period for National Insurance purposes. However, if you opt to pay yourself a monthly salary, the equivalent is £797 per month.
As the secondary threshold for 2021/22 is lower than the primary threshold, employer’s National Insurance contributions will be payable to the extent that your salary exceeds £8,840. If you pay yourself a salary of £9,568 for 2021/22, your company will need to pay employer’s National Insurance contributions on that salary of £100.46 (13.8% (£9,568 – £8,840)).
Although it is possible to pay a salary equal to the secondary threshold of £8,840 free of tax and National Insurance, it is worthwhile paying a higher salary of £9,568. The salary and the associated employer’s National Insurance contributions are deductible in calculating your company’s taxable profits for corporation tax purposes. As the rate of corporation tax at 19% is higher than the rate of employer’s National Insurance at 13.8%, the corporation tax relief obtained on the higher salary outweighs the cost of the employer’s National Insurance. However, once your salary exceeds the primary threshold of £9,568, you will need to pay primary contributions on the excess at the rate of 12%. As the combined National Insurance hit at 25.8% outweighs the rate of corporation tax relief (at 19%), this is not worthwhile.
Optimal salary where the Employment Allowance is available
The Employment Allowance reduces your employer’s Class 1 National Insurance bill by up to £4,000. Where this is available, your optimal salary for 2021/22 is one equal to your personal allowance. This will normally be £12,570.
As the Employment Allowance will offset any employer’s Class 1 National Insurance contributions that would otherwise be payable to the extent that your salary exceeds £8,840, you will not need to pay any tax or National Insurance until your salary level reaches the primary threshold of £9,568. Once this level is reached, it is worth paying additional salary of £3,002 for the year to take your salary up to the level of the personal allowance of £12,570. Although you will pay employee’s National Insurance contributions of £360.24 (£3,002 @ 12%) on the additional salary, as the salary is deductible for corporation tax purposes, you will reduce the corporation tax payable by your company by £570.38 (£3,002 @ 19%), delivering a net saving of £210.14.
However, once your salary exceeds the personal allowance of £12,570, tax will also be payable at the basic rate of 20%, meaning the pendulum swings the other way and the combined tax and employee’s National Insurance payable on any further salary will outweigh the associated corporation tax deduction.
Get in touch
Your optimal salary will depend on your individual circumstances. We can help you decide on your 2021/22 salary level.
Extended carry-back for losses
To help businesses which have suffered losses as a result of the COVID-19 pandemic, the period for which certain trading losses can be carried back is extended from one year to three years. The extended carry-back period applies for both income tax and corporation tax purposes. If you have made losses as a result of the impact of the pandemic, you may be able to take advantage of the extended carry-back period to generate a welcome tax repayment. Guidance on the rules can be found on the Gov.uk website.
Where a trading loss is made by an unincorporated business, there are a number of options available to relieve that loss. The options open to a particular business depend on when in the business lifecycle the loss is incurred, and also whether the business prepares its accounts using the cash basis or the accrual basis. The loss can be set against general income of the current and/or previous year, and also against future trading profits of the same trade, with special rules applying to relieve losses incurred in the early years of the trade, and in the final year.
One option for obtaining relief for a trading loss is to set the loss against general income of the year of the loss and/or the previous year. However, where accounts are prepared using the cash basis, sideways loss relief against other income or relief against capital gains is not permitted – the loss can only be set against trading profits of the same trade.
The temporary extension to the carry-back rules extends the period for which the loss can be carried back from one year to three years. Where a claim is made under the new rules, losses are set against the trading profits of a later year before those of an early year. Any loss carried back under the temporary carry-back rules can only be set against previous trading profits of the same trade – there is no extension to other income.
Relief for a 2020/21 loss
Unless the business is a new business to which the opening year basis period rules apply, a loss for the 2020/21 tax year will be a loss for an accounting period ending in that year, i.e., between 6 April 2020 and 5 April 2021.
The extended carry back is available where a claim is made to relieve the loss against general income of 2020/21 and/or 2019/20 and income in these years is insufficient to utilise the full loss. The unrelieved loss can be carried back and set against trading profits of 2018/19 and, to the extent that any of the loss remains unrelieved, against trading profits of 2017/18. It is not possible to tailor the loss to preserve personal allowances — it must be set in full against the available trading profits.
To the extent that the loss remains unrelieved after making a claim under the extended carry-back rules, it can be carried forward for relief against future profits of the same trade.
Relief for a 2021/22 loss
The extended carry-back period is also available for a 2021/22 loss. For an established business, this will be a loss for an accounting period which ends between 6 April 2021 and 5 April 2022.
As with a loss for 2020/21, the temporary rules allow a loss for 2021/22 which cannot be fully relieved against income of 2021/22 and 2020/21 to be carried back. The unrelieved loss can be set first against trading profits of the same trade for 2019/20 and, to the extent that any of the loss remains unrelieved, against trading profits of 2018/19.
If a claim has been made to relieve a 2020/21 loss against general income of 2019/20, this takes precedence over a claim to carry back a 2021/22 loss against trading profits of 2019/20 under the new rules.
Cap on loss relief
The normal cap on loss relief of £50,000 or, where higher, 25% of adjusted net income, does not apply to losses relieved under the extended carry-back rules. Instead, the loss that can be carried back for each year is capped at £2 million.
For corporation tax purposes, a loss can be carried back and set against profits from the same trade for the previous accounting period or carried forward and set against future profits of the same trade. The period for which losses can be carried back is extended from one year to three years for a limited period.
The extended carry-back period applies to losses for accounting periods ending between 1 April 2020 and 31 March 2022. For each accounting period, the loss that can be carried back under the new rules is capped at £2 million. Where a company is part of a group, the cap applies to the group as a whole. Losses carried back must be set against the profits of a later period before those of an earlier period.
Benefits of carrying a loss back
The ability to carry a loss back can be beneficial where this generates a repayment of tax already paid for a previous year. This will be particularly true for companies within the charge for corporation tax.
For unincorporated businesses the position is more complex where carrying back a loss results in personal allowances being wasted. Where this is the case, and the trader expects to return to profit, it may be preferable to carry the loss forward for use against future trading profits of the same trade. The best result will depend on individual circumstances and priorities, and there is no substitute for doing the sums.
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If you have realised a loss, or expect to, as a result of the impact of the COVID-19 pandemic, speak to us to find out how best to obtain relief for that loss.
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.
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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.
We can help
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.