shutterstock_745087123

Tax News – Winter 2023

NATIONAL INSURANCE RATES CUT

The Chancellor has announced cuts to national insurance contributions (NIC) for self-employed taxpayers and employees

The headline news from the Autumn Statement was the reduction of primary Class 1 and Class 4 NIC and the removal of compulsory Class 2 NIC.

The main rate of primary Class 1 NIC paid by employees on earnings between £12,570 and £50,270 per year will be reduced from 12% to 10%. Instead of waiting until the start of the next tax year, this change will be effective from 6.1.24, so you will need to update your payroll software before the January pay run to ensure the correct rate of Class 1 NIC is deducted from employees.

For self-employed taxpayers the main rate of Class 4 NIC will be reduced by 1% from 9% to 8% from 6.4.24.

In addition to this, self-employed traders with profits above £12,570 will no longer pay Class 2 NIC but will continue to receive access to contributory benefits including the state pension. Those with profits between £6,725 and £12,570 will continue on this basis. Those with profits under £6,725 who choose to pay Class 2 NIC voluntarily to protect their entitlement to contributory benefits including the state pension will continue to be able to do so.

According to the Chancellor these NIC reductions will amount to a saving of £350 per year for the average self-employed taxpayer and £450 for the average employee.

CASH BASIS TO REPLACE ACCRUALS

Cash basis to replace accruals for the self-employed as standard tax reporting method for 2024-25 (first year of tax year accounting)

From April 2024, as part of a move to simplify calculation of taxable profits for Making Tax Digital, all self-employed taxpayers and partnerships will by default report their taxable profits under the cash accounting basis.

Currently, the default position is for businesses to calculate taxable profit using the accruals method (accounting for income and expenses when earned and incurred, not when cash is actually received or paid) but most businesses with total receipts below £150,000 are eligible to elect to use the cash basis.

The new measures will reverse that presumption, making the cash basis the default position for all self-employed taxpayers and partners, with an option to elect for the accruals basis.

This is a fundamental change with the potential to create very different profits for a lot of businesses currently using the accruals basis. Although the cash basis should in theory result in simpler calculations of taxable profits, the transition from accruals to cash accounting could be complicated.

MTD SIMPLIFICATION

A dramatic simplification of the MTD processes to be introduced in 2026 including no EOPS; cumulative submissions each quarter; and restrictions for complex situations

Taxpayers with turnover over £50,000 will be brought into MTD ISTSA from April 2026. The £50,000 threshold applies to gross total self-employment and property income, so we need to include all of your self-employment and property income sources when determining whether MTD ITSA will apply to you.

Taxpayers with turnover over £30,000 will be brought into MTD ISTSA from April 2027.

HMRC has confirmed that self-employed taxpayers and landlords with turnover under £30,000 will not be brought into MTD ITSA in April 2027. This decision will be kept under review so affected taxpayers may be brought into MTD ITSA at some point in the future.

To simplify year-end reporting, the requirement for taxpayers to file an end of period statement (EOPS) in addition to the final declaration has been removed. The EOPS will instead be built into the final declaration process, which pulls together the information that would have been reported on the EOPS as well as other data to calculate the final tax position.

New MTD ITSA exemptions have been announced for foster carers and those unable to get a national insurance number.

Quarterly updates produced under MTD ITSA will be cumulative. This means that any errors in previous quarterly submissions can be corrected in the next quarter, rather than having to go back and resubmit earlier reports.

Finally, the expansion of the cash basis for calculating taxable profits should result in simpler reporting for MTD purposes.

NLW AND NMW INCREASED

The national living wage (NLW) will increase by 9.8% to £11.44 per hour from April 2024. The higher rate will also apply to 21 and 22-year-olds for the first time

The NLW currently applies to workers aged 23 and above and stands at £10.42 per hour. Workers under the age of 23 and apprentices are entitled to the national minimum wage (NMW) instead.

The age above which workers qualify to receive the NLW will be lowered as planned from 23 to 21 from 1 April 2024. It was previously lowered from 25 in April 2021.

The NLW will be increased by £1.02 to £11.44 per hour from 1 April 2024, an increase of 9.8%. The NMW is also set to increase by more than £1 per hour.

The NLW and NMW rates effective from 1 April 2024 are shown below:

21+ (NLW)       £11.44 
18-20 (NMW)  £8.60 
16-17 (NMW)  £6.40 
Apprentice      £6.40 

This is the largest ever increase to the statutory hourly minimum and is forecast to result in a boost to annual earnings worth over £1,000 for those working under full-time contracts. Since its introduction in April 2015, successive increases to the legal minimum hourly rate mean that a full-time worker on the NMW in 2024 will be over £9,000 better off than they would have been in 2010.

The Government has estimated that there are over 2 million taxpayers currently eligible for the NLW who will benefit from this increase.

OVERLAP RELIEF ONLINE TOOL

The online form for requesting overlap relief information for basis period reform is now live

Overlap profits normally arise in the first two tax years of a new trade where the accounting date of the business does not align to the tax year end and – under the old opening year rules – profit for the period of overlap fell into tax twice. Details of overlap relief should be brought forward each year on the self assessment tax return and can be deducted either in the final year of trading, or if the accounting date is changed. Overlap relief will now be used to reduce additional taxable profits in the tax year 2023-24 due to basis period reform.

Under basis period reform, from the year 2023-24 taxpayers are required to report their taxable profits to HMRC in line with the tax year end. Where the accounting year end falls outside the period 31 March to 5 April this will result in additional profits being taxed between the end of the accounting period in 2023-24 and 5 April 2024.

Any overlap relief included on the 2024 tax return will be automatically deducted from the additional profits and the remaining ‘transitional part’ spread over the five tax years 2023-24 to 2027-28. You have the option to accelerate the taxation of the transitional part if you prefer and there are various circumstances where this may be beneficial.

Details of any overlap relief brought forward should be entered on the 2023-24 tax return. If this information has not been retained, we can obtain it from HMRC using the new online tool.

HMRC can only provide historical information on overlap profits if it was reported on past tax returns. If that data is not available in the system, do not worry. HMRC should be able to provide enough data for us to calculate the overlap relief available.

It usually takes around 3 weeks for HMRC to respond to requests for details of overlap relief, but complex cases can take longer so it is important to get the ball rolling and apply for any missing information now.

SUBMIT VAT CLAIMS DIGITALLY FOR DIY HOUSE BUILDS

Individuals who build their own home, or complete part of the build project themselves, are entitled to reclaim the VAT paid on materials under the VAT homebuilders scheme

When engaging builders and contractors to build your home, their labour and materials are zero-rated, so the VAT homebuilders scheme puts the individual homebuilder in the same position for VAT purposes as if they had contracted the work to a third party.

The current process is that a paper claim must be submitted using a form which asks a series of questions to confirm that the conditions for reclaiming have been met, along with many pages on which to record individual purchase invoice details. Each transaction must be listed and supported by invoices or receipts which also need to be sent to HMRC.

In order to speed up the process and minimise errors, HMRC will accept claims digitally from 5 December 2023. The requirement to submit invoices with the claim will also be removed from this date.

Only one claim can be made for each house build. Currently the deadline for submitting that claim is three months after the building is completed. HMRC is extending this deadline to six months for claims submitted on or after 5 December 2023. This will give us more time to collate the required information and should lead to fewer claims being rejected due to errors or omissions.

The paper form will still be available for taxpayers who cannot submit claims digitally.

TWO NEW R&D FORMS

HMRC has introduced two new measures to tackle the rise in fraudulent research and development (R&D) claims

Claim notification form
For accounting periods beginning on or after 1 April 2023, a digital pre-notification form is required to inform HMRC in advance of R&D claims.

This will be mandatory for all those intending to claim R&D tax reliefs if:       

• they are claiming for the first time; or
• their last claim was made more than 3 years before the last date of the claim notification period.

The claim notification window starts on the first day of the accounting period and ends six months after the end of the accounting period.

To complete the claim notification form you will need: 

• the company’s Unique Taxpayer Reference (UTR);
• the main senior internal R&D contact responsible for the R&D claim;
• the contact details of any agent involved in the R&D claim;
• the accounting period start and end date for which you are claiming;
• the period of account start and end date; and
• a summary of the high-level planned activities.

Additional information form
From 8 August 2023 all R&D claims must be accompanied by an additional information form (AIF). This must be submitted online, or in some cases via email, before the company tax return (CT600) is filed. If a CT600 includes a claim for R&D relief and no AIF has been submitted, HMRC will automatically remove the R&D claim from the return.

The information required on the AIF is extensive, including details for each R&D project; what baseline level of science or technology the project plans to advance; and whether you intend to claim R&D relief, expenditure credits or both. Full details of the information required can be found within the guidance on GOV.UK.

If either of these forms is not submitted on time, or is incorrect, HMRC may reject the claim for R&D relief.

CHARGING YOUR ELECTRIC COMPANY CAR AT HOME

HMRC has updated its Employment Income Manual to bring the guidance on charging electric company cars at home in line with the legislation

Until now, the guidance in the Employment Income Manual (EIM23900) has contradicted the legislation in advising that if an employer reimburses an employee for charging their company car at home this would be a taxable benefit.

The taxable benefit on a company car is, broadly speaking, calculated as a percentage, based on the CO2 emissions of the car, applied to the list-price. There is no further taxable benefit in respect of maintenance, insurance or other running costs reimbursed by the employer, with the exception of fuel.

As is widely recognised, electricity, for tax purposes, is not fuel. Therefore the cost of domestic electricity incurred charging the company car at the employee’s home is, in tax law, indistinguishable from these running costs.

HMRC has now updated the guidance in EIM23900 to confirm that home-charging company cars and vans is not a separate taxable benefit as long as the employer ensures that the electricity reimbursed is solely used for charging the company car.

This is a change to the guidance but not the 20-year-old legislation. Taxpayers who have followed the guidance may be entitled to claim overpayment refunds.

LOOKING FOR HELP?

We have a team of experts within West & Berry who can advise you and your business.  Please get in touch to set up a no obligation consultation.

bearded hipster

Tax News – Spring 2023

PLANNING DIVIDENDS IN 2023

Owners and directors of family businesses often take a small salary from the company and any extra funds as dividends

The first £2,000 of dividends received by each taxpayer is currently tax-free but that dividend allowance will be cut to £1,000 on 6 April 2023 and £500 in April 2024. Your company may wish to review how and when it pays dividends to family shareholders this year.

Taxpayers who receive dividends in excess of their dividend allowance need to inform HMRC of that income and, in many situations, will have to complete a tax return to declare their taxable dividends.

Dividend income is treated as falling into the taxpayer’s highest tax band where it is taxed at these rates in 2022-23:
• basic rate band: 8.75% (other income taxed at 20%);
• higher rate band: 33.75% (other income taxed at 40%); and
• additional rate band: 39.35% (other income taxed at 45%).

COPING WITH AN HMRC NUDGE

Marketing companies know that personal letters sent directly to customers are more powerful than broadcast or printed adverts. HMRC are using this technique to recover unpaid tax

HMRC match data from a wide range of sources to tax returns and will write to individual taxpayers where an anomaly is found. These ‘nudge letters’ cover a wide range of topics from holiday lettings to online sales. Companies may also receive nudge letters about R&D claims or taxes due on residential property.

The letter will often enclose a certificate of tax position to complete and return but there are good reasons why you should not do this. If you receive a nudge letter from HMRC which says that you may have additional tax to pay, please contact us without delay.

MTD FOR INCOME TAX DELAYED AGAIN

Making tax digital for income tax self-assessment (MTD ITSA) was set to take effect from 6 April 2024. This has been postponed until 6 April 2026

The new regime will require sole traders and individual landlords to keep their business records digitally and to send summaries of business income and expenses to HMRC at least quarterly.

For the first year, only businesses with annual turnover of over £50,000 will need to follow the MTD ITSA rules and from 6 April 2027 that turnover threshold will be reduced to £30,000. No date has been set for partnerships to enter the MTD ITSA regime and the expansion of MTD to corporation tax now seems a very distant ambition.

The Government has said that it will review the MTD ITSA service to see how MTD ITSA can be shaped to meet the needs of these smaller businesses and the best way for them to fulfil their income tax obligations. Only when that review is complete and after consultation with businesses, tax agents and others will the Government set out plans for any further mandating of MTD ITSA beyond 2027.

Regardless of the MTD ITSA start date all unincorporated businesses including partnerships will have to report profits to HMRC for a period that aligns with the tax year from 6 April 2024.

If your business uses an accounting period which does not end on 31 March; 5 April; or a day between those dates there will be some complicated calculations to undertake for 2023-24. Certain partnerships and seasonal businesses could be adversely affected by this change.

LARGEST EVER NMW RISE

The national minimum wage (NMW) and national living wage (NLW) rates are due to rise significantly for pay periods starting on and after 1 April 2023

These increases – the largest since the NMW began – are being introduced because inflation is running at around 10%.

• £10.42  23 & above
• £10.18  21 – 22
• £7.49  18 – 20
• £5.28  under 18

Employers should be careful not to make deductions which reduce workers’ wages below the relevant NMW rate. For example withholding money through the payroll for employee uniforms; staff meals; or subsidised childcare could break the NMW rules.

If you run a salary sacrifice scheme for childcare, check that the amounts paid after the salary reduction still meet the NMW rate for the employees in the scheme. It may be necessary to redesign the childcare scheme so that it is run outside of the payroll. 

Where you provide accommodation for your workers you can charge rent and this deduction is permitted under the NMW rules but only if it does not exceed £8.70 per day. This permitted accommodation off-set will rise to £9.10 per day from 1 April 2023.

Where the NMW rules are broken HMRC can impose penalties of up to 200% of the amount of NMW underpaid up to £20,000 per worker.

NEW VAT LATE-FILING PENALTIES

All VAT returns must now be submitted digitally using MTD compatible software (unless the business has an exemption) so the VAT penalties have been revised to fit with this new regime

If you submit a VAT return late for a period starting on or after 1 January 2023 the HMRC computer will automatically allocate a late-filing ‘point’ but not a monetary penalty. Only when you have collected several points will you receive a flat £200 penalty.

The penalty threshold depends on how regularly you file your VAT returns:
• quarterly returns: 4 points;
• monthly returns: 5 points; and
• annual returns: 2 points.

Businesses that file quarterly VAT returns become liable to pay a £200 penalty when they file the fourth VAT return late. Each subsequent late VAT return triggers another £200 late-filing penalty until the points slate is wiped clean by a period of perfect compliance.

Perfect compliance is achieved by completing all outstanding VAT returns and filing all VAT returns on time for twelve months. Annual and monthly filers have different periods to meet for perfect compliance.

It does not matter whether the VAT return shows a repayment or VAT owing – if it is delivered late a point or penalty is charged. There is no soft-landing for the new system of late-filing penalties.

The old system of surcharges for late paid VAT does not feed into the new late-filing penalty system.

NEW VAT LATE-PAYMENT PENALTIES

In addition to the new penalties for late VAT returns there is also a new system of penalties for late paid VAT

For VAT periods beginning on and after 1 January 2023 you will have up to 15 days to pay your VAT – or arrange a time to pay agreement – before HMRC charge a penalty. In 2023 this 15-day grace period will be stretched to 30 days while traders get used to the new system.

From 2024 onwards the penalties are calculated as 2% of the unpaid VAT at day 15 and a further 2% of the unpaid VAT at day 30. If no payment is made until after day 30 the first penalty will be 4% of the amount due. However if full payment is made between days 15 and 30 the first penalty will be set at 2%.

From day 31 a second penalty is charged daily based on an annual rate of 4% of any outstanding VAT due.

In addition to the penalties charged for paying late, interest is charged on any late payment at the Bank of England base rate plus 2.5%. If you are due a VAT repayment which HMRC do not pay on time you will receive repayment interest at the Bank of England base rate minus 1%.

This is a much fairer system than the old VAT default surcharges which could see traders hit with penalties of up to 15% of the late paid VAT for paying just one day late. There is no carry forward of default periods or surcharge levels from the old VAT penalty system into the new late-payment regime.

RECOGNISING CAPITAL LOSSES

The annual capital gains exemption may cover most of the capital gains that you make on your share portfolio

However that exemption will be cut to £6,000 on 6 April 2023 and £3,000 in April 2024.

If you are planning to make large capital gains in the future you may be able to supplement your annual capital gains exemption with capital losses brought forward from earlier tax years.

To do this you must first claim the capital loss, either on your tax return for the year in which the loss arose or as a separate claim made within four years of the end of the tax year of the loss. For example any capital losses made in 2018-19 must be claimed by 5 April 2023.

You may have potential capital losses from holding cryptocurrencies following the crypto market crash in November 2022 or you may hold shares which now have little or no value. If those assets still exist you may wish to make a negligible value claim to create a capital loss in this tax year. Where the company in which you hold shares has already been dissolved a capital loss will have crystallised in respect of those shares on dissolution.

MIND THE NIC GAP

Do you know whether your national insurance contributions (NIC) record is complete and correct?

You can check the NIC record over your entire working life on your online personal tax account. This will also provide an estimate of the state retirement pension you should expect to receive when you retire.

You need 35 complete years of NIC (payments or credits) in order to receive the maximum state retirement pension and at least ten complete NIC years to receive any state retirement pension.

A gap in your NIC record can occur if you were out of work, studying or caring for children. In most cases this period should be covered by NI credits which are given automatically if you claim universal credit or similar benefits.

A parent who stays at home with young children should receive NI credits if they claimed child benefit for the child. However in some circumstances (eg fostering a child) you need to apply for NI credits.

If you find a gap in your NIC record, investigate why this may have occurred. It is not uncommon for HMRC to miss NI credits that were due.

LOOKING FOR HELP?

We have a team of experts within West & Berry who can advise you and your business.  Please get in touch to set up a no obligation consultation.

Girl,Counting,Us,Dollar,Bills,,Using,Calculator,,And,Writing,Expenses.

Tax News – Winter 2022

DIVIDEND TAX

Dividends are taxed at much lower rates than other forms of income and they are not subject to national insurance contributions

This can make taking income from your own company in the form of dividends far more attractive than paying yourself a bonus.

All taxpayers are currently entitled to a dividend allowance of £2,000 in addition to the personal allowance which is gradually withdrawn where annual income exceeds £100,000.

The dividend allowance effectively applies a zero rate of tax to the first slice of dividends received in the tax year. The Chancellor has decided to cut the dividend allowance to £1,000 per year for the tax year 2023-24 and then to £500 from 6 April 2024. 

In 2023-24 the cut in the dividend allowance will cost a basic rate taxpayer £87.50; a higher rate taxpayer £337.50; and an additional rate taxpayer £393.50 assuming that these individuals would use the full allowance.

The rates of tax applicable to dividend income have not been changed for 2023-24.

INCOME TAX

The main income tax thresholds and allowances had already been frozen at the 2021-22 levels until 2026 and that has been extended to 6 April 2028

The main income tax rates are unchanged for 2023-24 at: 20%, 40% and 45%.

Individuals in England, Wales and Northern Ireland will start to pay 40% tax on income above £50,270. The 45% tax rate currently applies to income above £150,000 but that threshold will be cut to £125,140 (the level at which a taxpayer’s personal allowance will have reduced to zero) from 6 April 2023.

The freeze or reduction of income tax thresholds and allowances coupled with inflation of over 11% will drag many more people into higher rates of tax every year. Once a taxpayer’s income strays into the 40% band their personal savings allowance (the amount of interest that is tax free) drops from £1,000 to £500 per year. Taxpayers who pay tax at 45% have no personal savings allowance.

Taxpayers who are resident in Scotland pay income tax on their earnings, profits and rental income at different rates and from different thresholds to people in the rest of the UK. However capital gains, savings and dividends are taxed at the same rates across the UK. The Scottish income tax rates for 2023-24 are due to be announced by the Scottish Government on 15 December 2022.

The high income child benefit charge threshold remains unchanged at £50,000 and families where the higher earner has total relevant income over £50,000 have some of their child benefit clawed back. This catches some people whose highest marginal rate is only 20%.

CAPITAL GAINS AND INHERITANCE TAX

Capital gains made by individuals are generally taxed at lower rates to income and taxpayers benefit from a separate annual exemption that covers the first £12,300 of gains made per year

This exemption will be reduced to £6,000 for the tax year 2023-24 and then to £3,000 for 2024-25. Any annual exemption unused in a tax year cannot be carried over to the next year.

The lowering of the annual exemption will mean that many more individuals will have to report capital gains on a self assessment tax return.

When the gain arises from the disposal of a residential property in the UK it must be reported using the UK property service within 60 days of completion of the sale and the tax paid by the same deadline. This 60-day report is required in addition to the annual tax return.

The main rates of capital gains tax (CGT) remain at 10% for gains within the basic rate band and those subject to business asset disposal relief and 20% for other gains. However gains made from residential property are taxed at 18% within the basic rate band and 28% at higher rates.

The inheritance tax threshold (nil-rate band) has been fixed at £325,000 per person since 2009 and it will now be kept at that level until at least April 2028.

Where an individual leaves an interest in their main home to one or more children or other direct descendants they can also benefit from the residential nil-rate band worth a further £175,000 per person. That amount is also frozen until April 2028 although the value of residential properties has increased significantly since 2020-21 when it was introduced.

HOME BUYERS PAY LESS STAMP DUTY

When buying a residential property in England or Northern Ireland you must pay stamp duty land tax (SDLT) if the purchase price exceeds a minimum threshold set at £125,000 since 2006

In September’s mini-Budget the then Chancellor announced that the entry threshold for SDLT payable on residential properties would double to £250,000 for deals completed on or after 23 September 2022. This higher threshold will apply until April 2025.

Where all the purchasers of the property have never owned a property they can take advantage of a first-time buyer minimum SDLT threshold of £425,000, increased from £300,000. If the property costs more than £625,000 (previously £500,000) the first-time buyer threshold does not apply.

The rates of SDLT were not changed in the Budget other than removing the lowest rate.

TAX ON DWELLINGS HELD BY COMPANIES

The annual tax on enveloped dwellings (ATED) applies where a residential property worth over £500,000 is held by a company and is not commercially let out or used for some other qualifying purpose. This tax currently starts at £3,800 per year but that starting rate will rise to £4,150 from April 2023.

Be aware that the ATED charge for 2023-24 to 2027-28 must be based on the property’s open market value on 1 April 2022 and it is up to the property owner to provide that valuation.

BUSINESS RATES

Properties subject to business rates will be revalued in 2023. Where the value has reduced compared to the last valuation point in 2017 that will translate to a rates reduction from April 2023. Where the rateable value has risen the increase in rates bill will be capped at 5% for small; 10% for medium; and 15% for large properties.

CORPORATION TAX UP

When the current Prime Minister was Chancellor he announced an increase in the main rate of corporation tax to 25% to apply to profits above £250,000 from 1 April 2023

Under the previous administration this decision was reversed but the 25% rate will now apply next year.

Companies with profits up to £50,000 per year will continue to pay corporation tax at the small profits rate of 19%. A company with total profits between £50,000 and £250,000 will pay 19% on the first £50,000 and a marginal rate of 26.5% on the rest.

Contractors who work through their own personal service companies will not be happy that the off-payroll working rules – which the previous administration vowed to repeal – are staying in place. These rules require large private sector businesses and all public sector bodies to decide whether the contractors they engage should be taxed as employees under the IR35 rules. Any agencies or intermediaries in the hiring chain are ignored for this decision.

Contractors can ask their ultimate customers whether they are categorised as a large company. Contractors working for a small or medium sized business must make their own decisions about whether the IR35 rules apply to the contract.

VAT CHANGES

The VAT registration threshold has already been frozen at £85,000 since April 2017 and it will now be fixed at that level until April 2026

The Chancellor made the point that the UK’s VAT registration threshold is more than twice as high as the average in OECD and EU countries so be prepared for this threshold to be cut in the future.

The VAT threshold freeze will drag many more businesses into compulsory VAT registration if they increase their prices with inflation which is now running at over 11%.

Once a business is registered for VAT it must keep digital records and submit VAT returns using making tax digital (MTD) compatible software unless the business owner can show that they are digitally excluded.

There have been some teething problems with the new VAT registration process and it can take many weeks to receive a new VAT number. You need to act quickly to register for VAT once your turnover for the previous 12 months exceeds £85,000 or it is expected to exceed that level in the next 30 days. There are significant penalties for late registration.

PAYROLL MATTERS

The Chancellor has decided to freeze the Class 1 NIC thresholds and rates for 2023-24 at the amounts that have applied since 6 November 2022 – the date of the latest rate changes

The health and social care levy which was due to take effect from 6 April 2023 will not be introduced.

The rates of statutory sick pay; maternity; paternity; and adoption pay have not yet been announced. As state benefits and pensions have been uprated by 10.1% in general it is reasonable to assume that statutory payments will be similarly uprated.

The national minimum wage rates are increased in line with the rate of inflation for pay periods starting on and after 1 April 2023. From 2024 the living wage age threshold of 23 will be reduced to 21 meaning that there will be only one adult rate.

INVESTMENT INCENTIVES

Companies can currently claim super-deduction allowances set at 130% of the cost of new plant and machinery or 50% of the purchase cost of certain fixtures and fittings for buildings

These super-deductions will expire on 31 March 2023.

The annual investment allowance (AIA) cap was due to be reduced from £1m to £200,000 on 1 April 2023 but will now be fixed at £1m permanently. The AIA can be claimed by any form of business and can apply to second hand equipment as well as items purchased brand new. Some 99% of businesses will be able to claim a full deduction for the cost of plant and machinery using the AIA.

The rates of deduction available under the R&D schemes for SMEs are being reduced partly to take into account the changes in corporation tax rates from 1 April 2023 but also because of perceived widespread abuse of the schemes.

Companies using the SME scheme will see the allowable deduction reduced from 130% to 86% and the payable tax credit reduced from 14.5% to 10%. Large companies that use the R&D expenditure credit scheme will be able to deduct an increased credit of 20% instead of 13%.

The investment zones proposed by the previous administration will go ahead in a limited number of areas but they will not attract tax reliefs such as reductions in business rates or employers’ NIC.

LOOKING FOR HELP?

We have a team of experts within West & Berry who can advise you and your business.  Please get in touch to set up a no obligation consultation.

A,Breathtaking,3d,Illustration,Of,Chancy,Crypto,Currency,Market,Indicators

Tax News – Spring 2022

CRYPTOASSETS ARE TAXABLE

In uncertain times people instinctively look for alternative ways to invest and some may choose cryptoassets such as Bitcoin and non-fungible tokens

If you decide to go digital with your investments, think about how the profit or loss you make on these assets will be taxed. HMRC does not consider cryptoassets such as Bitcoin to be a form of money or currency, so the special tax rules that apply to holding and lending money do not apply to cryptoassets.

Where cryptoassets are lent or ‘staked’ (lent to a platform which lends on to various borrowers) the return provided to the asset owner is not ‘interest’ but it is taxable either as sundry income or a capital gain.

HMRC is unlikely to consider transactions in cryptoassets as trading, so by default the transactions are capital and any profits must be taxed as capital gains. This means that for every sale or exchange of cryptoassets a gain or loss must be calculated.

This can create serious practical problems as crypto-transactions are often automated and carried out in vast numbers over short periods. You need to extract the necessary transaction data from the digital exchanges and digital wallets you use so that each transaction can be analysed into a capital gains tax computation.

 

MTD FOR VAT IS COMPULSORY

For VAT periods starting on and after 1 April 2022 all VAT records must be recorded digitally and returns must be submitted under the Making Tax Digital (MTD) regime

If you are not already submitting your VAT returns using MTD-enabled software you need to take action. There is plenty of choice in the market, from cloud-based systems to relatively simple bridging software that will connect to spreadsheets. We can help you to decide what is right for your business.

The next stage is to sign-up for MTD with HMRC. Although you are already VAT registered there is a separate mechanism to get into the MTD system. We can help with this.

If you pay your VAT by direct debit you must leave five days after the due date for your last VAT return before signing up for MTD. But do not delay after this as you need to be in the MTD system at least seven days before your first MTD VAT return is due.

Do not assume that you can ignore MTD; HMRC can impose nasty penalties if you refuse to comply, such as £400 for failing to submit the VAT return in the correct format. If your turnover is relatively low and you do not expect it to increase, we can discuss whether it would be sensible for you to deregister to avoid the MTD regime.

 

DECLARE YOUR COVID-19 GRANTS

The Covid-19 support grants (CJRS, SEISS and Eat Out to Help Out) are taxable and should be declared on your business’ tax return

For corporation tax (CT) you must report amounts received in the accounting period covered by the return, not grants claimed for the period and paid in a later period.

The first CJRS grants were paid in April 2020 but the CT return forms were not amended to include special boxes to report those grants until September 2021. If your CT return was submitted before the new version of the form was released the grant figures will not be easy to spot.

If HMRC cannot match the reported CJRS grant on the CT return to the amount paid to the company it will write to request an explanation.

If you receive such a letter please talk to us as soon as possible. It is important to take the letter seriously and reply with 30 days, as failure to do so may trigger a formal tax enquiry into your business. We will either amend the CT return to include any omitted Covid-19 grant income or confirm to HMRC that all grant income has been included within reported income.

 

VAT ON TERMINATION FEES

Contract termination fees can be a bitter pill to swallow when you just want out of an expensive agreement

What’s worse is that some suppliers will charge VAT on top of the cancellation fee while others will not. The law has been a bit of a mess but HMRC has laid down firm guidance on how termination fees should be treated for VAT purposes from 1 April 2022. From this date any fee paid on the early termination of a contract should follow the VAT treatment of the main supply under that contract.

Where your business charges cancellation fees, say for gym membership, hiring of rooms or restaurant tables, you need to review your VAT policy to ensure that it is in line with the new HMRC guidance from 1 April. We can help you with this.

If you are planning to terminate a contract early, which would create a cancellation fee, consider doing this before 1 April 2022. But first ask your supplier about the level of the charges and whether they intend to charge VAT on top.

 

COVID-19 SICK PAY SCHEME ENDS

As we are now at the ‘living with Covid-19’ stage of the pandemic the Government has decided to close the Covid-19-related statutory sick pay (SSP) rebate scheme on 17 March 2022

The scheme re-opened on 21 December 2021 for employers with fewer than 250 employees. It permits the employer to reclaim up to 14 days of SSP paid to an employee who is unwell or isolating due to Covid-19 and allows SSP to be paid from the first (rather than fourth) day of sick leave.

All claims for refunds of SSP paid must be submitted to HMRC by 24 March 2022. This is also the deadline for amending any earlier SSP refund claims. This is an incredibly tight deadline, especially as the SSP has to be paid to the employee before it can be reclaimed.

Also from 25 March 2022 SSP will revert to being payable from the fourth day of absence from work, even if the absence is due to Covid-19.

 

TAX ON PPI INTEREST

Do you remember those annoying ‘claim back your PPI’ adverts?

Thousands of people received repayments, which included interest calculated at 8% on the PPI premiums refunded. Where the PPI settlement was paid after September 2013 the bank or insurance company should have deducted tax at 20% from the interest element. This was correct but if the interest received is covered by the taxpayer’s savings allowance of £1,000 or £500 that tax can be reclaimed.

This is turning into another potential scam as ‘tax refund companies’ are persuading taxpayers to submit refund claims for the tax deducted and some keep a large slice of the refund. HMRC is also getting overwhelmed with claims.

If you received a PPI settlement, the interest element and tax deducted should have been declared on your self assessment tax return for the year in which you received the money. We can help you amend your earlier tax return to declare any PPI interest and claim a tax refund.

If you are not within the self assessment system you need to claim the tax refund on a form R40. This can be done online by signing in through Government Gateway or by post, but an online claim will be processed quicker. Do not under any circumstances let anyone else use your Government Gateway credentials to claim a tax refund on your behalf.

 

HOSPITALITY VAT RATES INCREASE

The hospitality and tourist sectors have been supported through the Covid-19 pandemic by being able to pay a reduced amount of VAT to HMRC in respect of most sales

The reduced VAT rate was 5% from 15 July 2020 to 30 September 2021 and 12.5% from 1 October 2021 to 31 March 2022. The sales affected by this special reduced VAT rate include: restaurant meals; hot takeaway meals (not sandwiches); hotel and similar accommodation; and entrance fees to tourist attractions. The reduced VAT rate also applied to non-alcoholic drinks taken with a restaurant or café meal eaten inhouse, but where the drink was part of a takeaway it had to be hot.

The business was not required to lower its prices to reflect the reduced VAT so could keep the difference as extra profit. But that benefit is now ending as the standard rate of 20% is restored from 1 April 2022.

If you operate in these sectors you should check that your accounting system and point of sale equipment will apply the correct VAT rate from 1 April 2022. You also need to be particularly careful with the VAT return for the period that straddles 1 April. We can double-check the figures for you before submitting the return.

It may be a good idea to review all VAT returns covering the reduced-rate periods to see if you have overpaid or underpaid VAT. Any such small errors can be adjusted on your next VAT return.

 

VALUATION OF LET PROPERTY

When an individual dies everything they own is valued to calculate the inheritance tax (IHT) due on their estate

These assets include the deceased’s main home and any let properties they may own. All of the assets must be valued based on a deemed transfer at open market value immediately before the deceased’s death. It is the condition of the assets as they existed at the date of death that is important, not the value at some later date after any pre-sale adjustments have been made.

Where a let property has a tenant in occupation at the date of death the value of that property for IHT purposes is the tenanted value – how much the property could be sold for with the tenant in residence – not the ‘with vacant possession’ value. This value should also take account of the unexpired period on the lease or licence at the date of death, as a longer outstanding lease period will generate a higher discount on the vacant possession value than a shorter lease term.

Where the property is jointly owned, only the proportion of the value attributable to the deceased should be included in the estate. It is crucial to find out whether the property is owned as joint tenants (‘joint owners’ in Scotland) or as tenants in common (‘common ownership’ in Scotland). The executors also need to know the relationship between any joint tenants as this determines the valuation method.

 

INTEREST ON LATE PAID TAX

All late paid tax now carries interest at 3%. Where the tax has been outstanding for more than six months a 5% surcharge on the outstanding amount may also apply

Surcharge rates of up to 15% can apply for VAT paid just one day late. If you can only pay some of your tax bills it often makes sense to prioritise the VAT but we can help you decide.

A first step when faced with a tax bill you cannot pay should be to contact HMRC and make an arrangement to spread the bill over a number of months. This is called a Time to Pay agreement and can be done online if you owe HMRC less than £30,000. Where the debt is greater than £30,000 or you need more than a year to pay, you need to speak to an HMRC officer and provide more information. We can help you with that.

If you have income tax still outstanding from 2019-20 but you are due a tax repayment for 2020-21 you might assume that the repayment would be off-set against the tax due and prevent any further interest running. Unfortunately this is not how the tax rules work. The tax repayment for 2020-21 is generally off-set against the outstanding tax, but only with effect from the final deadline for submitting the tax return: 31 January 2022 for the 2020-21 tax return.

If your 2020-21 tax return was submitted earlier than 31 January 2022 we can ask that HMRC treats the effective date of the repayment off-set as the date when your tax return was logged as received by HMRC. This should remove much of the interest charged.

shutterstock_525751342 - ORIGINAL

Autumn Budget 2021

NATIONAL MINIMUM WAGE RATES RISE

The national living wage (NLW) will rise to £9.50 per hour for pay periods starting on and after 1.4.22 along with the other national minimum wage rates

The apprentice rate will rise significantly by 11.9% to £4.81 and will be aligned with the rate for employees aged 16 and 17. This will help employers who will not have to have a formal apprenticeship agreement in place for trainees under 18 to pay the correct amount of NMW. Older apprentices do need a formal apprenticeship agreement. Keep a sharp eye on your employees’ birthdays to ensure that any rise in the NMW rate is implemented for the pay period that begins after they move into a different age category.

You can claim a £3,000 incentive for each apprentice hired before midnight on 31.1.22.

Anyone employed through the Kickstart scheme must be paid the NMW relevant to their age. Employers must apply for funding to pay employees on the Kickstart scheme before 17.12.21 but the start date for new employees on the scheme has been extended to 31.3.22.

 

UNIVERSAL CREDITS CLAIMANTS TO KEEP MORE WAGES

Many employed and self-employed people claim Universal Credit as they have low or unpredictable levels of income

It provides a much needed top-up to their earnings but the benefit is reduced as the worker earns more due to the Universal Credit taper rate.

Currently the taper rate is 63% which means that for every extra £1 earned the individual will keep only 37p. In the Budget the Chancellor announced that the Universal Credit taper rate will be cut to 55% so that for every extra £1 earned the worker will keep 45p for earnings received from 1.12.21. Those figures are calculated after deductions for tax and NIC.

Universal Credit claimants who have children or a limited capacity for work are granted a ‘work allowance’. This is the amount that they can earn which is not reduced by the taper rate and is set at £293 or £515 per month depending on whether the Universal Credit award also covers some of their rent. This work allowance will increase by around £42 per month or £500 per year from the same date.

 

CAPITAL INVESTMENT ENCOURAGED

In the March 2021 Budget the Chancellor announced a superdeduction scheme that provides a 130% deduction for the cost of new plant or equipment if it is purchased by a company before 1.4.23

Expenditure on other new assets such as fixtures and integral features in buildings can also qualify for a 50% first year deduction if purchased before 1.4.23.

There are two major restrictions to these attractive investment reliefs:

• the assets must be purchased new (not second hand); and

• the super-deductions can only be claimed by companies. 

An alternative to these reliefs is the Annual Investment Allowance (AIA) where up to £1m of the cost may be relieved. This AIA cap was due to reduce to £200,000 per year from 1.1.22 but will now stay at £1m until 31.3.23.

This offers a unique window for investing in business equipment including commercial vehicles but please talk to us before agreeing the deal to check the tax implications.

 

INCREASES IN INCOME TAX

The tax payable on dividends is set to rise from 7.5% to 8.75% for basic rate taxpayers from 6.4.22

Higher rate taxpayers will pay 33.75% on dividends and additional rate taxpayers must budget for dividend
tax of 39.35%. These rates will apply to all dividends taken from all companies where the total dividend income exceeds the dividend allowance which has been held at £2,000 for 2022-23.

This tax increase is significant. A shareholder/director who takes a salary of £12,570 and dividends of £37,700 per year will see their personal tax and NIC bill increase by £442.44 in 2022-23. That is an increase in the amount of tax and NIC paid of nearly 14.5%.

If you borrow from your company and leave the loan outstanding for more than nine months after the
accounting year end the company must pay a tax charge of 32.5% of the loan. This tax rate may well also
increase in April 2022 to match the dividend tax rise but this is as yet unconfirmed.

 

INCENTIVES FOR RESEARCH AND DEVELOPMENT

Research and development (R&D) tax reliefs can be very generous for small companies, giving a deduction of 230% of qualifying costs

However the categories of expenditure which qualify for R&D relief were defined over 20 years ago and do not include costs of a typical internet based business.

From April 2023 cloud computing and data costs will be qualifying expenditure categories for R&D relief. These are both very broad concepts and we will have to wait for guidance from HMRC and the new law to determine exactly what will be allowed.

The R&D tax relief scheme has unfortunately been the target of abuse and fraudsters and the Government intends to clamp down on such abuse and improve compliance through various measures, including limiting the R&D tax relief to work undertaken in the UK.

More detail on the new conditions for R&D tax relief is expected to be announced in the coming weeks.

 

BUSINESS RATES RELIEFS

High street shops, hospitality and leisure businesses were some of the hardest hit during the Covid-19 pandemic and many have not fully recovered

These businesses were granted 100% business rates relief during 2020-21 which continued until 30.6.21 for properties in England. Different rates reliefs apply in Scotland and Wales.

From 1.7.21 the English business rates relief was capped at £105,000 per business and restricted to 66% of the rates payable. For the year 2022-23 retail and hospitality businesses will be able to claim 50% business rates relief, capped at £110,000 per business.

In addition the automatic increase in the level of business rates which was suspended in 2021-22 will also be frozen for 2022-23.

From April 2023 the Government will allow businesses in England one year’s grace before they must pay business rates on any improvements that they make to their properties. There will also be a complete exemption from rates for eligible heat networks and plant used for renewable energy generation and storage.

 

CAPITAL GAINS REPORTING PRESSURE EASED

If you sell a UK residential property subject to capital gains tax (CGT) you must report the gain and pay the tax within 30 days of the completion date of the deal

The report generally has to be done online through a UK property account which needs to be activated for that purpose. The reporting must be repeated in your self assessment tax return after the end of the tax year. We can help you with CGT reporting.

Property investors who live outside the UK must report within 30 days gains from all types of UK property – commercial and residential – held directly or indirectly. However getting through HMRC’s security systems to set up the online property account can be very difficult and sometimes impossible.

HMRC has listened to complaints and extended the period for reporting and paying CGT on relevant property disposals from 30 to 60 days for deals completed on and after 27.10.21. Property deals completed before that date still need to be reported within 30 days if tax is payable.

Where gains are made by UK residents from mixed-use properties – commercial and residential – for example a shop with a flat above, only the residential part of the gain should be reported on the UK property account.

 

HOW TO DECLARE YOUR CHILD BENEFIT

Child benefit is not taxable but sometimes needs to be declared on tax returns

Since 2013 the high income child benefit charge (HICBC) claws back some or all of the child benefit paid to families where the highest earner in the family has total income of £50,000 or more. It is not necessarily the person who receives the child benefit who must pay the HICBC.

If your income is around £50,000 and you or your partner receives child benefit, the benefit received must be declared to HMRC on your tax return. If you do not currently complete a self assessment tax return you should ask for one. We can help you with that.

HMRC can also look at your tax affairs for earlier years to check whether you should have paid the HICBC in those periods. Interest and penalties will be charged where the correct declarations have not been made.

 

NIC RISES FOR ALL

Two areas in the public sector that desperately need funding are the NHS and social care

To pay for these services the Government is raising a new tax: the health and social care (HSC) levy. This will be charged at 1.25% of income or profits for the employed and self-employed respectively from 6.4.23 as it takes time to adjust computer systems to collect a new tax.

In the meantime national insurance contributions (NIC) will rise by 1.25% for all working people below retirement age. Employees will pay 13.25% NIC on earnings between £9,880 and £50,270 per year and 3.25% above that threshold. Employers will pay 15.05% on all employees’ wages above £9,100 per year.

This temporary increase in NIC for 2022-23 will be replaced by the HSC levy from 6.4.23. However that levy will also apply to individuals who are still working and aged over state retirement age. The Government hopes that the HSC levy will be shown separately on payslips to make it clear what taxes people are paying.

Employers with small payrolls can offset up to £4,000 per annum of their employer’s Class 1 NIC against the employment allowance. It is still not yet clear whether the employment allowance will cover the HSC levy from 6.4.23.

 

CHANGES FOR SELF-EMPLOYED TAX RETURNS

Making tax digital for income tax self assessment (MTD ITSA) will replace the self assessment tax return for unincorporated businesses from April 2024 for sole traders and from April 2025 for most partnerships

The MTD ITSA regulations will require you to keep records of your business transactions in a digital format and use those records to send a summary of income and expenses to HMRC each quarter. You will also have to submit an end of period statement (EOPS) after the tax year end and a finalisation statement reporting all other non-business income. These reports will have to be submitted using MTD-compatible software. We can help you with those tasks.

The Government has decided that all unincorporated businesses will need to report profits or losses for periods that align with the tax year: 6 April to 5 April. Business that currently draw up accounts to a different date may have to submit estimated figures in their EOPS. Accounting periods ending between 31 March and 5 April will be treated as ending on 5 April.

If your business uses an accounting period that does not end on 5 April we need to talk about what profits or losses will need to be reported in the transition year 2023-24. It is likely that some profits will be reported earlier and you may have a larger tax bill for 2023-24. In such cases it may be possible to spread the extra tax due over five years.

All this will take some planning, so let’s talk soon.

 

LOOKING FOR HELP?

We have a team of experts within West & Berry who can advise you and your business.  Please get in touch to set up a no obligation consultation.

Hand,Hold,A,Red,Umbrella,3d,Icon,Isolated,On,Black

June 2021 Newsletter

BEWARE OF MINI UMBRELLA COMPANIES

Umbrella companies employ temporary workers such as contractors on behalf of employment agencies or very large companies

An umbrella company should provide each worker with an employment contract and payslips. It should also provide a breakdown of the worker’s assignment rate received and list its costs including employer’s national insurance contributions (NIC). The employer’s NIC should not be deducted from the worker’s contract rate.

Some umbrella companies try to boost their profits by bending the law to take advantage of tax breaks designed for small companies. One method is to form multiple ‘mini umbrella’ companies (MUCs) each of which employs only one or two people. Each MUC then claims the employment allowance which is worth up to £4,000 per year and may also use the VAT flat rate scheme to save some VAT.

If you are a contractor caught up in a mini umbrella scam you should speak to your ultimate customer immediately and warn them about potential fraud in their supply chain. If your business uses temporary workers be sure to carry out due diligence checks on your supply chain and be clear about who pays those workers and how. Alarm bells should ring if your workers have been promised non-taxable pay, higher take-home pay or have been asked to sign a loan or annuity agreement.

 

BUSINESS RATES ON EMPTY PROPERTIES

As a landlord you may have lost income during the pandemic as tenants have left or gone into liquidation

Council tax (for residential properties) and business rates (for commercial premises) remain payable when a building is empty but there may be reliefs available. Some local authorities allow landlords to claim a discount on council tax for empty residential properties but this varies across the country. It is always worth asking your local council whether they offer such relief.

No business rates are due on an empty commercial property for the first three months it is vacant. This is extended to six months for industrial or warehouse properties. After that period the landlord can claim an extension to this empty-property relief for listed buildings or those with a rateable value under £2,900. Charities and community amateur sports clubs also qualify for some business rates relief. Where the owner is a company in liquidation or administration and is not occupying the property business rates will not be due.

If you are facing a business rates bill on an empty property you can also contact your local council and claim hardship relief or a discount on those rates.

 

PROBLEMS WITH HOLIDAY LETS

Landlords of furnished holiday accommodation qualify for tax breaks if their property is available for short term lettings for at least 210 days a year and is actually let for 105 days in the year

Due to the Covid-19 pandemic Easter holiday lettings were prohibited in many parts of the country and the 2020 summer season was heavily restricted. This is likely to mean that the 105-day minimum holiday letting was not achieved for many properties in the tax year 2020-21.

All is not lost as you can retain the favourable tax treatment for your holiday letting business by claiming a ‘grace period’ for the 2020-21 tax year. To qualify you must have let the property as short lets for at least 105 days in either 2019-20 or 2018-19 and be intending to let it again in 2021-22 as a holiday rental. If you have more than one holiday property, the number of days let can be averaged over all properties in a single tax year to achieve the minimum 105-day requirement.

If you plan to sell one or more of your holiday properties, any profit will be subject to capital gains tax (CGT) which is normally charged at 28% for residential property. The business asset CGT rate of 10% may be available if the property qualified as a furnished holiday let within three years of the sale.

 

HOW TO REPORT EMPLOYEE BENEFITS

Employee expenses and benefits provided in the year to 5 April 2021 must be reported to HMRC by way of the P11D process by 6 July 2021

Every employee who received benefits or expenses in the year should be included in that process even if they have already left the company. Employers who have already accounted for the value of the benefits during the payroll process do not have to complete a P11D for those employees but must submit a P11D(b) to HMRC to report the class 1A NIC which is due.

Many employees were provided with extra support from employers in 2020-21 to enable them to work in a covid-secure way. HMRC introduced some concessions to ensure that employees are not taxed on the benefit of this necessary support. Where the employee was required to work at home as the workplace was closed or they had to self-isolate, the following costs are not treated as taxable benefits if met by the employer:

• broadband internet connection if it was not already available; 

• computer tablet, laptops and office supplies;

• reimbursing employee for the cost of home office equipment; and

• working at home allowance up to £6 per week.

Strictly there should be no significant private use of the broadband and equipment to allow the provision to be tax free but HMRC says that the private use measure should be based on the employee’s duties and the need for them to have the equipment or services provided to do their job.

 

CGT ON SALE OF HOMES

Capital gains tax (CGT) may be due when you sell a second home or a property that has not been occupied as your main home for the entire period of ownership

For sales of UK homes completed since 6 April 2020 any CGT due must be declared and paid within 30 days of the completion date of the deal. Some conveyancing solicitors and estate agents are still unaware of this requirement or do not inform their clients about the shorter reporting period so particular care is required. Non-resident sellers must also declare the disposal of all UK properties within 30 days.

The declaration must be made through an online UK property account which is a separate system from annual self assessment tax returns. HMRC will issue you with a reference number when you report the gain, which you must use when paying the tax due. The HMRC computer will issue penalties automatically if the reporting or tax payment is late.

Taxpayers must also report the same gain on their tax return for the year and declare how much CGT they have already paid through the UK property account. If you have paid too much CGT that overpayment must be reclaimed by amending your UK property account. The overpayment cannot be offset against your income tax liability for 2020-21 which is payable on 31 July 2021 with any balance due by 31 January 2022.

If you have disposed of a UK residential property in the last 14 months and this has not already been reported to HMRC please speak to us without delay.

 

AVOID CHILD BENEFIT CLAWBACK

Couples who receive child benefit are in danger of having some of that benefit clawed back as a tax charge if the higher earner has annual income of over £50,000

If your annual income is around £50,000 and you or your partner receive child benefit you must declare the amount of child benefit received on your tax return. If you do not receive an annual tax return to complete, it is essential that we contact HMRC to register for a self assessment tax return.

With planning it may be possible to avoid the child benefit clawback by making Gift Aid donations or personal pension contributions during the tax year. If you run a business with your partner, planning may also be possible to equalise your income levels so that neither of you has annual income of more than £50,000. 

When the higher earner has income exceeding £60,000 all of the family’s child benefit is clawed back.

 

MTD FOR VAT: CRUNCH TIME

Most VAT registered businesses were required to comply with the making tax digital (MTD) regulations for VAT periods beginning on or after 1 April 2019

HMRC has not been imposing penalties for non-compliance with those rules, preferring to nudge businesses with letters and advertising campaigns instead. However HMRC is starting to take a tougher approach with traders who have not signed up to MTD. Around 800 businesses have been told that they can file their current VAT return using the old HMRC portal (online form) but from 8 July 2021 they will have to file using MTD software as the old portal will be closed to them. If the response to this test-run is positive HMRC will roll it out to others in a similar position.

Businesses whose annual turnover is less than the VAT registration threshold of £85,000 are not required to file using MTD until their first VAT period starting on or after 1 April 2022 but should prepare for their move to MTD sooner rather than later.

The MTD regulations require that the VAT data flows through the accounting system without manual intervention such as re-typing or copying and pasting figures. If your system still contains these manual breaks they need to be replaced by digital links without delay. We can advise on the best options available to you. All businesses using MTD for VAT need to have digital links in place in their accounting systems from the first accounting period that starts on or after 1 April 2021.

 

POSTPONED IMPORT VAT ACCOUNTING

As the UK is no longer a member of the EU, import VAT applies to all goods imported from the rest of the world into Great Britain (different rules apply for Northern Ireland) which do not qualify as small parcels (worth under £135). That import VAT will commonly be accounted for as a reverse charge entry on the importer’s next VAT return using postponed import VAT accounting (PIVA). This is a permanent change to the VAT system in the UK.

The reverse charge means that there are two entries on the VAT return which normally cancel each other out. However this will not be the case if there is any non-business use of the goods or where the importer is partially exempt so not permitted to reclaim all VAT on purchases. There is a separate process for deferring payment of customs duty on imported goods. Both VAT and customs duties are included on customs declaration forms.

The monthly PIVA statements are an essential part of your VAT records and are needed to give the correct figures to include on your VAT return. Remember to download the PIVA statements regularly as they are only available online for six months. Where the PIVA statement is not available HMRC will allow you to estimate the amount of VAT paid but the figure should be corrected on the following quarter’s VAT return.

If the import VAT is paid on arrival of the goods in the UK the amount will be shown on a C79 certificate which you should retain as evidence.

 

LOOKING FOR HELP?

We have a team of experts within West & Berry who can advise you and your business.  Please get in touch to set up a no obligation consultation.

Charlotte

Guest blog – Charlotte Allfrey, Metro HR – Things To Consider When Recruiting Your First Employee

As the MD of a small business myself I completely understand the peaks and troughs in workload and the ongoing debate about when might be the right time to hire an employee and grow my business, but of course as an experienced HR Consultant I have a bit of a head start on most of you. That doesn’t mean I don’t find it a daunting prospect, it’s a really big step to take and not something that should be entered into lightly. It will take money, time and commitment and if managed well will reap many rewards. If not managed well or not well set up, employing people can be very time consuming, stressful, challenging but also costly.

Here are my thoughts on things you should consider if you are thinking of taking that next step and becoming a team.

How much you want to pay someone is probably the first thing you think about. Carrying salaries in your cash forecast is a big consideration, but salary isn’t the only cost, there are many other costs and commitments associated with employing people which you will need to factor into your forecast and diary:

  • Insurance – You will be legally required to have Employers Liability Insurance for even 1 employee, this covers you and your business for compensation costs if an employee becomes ill or injured as a result of their work.
  • Employer NI – as an employer you are required to pay 13.8% of an employee’s monthly salary to HMRC as National Insurance contributions.
  • HMRC Registration – You will need to register with HMRC as an employer and get a Company PAYE reference number to set up your company payroll.
  • Employer Pension Contributions – If your employee is eligible you will be required to auto enrol them to a ‘Qualifying Pension Scheme’ such as Nest and pay a contribution of 3% of their monthly salary to their pension pot.
  • Other Rewards and Benefits – you may decide to offer other benefits to employees which may have a cost attached, life cover, access to an employee assistance programme, or a bonus.
  • Equipment – you will need to purchase various equipment for your new employee(s) depending on their job role such as a laptop/desktop computer, mobile phone, tablet, desk, chair, stationery, any uniforms or personal protective equipment etc.
  • Payslips – All employees should be provided with an itemised payslip, you can set your own payroll up through an HMRC portal, but many businesses prefer to outsource managing a payroll to an accountant, there will be a small monthly charge for this, but in my view it’s worth it.
  • Recruitment Costs – if you use a recruitment agency you will pay a placement fee which could be anything from between 10-20% of the employee’s annual salary. The CIPD’s Resourcing and Talent Planning Survey 2020 suggests the cost of recruitment per hire is between £2,000 and £5,000 – over and above recruitment agent’s fees and the salary. This becomes a big extra spend if employees don’t stay with you and you end up re-recruiting. However, each time you replace someone the hidden cost increases because you also lose valuable knowledge and experience which takes time for a newbie to develop.
  • Your Time – You will need to spend time engaging with and helping your employees learn about their role, your business and how things need to be done, discussing workloads and priorities, but also managing, supporting and checking in with them.
  • What’s your strategy? If you help your team understand your business strategy and goals and what their role is and how it fits into the bigger picture they will have clarity and will be able to help you move your business towards its goals.
  • Documentation – You will need certain documentation in place to protect you and your employees such as a legally sound contract of employment and some core policies and procedures to get you started.
  • Health and Wellbeing – You will be responsible for providing a safe and appropriate working environment for your employees which includes looking after their health, safety, welfare and mental wellbeing.

If that hasn’t put you off, and you are ready to take the plunge and recruit your first employee, here are my top tips for doing it well:

  1. Create a job description with a person specification for the role which clearly sets out the roles, responsibilities, and accountabilities for the job.
  2. Go through a proper recruitment process and assess applicants equally and consistently against the job description.
  3. Search for similar jobs yourself to benchmark the salary you are offering to make sure it is a fair wage and think about ways to add to the reward package to attract good candidates and retain people.
  4. Make a formal offer of employment in writing (beware – a verbal offer is still legally binding).
  5. Ensure you offer the statutory minimum entitlements in terms of pay and holiday.
  6. Carry our pre-employment checks to make sure they have the right to work in the UK and have the qualifications they say they have, ask for referees you can contact.
  7. Start someone with a probationary review period (a trial period) and give them an in-depth induction to the role and the company.
  8. Provide a comprehensive contract of employment from day 1 (a legal requirement) or ahead of their start date to ensure terms are agreed – if the relationship breaks down it will be the contract that will be relied upon. Seeking assistance from an HR Consultant would be advised.
  9. Set up a core suite of policies and procedures to help manage expectations on both sides.
  10. As a founder/owner you will naturally set the culture and tone for your business but it would be better if you could lead by example and live and breathe the values you expect your team to demonstrate.
  11. Communicate with your team – continuous ongoing performance and progress conversations that check in to see how someone is, ask what’s going well and what support is needed, and give and ask for feedback on how things are going are far more beneficial than a yearly appraisal.
  12. Get some advice tailored to your business to ensure you meet your legal obligations – don’t guess, particularly if this isn’t your area of expertise. Getting your legal obligations wrong can be a costly mistake.

If you follow these guidelines you will be well on your way to meeting your legal obligations and protecting your business from costly claims and high employee turnover. You will also free yourself up to get on with doing what you do best – running your business.  I believe if you have happy people you will have a happy business. Engaged employees that feel well rewarded and valued love doing great work, they will embrace change, be accountable, motivated, and productive, will be open to learning and development, and they will be innovative and creative – what’s not to love about that?

If you want to discuss your recruitment or business growth plans I offer a free 30-minute consultation so get in touch at www.metrohr.co.uk  hello@metrohr.co.uk

 

Charlotte Allfrey

Managing Director and Senior HR Consultant

Metro HR Ltd

Portrait,Of,Beautiful,African,American,Young,Happy,Woman,Waitress,In

2021 Budget Key Points Guide

CORPORATION TAX COMPLEXITY

The Chancellor announced that taxes would have to rise, but not quite yet, as all tax rates except for VAT are frozen for 2021-22

Large companies will then see their corporation tax rate rise from 19% to 25% from 1 April 2023. Companies making no more than £50,000 per year in profits will still pay tax at the current rate of 19%. There will be a system of marginal relief on corporate profits between £50,000 and £250,000, above which the tax rate will be set at 25%.

Complexity is added for groups and associated companies as the profit thresholds of £50,000 and £250,000 will have to be divided by the number of associated companies. The companies counted as being in a group or associated will be those which are under the common control of a person, a company or a group of persons. Family companies which are not trading will also pay corporation tax at 25% on all profits.

SUPER DEDUCTION FOR CAPITAL EXPENDITURE

Larger companies may have opted to wait until April 2023 before making major investments in plant or machinery to achieve tax relief of 25% on those costs following the increase in the corporation tax rate

However, the Government wants to encourage those companies to invest sooner so is offering a super deduction of 130% of capital expenditure on new qualifying plant and machinery. The contract to buy must be entered into on or after 4 March 2021 and the purchase must be made between 1 April 2021 and 31 March 2023.

This 130% deduction will only apply to assets eligible for the main capital allowances pool with writing down allowances normally given at 18%. Cars do not qualify for this super deduction unless they are specially adapted for use in a driving school. Expenditure on other new assets such as fixtures and integral features in buildings will qualify for a 50% deduction in the year of purchase if acquired before 1 April 2023. The remaining cost of these assets will qualify for a writing down allowance at 6% per year.

These enhanced deductions for the cost of new assets apply alongside the 100% deduction available under the annual investment allowance which covers up to £1 million of expenditure per year until 31 December 2021.

POINTS MEAN PENALTIES

HMRC is changing the way taxpayers interact with them in a project called making tax digital (MTD)

Most VAT registered businesses are already submitting their VAT returns using MTD-compatible software and unincorporated businesses will have to use MTD software from April 2023. Income tax reporting by unincorporated businesses will be required at least quarterly rather than once a year as is currently the case under self assessment.

HMRC has announced that they will use a new points based system to encourage taxpayers to submit MTD updates on time. The taxpayer will be given points for every late VAT or income tax return and once a defined number of points is reached an automatic £200 penalty will be issued.

This new points and penalty system will commence from 1 April 2022 for VAT and from 6 April 2023 for taxpayers submitting MTD income tax updates. Sanctions for late payment of tax will also be harmonised across all taxes.

RELIEF FOR BUSINESS LOSSES

Many businesses have made losses during the Covid-19 pandemic. Normally trading losses can be carried back one year to set against profits and generate a repayment of tax

The Government have announced that they will permit businesses to carry back losses for up to three years. Companies that make losses in accounting periods ending between 1 April 2020 and 31 March 2022 will be able to carry back up to £2 million of extra losses for three years with the normal unlimited carry back for one year followed by the additional £2 million to the two preceding years.

Unincorporated businesses will be able to carry back losses made in the tax years 2020-21 and 2021-22 for three years, setting the loss against the profits of the latest year first. For example, a business which made a loss in 2020-21 can carry that loss back against its profits made in 2019-20, 2018-19 and 2017-18, setting off the loss against the profits of 2019-20 first, before setting the loss against the two earlier years. If you have made a loss, taking action now could generate a useful tax repayment.

FROZEN BANDS AND ALLOWANCES

Income tax and national insurance contribution rates have been frozen for 2021-22 and are likely to remain frozen until the end of this Parliament in 2024

By freezing the personal allowances and tax bands at their 2021-22 levels the Chancellor is causing the value of those allowances and bands to diminish by inflation. In real terms, if the taxpayer increases their income or profits in this period, more of their income will be taxed at the higher rates. As a result, the taxpayer pays more tax despite the tax rates being unchanged.

This ‘freezing’ approach has been applied to inheritance tax since 2009, while the value of property subject to that tax has increased enormously, resulting in more deceased estates becoming liable to pay inheritance tax.

The capital gains tax exempt amounts and rates have also been frozen in 2021-22 with the Chancellor confirming these will also be fixed for the foreseeable future.

TWO NEW SEISS GRANTS

As a self-employed individual you may have been able to claim up to three grants under the self-employed income support scheme (SEISS) since the start of the pandemic

Two more SEISS grants will soon be made available, capped at £7,500 each. Each of these new grants will be based on your average trading profits as reported on your tax returns for the four years to 2019-20. You will only be eligible to claim these grants if you submitted your 2019-20 tax return by midnight on 2 March 2021 (it was due by 31 January 2021).

The extension means that if you started your business in 2019-20 you will be able to claim a SEISS grant for the first time, as long as you meet the other criteria and thresholds, which are the same as they were for the first three grants. The online facility to claim the fourth SEISS grant will open in late April.

As part of the claims process you must declare that you have suffered a significant drop in trading profits. HMRC does not quantify what ‘significant’ means but the reduction in earnings need not be enough to put you out of business as you must still be trading, or be intending to continue to trade once the Covid-19 restrictions are lifted, in order to be eligible for the SEISS grants. A fifth SEISS grant will be available in late July 2021 but the eligibility criteria will be tighter still.

If your turnover has fallen by at least 30% you may be able get the full grant, calculated at 80% of your average trading profits, capped at £7,500. Businesses whose turnover has fallen by less than 30% will receive a grant based on 30% of average profits, capped at £2,850. All of the SEISS grants are taxable income for your business and they will have to be declared as income on your tax returns for the tax years in which they are received.

VAT BOOST FOR HOSPITALITY

Many hospitality venues have been closed for almost a year and are still unable to open under the Covid-19 restrictions

To help them survive this period, the Government has given them a 15% VAT reduction on most sales. Where the business would normally collect 20% in VAT they currently only have to pay 5%.

This 5% VAT rate has applied in the hospitality and tourism sectors since 15 July 2020 and will continue to apply until 30 September 2021. This will then gradually increase with sales made from 1 October 2021 to 31 March 2022 in these sectors adding 12.5% before returning to the usual 20%.

These reduced VAT rates broadly cover restaurant meals or hot take-away meals (not sandwiches); hotel and similar accommodation; entrance fees for tourist attractions and cultural venues. The lower rate does apply to soft drinks taken with a restaurant or café meal eaten in-house. The reduced VAT rates do not apply to tickets for sporting events nor admission to sporting facilities, so bookings to use a tennis court or five-a-side football pitch are still subject to 20% VAT.

A special low rate applies to gross sales under the VAT flat rate scheme for small businesses, such as pubs, hotels and catering services. The flat rate scheme rules will be revised to take account of the 12.5% rate that applies until 31 March 2022.

STAMP DUTY HOLIDAY EXTENDED

Stamp duty land tax (SDLT) must normally be paid by purchasers when they buy residential property in England or Northern Ireland for more than £125,000

This lower threshold was raised to £500,000 from 8 July 2020 to 31 March 2021 and will now remain at that level until 30 June 2021. It will then be reduced to £250,000 from 1 July to 30 September 2021 and will revert to £125,000 from 1 October 2021. This means that if you are buying your main home and complete the deal on or before 30 June 2021 you will pay no SDLT where the purchase price does not exceed £500,000. This could save you up to £15,000.

Landlords and companies who buy investment properties to let out will benefit from the SDLT holiday but must pay a surcharge at 3% on the entire value of the deal.

Purchasers of property in Wales must pay land transaction tax (LTT) which normally applies to residential property deals above £180,000. A similar LTT holiday has applied in Wales since 26 July 2020 when the lower LTT threshold was raised to £250,000. This threshold will now stay at £250,000 until 30 June 2021. However, investors, second home buyers and companies cannot benefit from the LTT holiday at all.

The Scottish Parliament also applied a land tax holiday on residential properties purchased between 15 July 2020 and 31 March 2021 where the purchase price does not exceed £250,000. However, that tax break will not be extended.

FURLOUGH SCHEME EXTENDED

Some potentially good news for employers is the Chancellor’s decision to extend the furlough scheme in its current form until 30 June 2021

Employers can continue to claim 80% of each furloughed employee’s usual wages for periods the employee is furloughed, up to £2,500 per employee per month. The furlough scheme will continue until 30 September 2021 but the costs for employers will increase:

  • for pay periods from 1 July 2021 the employer can claim 70% of their employees’ usual wages up to £2,187.50 per employee per month; and
  • for pay periods from 1 August 2021 the employer can claim 60% of their employees’ usual wages up to £1,875 per employee per month.

In all cases the employer must continue to pay furloughed staff 80% of their usual contracted wages and pay all of the employer’s Class 1 NIC and any employer’s pension contributions due on those furloughed wages. Employees can be asked to work part time and be furloughed for the rest of their normal working hours.

Be aware that HMRC now publishes the names of employers who use the furlough scheme and an indication of the total amount claimed each month.

Employees can also check their personal tax account to see if a furlough claim has been made in respect of their wages.

LOOKING FOR HELP?

We have a team of experts within West & Berry who can advise on what the latest changes mean for you and your business.  Please get in touch to set up a no obligation consultation.