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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

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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.