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.