Archive for May, 2021

Company super-deductions and tax increases

Thursday, May 27th, 2021

One of the more innovative aspects of the recent March budget was the introduction of the rather grandly named super-deduction.

Limited companies that invest in qualifying assets in the two-year period 1 April 2021 to 31 March 2023, will be eligible for a 130% tax write-off.

What this means is that if you buy say a new computer system for £5,000 you will be able to claim a £6,500 write-off against your taxable profits.

Note, the reduction is in the amount of profit subject to corporation tax. The 130% is not a deduction from tax payable.

In our example, the capital purchase of £5,000 would be converted into a super deduction of £6,500 that would reduce corporation tax by £1,235 (£6,500 x 19% – the current rate of corporation tax).

Interestingly, the tax saved of £1,235 is almost 25% of the £5,000 investment. You may remember that the Chancellor advised, in the same March budget, that he is considering raising corporation tax to 25% from 1 April 2023, the date on which the 130% super deduction ends. Large companies with profits more than £250,000 will pay the 25% rate.

Smaller companies will continue to pay a lower rate of 19% if profits less than £50,000. No doubt this will lead to complex marginal rates being applied to companies with taxable profits between £50,000 and £250,000.

Clearly, the Chancellor wants businesses to invest during the next two years and this tax incentive will help to smooth the way.

Businesses tempted to make larger investments need to consider how the assets will contribute to rebuilding their businesses after the recent, and prolonged, COVID disruption. It is useful to make the most of these tax incentives, but the purchase of capital assets needs to create additional profits.

Readers who are considering capital acquisitions would be wise to seek advice before placing orders to make sure that all aspects of their investment are carefully considered. We would be delighted to help.

New tariff suspension scheme for the UK

Tuesday, May 25th, 2021

 

To reduce costs for UK firms that import certain goods from abroad, the Department for International Trade (DIT) has announced a new tariff suspension scheme. The aim, according to a recent press release, is designed to make UK companies more competitive.

The published details of the scheme are reproduced below:

From next month, firms based in the UK or Crown Dependencies will be able to apply for duties on goods they import to be temporarily reduced or withdrawn. Once a suspension has been introduced, all UK importers will be able to benefit from the reduced rate.

The new scheme will allocate suspensions based on the needs of firms in the UK and the wider economy, on any import that satisfies the selection criteria set out on GOV.UK.

In recognition of the challenges surrounding the Covid-19 pandemic, existing duty suspensions that the government rolled over from the EU will be extended beyond 31 December 2021 to ensure business certainty.

Businesses will be able to apply from June 1 and the suspensions are expected to apply from early 2022.

The government are no doubt concerned by inflationary pressures building in the UK economy as demand-led activity starts to boost output.

There must also be supply-side pressures as industry starts to assess the financial impact of EU tariffs following our exit from the EU.

Nevertheless, this intervention is welcomed and readers whose businesses have incurred additional import costs following Brexit would be wise to follow the DIT announcements published on the gov.uk site.

New rules to curb pension scammers.

Thursday, May 20th, 2021

The government is helping shut the door on social media scammers trying to plunder people’s pensions under new scam prevention measures due this autumn.

Under the plans, suspicious requests could be stopped if pensions savers have been approached to access or transfer their savings uninvited via social media. Such unsolicited contact would trigger a “red flag” which would mean pension trustees or scheme managers can block it.

Many scammers are using social media and other online channels to offer people “too good to be true” incentives such as free pension reviews, early access to their money, or time limited offers. Lured by these attractive offers, people are coerced into transferring their savings into a scam scheme designed to fleece them of their savings.

Most pension transfers are legitimate and can proceed with minimum intervention. However, the Pension Scams Industry Group estimates five percent of all transfer requests give trustees and scheme managers cause for concern.

The pension transfer regulations – published on GOV.UK for consultation today – will introduce a new red and amber flag system.

The “red flags” and “amber flags” are triggered when one, or a combination, of a specific set of circumstances are present and indicate fraudulent activity.

A red flag will give the trustee the power to block the transfer, while an amber flag allows them to block the transfer until the member provides the evidence that they have taken specific transfer scams guidance.

The presence of these flags could be determined based on the individual’s response to a range of standardised questions, including:

  • Did someone advise or recommend that you consider a pension transfer?
  • Were you initially approached by e-mail, text, phone call, letter or through social media?
  • Who contacted you and how do you know them?
  • Was it someone offering independent advice or someone representing a firm that contacted you?
  • Are you aware of how your money will be used/invested?
  • Are any of your investments subject to an exit penalty if you wish to access or transfer the investments within an agreed period (for example within 5 or 10 years)?
  • Do you know what the costs and charges are for your new arrangement?
  • Are you working with an adviser or firm based outside the UK?

 

This is a welcome response to curb the rise of these online scammers and protect hard-earned pension savings. Consultations on the proposed legislation are open for responses until 9 June 2021.

How the lockdown rules are changing from 17th May

Tuesday, May 18th, 2021

Fingers crossed that the present rise of the Indian COVID variant is restricted to localised outbreaks and that the intended relaxation of lockdown will generally go ahead as planned from 17th May.

It would be a cruel irony if businesses that have been stocking up and training staff were told they could not open after all or that those desired summer holiday would have to be cancelled.

But, looking on the bright side, we have reproduced below how lockdown rules are planned to change from the 17th:

  • Gathering limits will be eased. Outdoor gatherings will be limited to 30 people and indoor gatherings will be limited to 6 people or 2 households (each household can include a support bubble, if eligible).
  • New guidance on meeting friends and family will emphasise personal responsibility rather than government rules. Instead of instructing you to stay 2m apart from anyone you do not live with, you will be encouraged to exercise caution and consider the guidance on risks associated with COVID-19 and actions you can take to help keep you and your loved ones safe. Remember that the risks of close contact may be greater for some people than others and in some settings and circumstances, there will be specific guidance that you will need to follow even when you are with friends and family.
  • Indoor entertainment and attractions such as cinemas, theatres, concert halls, bowling alleys, casinos, amusement arcades, museums and children’s indoor play areas will be permitted to open with COVID-secure measures in place.
  • People will be able to attend indoor and outdoor events, including live performances, sporting events and business events. Attendance at these events will be capped according to venue type, and attendees should follow the COVID-secure measures set out by those venues.
  • Indoor hospitality venues such as restaurants, pubs, bars and cafes can reopen.
  • Organised indoor sport will be able to take place for all (this includes gym classes). This must be organised by a business, charity or public body and the organiser must take reasonable measures to reduce the risk of transmission.
  • All holiday accommodation will be open (including hotels and B&Bs). This can be used by groups of up to 6 or 2 households (each household can include a support bubble, if eligible).
  • Funeral attendance will no longer be limited to 30 people but will be determined by how many people the COVID-secure venue can safely accommodate with social distancing. Limits at weddings, wakes and other commemorative events will be increased to 30 people. Other significant life events, such as bar/bat mitzvahs and christenings, will also be able to take place with 30 people.
  • The rules for care home residents visiting out and receiving visitors will change, allowing up to five named visitors (two at any one time), provided visitors test negative for COVID-19.
  • All higher education students will be able to access in-person teaching.
  • Support groups and parent and child group gathering limits will increase to 30 people (not including under 5s)
  • There will no longer be a legal restriction or permitted reason required to travel internationally. There will be a traffic light system for international travel, and you must follow the rules when returning to England depending on whether you return from a red, amber or green list country.

Did you overclaim the SEISS grant?

Thursday, May 13th, 2021

A reminder that HMRC have set out detailed guidance for the self-employed who may have over-claimed any of their Self-Employed Income Support Scheme (SEISS) grants.

The guidance is reproduced below:

You must tell HMRC if, when you made the claim, you were not eligible for the grant. For example:

  • for the first or second grant, your business was not adversely affected.
  • for the third or fourth grant, your business had not been impacted by reduced activity, capacity or demand or inability to trade in the relevant periods.
  • you did not intend to continue to trade.
  • you have incorporated your business since 5 April 2018.

You must also tell HMRC if you:

  • received more than we said you were entitled to.
  • amended any of your tax returns on or after 3 March 2021 in a way which means you are entitled to a lower grant than you received.

When you must tell HMRC

 

If you are not eligible and have to pay the grant back, you must tell us within 90 days of receiving the grant.

The process for when and how to tell us is different if amending your return affects your grant amount or eligibility.

If amending your return affects your grant amount or eligibility

You must tell HMRC if there is an amendment to any of your tax returns on or after 3 March 2021 which either: lowers the amount you are eligible for and causes you to no longer be eligible.

If you amend your return before claiming your grant, you must tell HMRC within 90 days of receiving your grant.

If you amend your return after receiving your grant, you must tell HMRC within 90 days of making the amendment.

If you do not tell HMRC you may also need to pay a penalty. HMRC will provide more information about when you may need to pay a penalty by mid May 2021.

You do not need to tell HMRC if the grant amount you are eligible for is lowered by £100 or less.

 

If you are unsure if you are affected by these rules, please call.

Running a limited company

Wednesday, May 12th, 2021

Limited companies are owned by shareholders and managed by directors.

Very often, especially in the case of smaller companies, the owners and managers (shareholders and directors) are the same persons. Unfortunately, each has separate roles and responsibilities. For example, as a director of a limited company you must:

  • follow the company’s rules, shown in its articles of association.
  • keep company records and report changes.
  • file your accounts and your Company Tax Return
  • tell other shareholders if you might personally benefit from a transaction the company makes.
  • pay Corporation Tax.

You can hire other people to manage some of these things day-to-day (for example, an accountant) but you are still legally responsible for your company’s records, accounts and performance.

Also, you may be fined, prosecuted or disqualified if you do not meet your responsibilities as a director

 

Taking money out of a limited company

Directors have a few options when considering how they can withdraw money from their company. For example, they can receive a salary, charge rent to the company if their company has the use of personal assets or charge interest if a director lends money to its company.

Directors who own shares in their company or other shareholders have one income producing option, to take a dividend.

A dividend is a payment made to shareholders out of a company’s taxed earnings. Depending on the level of dividends received, shareholders will pay:

  • No additional tax on dividends received up to £2,000 a year.
  • Dividends that form part of the basic rate band will be charged a hybrid tax rate of 7.5%.
  • Dividends that form part of the higher rate band will be charged at 32.5%.
  • Dividends that form part of the additional rate band will be charged at 38.1%.

Because dividends are a return to shareholders they are not treated as earnings from employment and consequently, no National Insurance arises. For this reason, there is a tendency for director/shareholders to minimise salary payments and maximise dividend payments.

Planning is key

However, it is rare for the tax position of individuals to be the same and for this reason, working out the most efficient way to withdraw funds from a company is paramount. It is not just a question of considering the strategy that produces the lowest tax bill. For instance, if salaries are to be minimised Living Wage rates and entitlement to benefits – particularly the State Pension – may need to be considered.

If it is some since you consider your options, please call so we can help you create the optimum fit for your circumstances.

Are your Child Benefits under threat?

Thursday, May 6th, 2021

For some time now, HMRC have had the power to claw back some or all of the Child Benefits you receive if either parent’s income exceeds £50,000.

The benefit is recovered by the High Income Child Benefit Charge (HICBC). This states that if either parent had income over £50,000 and:

  • either partner received Child Benefit, or
  • someone else received Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.

Then part or all of the Child Benefit received may need to be paid back to HMRC. It doesn’t matter if the child living with you is not your own child.

You may not have considered the HICBC before if your incomes were below the £50,000 cap, but if your income for 2020-21 exceeded this amount you should be aware of the following.

  • The parent with the higher income for 2020-21 (more than £50,000) will need to register to submit a self-assessment tax return and pay any HICBC due – unless they are already registered in which case, they will need to enter the amount of Child Benefit received on their return and pay any tax due.
  • The parent with the higher income, even if they were not the person claiming the Child Benefit, will need to make this declaration.

How will benefits be paid back?

1% of the Child Benefit received will be recovered by HMRC’s HICBC for every £100 the highest earner’s income exceeds £50,000. Accordingly, once the highest income exceeds £60,000 all the Child Benefits received will be reclaimed.

To avoid the charge, it is possible to decline receipt of Child Benefits. Care should be taken in triggering this option as it can have roll-on disadvantages when claiming future State Benefits or obtaining a National Insurance number for children.

To summarise:

  • Parents where the highest income is below £50,000 will not be affected and can continue to claim Child Benefit with no tax claw back.
  • Parents where the highest income is above £50,000 but below £60,000 will be affected and will need to pay the appropriate HICBC.

There are strategies that you could use to reduce your taxable income below the £50,000 or £60,000 thresholds as these are calculated net of any allowable deductions.

Please call if you would like more advice regarding these deductions or dealing with your registration for self-assessment, if required.

Tax Diary May/June 2021

Tuesday, May 4th, 2021

1 May 2021 – Due date for Corporation Tax due for the year ended 30 July 2020.

19 May 2021 – PAYE and NIC deductions due for month ended 5 May 2021. (If you pay your tax electronically the due date is 22 May 2021).

19 May 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2021.

19 May 2021 – CIS tax deducted for the month ended 5 May 2021 is payable by today.

31 May 2021 – Ensure all employees have been given their P60s for the 2020-21 tax year.

1 June 2021 – Due date for Corporation Tax due for the year ended 31 August 2020.

19 June 2021 – PAYE and NIC deductions due for month ended 5 June 2021. (If you pay your tax electronically the due date is 22 June 2021)

19 June 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2021.

19 June 2021 – CIS tax deducted for the month ended 5 June 2021 is payable by today.

Advisory Fuel Rates from 1 March 2021

Tuesday, May 4th, 2021

The advisory electricity rate for fully electric cars is 4 pence per mile.

Hybrid cars are treated as either petrol or diesel cars for advisory fuel rates.

The advisory fuel rates for petrol, LPG and diesel cars are shown in these tables.

From 1 March 2021

You can use the previous rates for up to 1 month from the date the new rates apply.

Engine size Petrol – rate per mile LPG – rate per mile
1400cc or less 10 pence 7 pence
1401cc to 2000cc 12 pence 8 pence
Over 2000cc 18 pence 12 pence

 

Engine size Diesel – rate per mile
1600cc or less 9 pence
1601cc to 2000cc 11 pence
Over 2000cc 12 pence

Averaging profits for creators of literary or artistic works

Tuesday, May 4th, 2021

A special relief is available for creators of literary or artistic works under which they can claim to add together their profits for 2 years and be taxable on the average of those profits if certain conditions are met. This helps to even out fluctuating tax charges for creative persons who may pay little tax one year but perhaps higher rates of Income Tax the following year. The averaging process may help to reduce overall liabilities.

You can claim averaging if your profits come from disposing of works or from royalties you get for allowing people to reproduce your works. So, for example, you can claim if you are:

  • an author whose income comes from the sale of your written work – even if a small part of your income comes from personal appearances
  • a computer software writer whose income comes from royalties for reproducing the code you write, which is protected by copyright

You cannot claim averaging if your profits come from the services you provide. So, for example, you cannot claim if you’re:

  • an architect whose income comes mainly from your services – even if some of your income comes from selling material protected by copyright
  • a computer programmer whose income comes from the service of writing scripts or programs, not the actual works

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