Archive for December, 2021

Be prepared for change in 2022

Wednesday, December 22nd, 2021

We are all ‘up to here’ in accommodating COVID-19, and depending on our tolerance levels, this is likely to continue into 2022.

There are remote signs that a combination of vaccines and/or anti-viral drugs will eventually arrest the spread of this infection, but we will have to face disruption in economic activity next year and the entertainment and hospitality trades will again bear the brunt of any downward trends in trade.

The Bank of England has confirmed that inflation is running ahead of targets and year on year to the end of November 2021, it was 5.1%. Expect increases in interest rates in the new year.

Prices will likely be volatile until inflation is reduced to more manageable levels and supply issues are resolved.

Many trades are still starved of appropriate labour, including the NHS. This may create conditions for wage inflation as employers vie for suitable applicants.

Which is shaping up as just a few challenges ahead for business owners in 2022.

What to do?

As the title of this post suggests, planning, being prepared is a sensible option. Burying your head in the sand may do more than restrict your vision. At a minimum you should:

  • Prepare a budget for 2022 and monitor your actual results against these forecasts.
  • Be prepared to flex your budgets if your situation changes.
  • Each month extend your budget projections, so you are always looking at trading expectation twelve months ahead.
  • Take remedial action sooner rather than later if the numbers highlight possible challenges. For example, if cash flow dips and you will need funding to bridge the gap.
  • If you have resisted the use of cloud accounting software to this point in time, speak to us as a matter of urgency. Having real time data available to you at the click of a mouse is a must-have resource in these difficult times. The software we recommend would also accommodate your budgets and provide reports that compare actual results with forecasts.

And finally, discuss your results with us. We can help you chose your best options to weather any inconveniences that circumstance may throw at us. If we have learnt anything from the past years of disruption, it’s that its prudent to expect the unexpected, plan for the worst and hope for the best.

Plug-in vehicle grants reduced

Tuesday, December 21st, 2021

From 15 December 2021, the government is making the following reductions to the grants made available for certain electric vehicle purchases.

  • It will provide grants of up to £1,500 (previously £2,500) for electric cars priced under £32,000. There are currently around 20 models on the market that would qualify for this grant.
  • Support for wheelchair accessible vehicles is being prioritised, with these retaining the £2,500 grant and a higher £35,000 price cap.

Grant rates for the Plug in Vans will now be:

  • £5,000 for large vans and
  • £2,500 for small vans, with a limit of 1,000 per customer per year.

According to government sources, Plug in Van Grant orders in 2021 are already over 250% higher than in 2020.

Motorcycle and moped grants will also be changing, with the government now providing £500 off the cost of a motorcycle, and £150 for mopeds, with a price cap on vehicles of £10,000. Almost 50% of mopeds sold this year were battery electric, with some models now at price parity with their internal combustion engine equivalent.

The government’s total investment in the EV transition remains unchanged following these changes, although total money invested in these grants will depend on the publics’ reaction.

If grant funding is reduced this will increase the price of a new, qualifying EV vehicle. Logic would predict that if the price increases, demand will drop.

electricity

Recent damage to electricity distribution network

Thursday, December 16th, 2021

Many individuals and businesses will have been affected by the disruption in electricity supplies due to recent storm damage.

Most of the serious damage that disrupted supplies was reconnected fairly quickly, but for many home and business owners, reconnection has become a protracted affair.

A recent letter from the Secretary of State for Business to Ofgem is worth noting. In his letter, the RT Hon Kwasi Kwarteng MP said:

“Storm Arwen saw the worst damage and disruption to the electricity system in over 15 years. A significant number of customers in Northern England and Scotland have faced power disruptions in excess of one week, and the prolonged restoration has made life incredibly difficult for thousands of customers across the country.

“I understand that under Ofgem’s Guaranteed Standards, Distribution Network Operators have up to 10 working days from when a customer applies to make payments to impacted customers in all scenarios barring severe weather. Given the significant scale of disruption caused, particularly during the run up to Christmas, I expect Ofgem to ensure Distribution Network Operators make every effort to deliver compensation to affected customers swiftly and without delay, considering the burden making a detailed application might place on impacted customers, and in line with the Guaranteed Standards expectations.

“I am mindful of the 3-month eligibility window customers have to apply for compensation, however I expect Distribution Network Operators to proactively notify affected customers of their eligibility to simplify the application process, following what has already been a stressful and disruptive time.

In the review into the response to the Storm I have asked officials to conduct, we will also be looking at DNOs responsiveness in providing compensation. Please confirm to my officials what steps Ofgem are taking to ensure customers will receive compensation as soon as reasonably practical.”

The Ofgem ‘Know your rights’ following power cuts can be accessed at https://www.ofgem.gov.uk/sites/default/files/docs/2016/12/ofg581_guarantee_standards_booklet_updated_dec16.pdf

The message is clear, apply for compensation, and quickly, and certainly within the 3-month claim’s window.

taxes

Time to pay taxes

Tuesday, December 14th, 2021

January 2022 is a ‘taxing’ month. It is the last month to file a self-assessment tax return (electronically) for 2020-21 and avoid late filing penalties.

It is also a month when significant tax bills may become payable.

Companies

Companies that have a 31 March 2021 year end will need to pay any corporation tax due for the year ending on that date, on or before 1 January 2022.

New Year revellers may want to take this into account if they fit this profile and pay any corporation tax due the week before New Year’s Day.

Self-assessment

Any balance of income tax or NIC due for the tax year 2020-21 plus any first payment on account for 2021-22, both become payable on or before 31 January 2022.

Need time to pay?

If cash flow restricts your ability to meet these tax payments by the due dates, you could set up a Time to Pay facility with HMRC.

In a recent press release on the subject HMRC said:

“Where taxpayers are struggling to pay their bill in full, the self-serve Time to Pay service allows Self-Assessment individuals manage how they pay their tax liabilities. They can use the online service for tax bills worth up to £30,000 without the need to talk to HMRC.

“If they can’t pay in full, taxpayers can set up their own Time to Pay arrangement online if they:

  • have filed their tax return for the 2020 to 2021 financial year
  • owe less than £30,000
  • are within 60 days of the payment deadline
  • plan to pay their debt off within the next 12 months or less

“If taxpayers owe more than £30,000, or need longer to pay, they should call the Self-Assessment Payment Helpline on 0300 200 3822.

“The service will create a bespoke monthly payment plan based on how much tax is owed and the length of time needed to pay.”

Travel between places of work

Thursday, December 9th, 2021

A reimbursement of expenditure incurred by an employee in travelling between two or more places of work is not “earnings” and therefore not taxable.

This is because the expenditure would be an allowable claim if the employee had paid it out of their remuneration, as he or she would be travelling in the performance of their duties.

To establish what is a place of work, the employee has to show that he or she performs substantive duties at the place in question.

It is unlikely that an employee could successfully claim that their home is a place of work.

Travel between an employee’s home and a permanent workplace is “ordinary commuting” and the expenses of such journeys do not qualify for relief. This rule applies even when the employee does some of their work at home, and even if HMRC accept that they are entitled to relief for the additional expenses of working at home.

Since 6 April 2002, mileage payments which employers make to employees who use their own vehicle or bicycle for travel between two places of work are not chargeable to tax if they do not exceed the appropriate approved mileage allowance payment (AMAP) limit.

Payments that exceed the AMAP limit will be taxed to the extent that they exceed the limit.

Where employers pay mileage claims at rates per mile lower than AMAP rates, for work related journeys, then the difference can be claimed by the employee as an allowable expense.

The current AMAP rates are:

Cars and vans:

  • First 10,000 business miles in a tax year – 45p per mile.
  • Additional miles over 10,000 business miles in a tax year – 25p per mile.

Motorcycles: All business miles in a tax year – 24p per mile.

Bicycles: All business miles in a tax year – 20p per mile.

Planning for higher corporation tax rates

Tuesday, December 7th, 2021

We are fifteen months away from a radical upward lift in corporation tax (CT) rates.

From 1 April 2023, there will be two rates of CT:

  • A small profits rate which will stay at the present 19% and will apply to companies with profits up to £50,000.
  • An increased main rate, which will be set at 25% on profits in excess of £250,000.

Marginal relief provisions will also be introduced such that, where a company’s profits fall between the lower and upper limits, it will be able to claim an amount of marginal relief that bridges the gap between the lower and upper limits providing a gradual increase in the CT rate.

There will be further complications, and possibly increased tax bills, for companies associated with other companies and companies that fall under the definition of a close investment holding company.

Deferring expenditure

Companies that are planning for profits in excess of £50,000, after undertaking significant expenditure in the financial year beginning 1 April 2022, may be advised to consider deferring this expenditure until their trading period beginning 1 April 2023. In this way, they may reduce liability for 2023-24 taxable at 25% or at marginal rates and increase CT payments for 2022-23 at 19%.

Accelerating income

If commercially possible, companies could plan to bring forward income from 2023-24 to 2022-23.

As with deferring expenditure, this would reduce CT at potentially higher rates in the later year.

Utilising tax losses

Similar care will need to be taken when considering the surrender of tax losses. Should they be used during 2022-23 and provide much needed cash-flow benefits or deferred and utilised from 2023-24 when CT could potentially be reduced at higher rates?

Timing issues

Clearly, many companies will not be in a position to defer expenditure or bring forward income as they will not have taxable profits above the £50,000 small profits limit. Also, they may not be willing to increase CT payments for 2022-23 even though CT payments for 2023-24 could be reduced by a higher amount.

As with all tax changes there will be complications, grey areas that need to be considered. But the transition to higher rates of CT will offer one-off opportunities for certain companies to save tax.

Tax Diary December 2021/January 2022

Thursday, December 2nd, 2021

1 December 2021 – Due date for corporation tax payable for the year ended 28 February 2021.

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

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

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

30 December 2021 – Deadline for filing 2020-21 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2022-23.

1 January 2022 – Due date for corporation tax due for the year ended 31 March 2021.

19 January 2022 – PAYE and NIC deductions due for month ended 5 January 2022. (If you pay your tax electronically the due date is 22 January 2022).

19 January 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2022.

19 January 2022 – CIS tax deducted for the month ended 5 January 2022 is payable by today.

31 January 2022 – Last day to file 2020-21 self-assessment tax returns online.

31 January 2022 – Balance of self-assessment tax owing for 2020-21 due to be settled on or before today unless you have elected to extend this deadline by formal agreement with HMRC. Also due is any first payment on account for 2021-22.

Budget bad news 27 October 2021

Thursday, December 2nd, 2021

Readers should take note of the following changes:

  • Income Tax Allowances frozen: The Income Tax personal allowance and the rates and bands are frozen until April 2026. Whilst this is not a direct tax increase, it does mean that any increases in earnings will be fully taxed and certain taxpayers may find that this process will push some of their income into the higher rate bands.
  • Dividend Tax: To ensure that the tax payable on dividend income increases in line with the increase in NIC next year, from April 2022 the new rates payable on dividends in excess of the £2,000 tax-free allowance will be:
    • Dividends that form part of the basic rate band – 8.75% (7.5% 2021-22)
    • Dividends that form part of the higher rate band – 33.75% (32.5% 2021-22)
    • Dividends that form part of the additional rate band – 39.35% (38.1% 2021-22)

For most director/shareholders of smaller companies who have adopted the high dividend low salary approach to remuneration, will pay more tax as a result, but this should not affect the overall strategy.

  • Corporation Tax: The planned increase in rates to 25% (currently 19%) from April 2023 was confirmed. From 1 April 2023, there will be two rates of CT. Taxable profits up to £50,000 will continue to be taxed at 19%, taxable profits more than £250,000 will be taxed at 25%. Profits between £50,000 and £250,000 will be subject to a marginal tapering relief. This would be reduced for the number of associated companies and for short accounting periods.
  • Increasing the normal minimum pension age: The earliest age at which pension savers can access their pensions without incurring an unauthorised payments tax charge is changing. From 6 April 2028, the normal minimum pension age is increasing from 55 years to 57 years. Affected individuals may need to revisit their retirement plans.

If you are concerned by any aspects of the recent Budget, please call.

Budget bonuses 27 October 2021

Thursday, December 2nd, 2021

There was little good cheer in the Chancellor’s announcements to parliament on 27 October. A short summary of the good news is listed below:

  • Annual Investment Allowance (AIA): The £1m limit to claims for tax relief when purchasing qualifying assets was due to return to a more modest £200,000 from the 1st of January 2022. This change has now been postponed until 31 March 2023. This takes the urgency out of decisions to purchase appropriate assets. This is a welcome extension of tax relief for capital expenditure, especially for unincorporated businesses who do not have access to the new 130% Super-deduction that is only available to companies.
  • Museums and Galleries: The Museums and Galleries Exhibition tax relief is extended for a further two years until 31 March 2024.
  • Theatre, Orchestra and Museums and Galleries Exhibition Relief: rates of relief have been increased to 31 March 2024.
  • Capital Gains Tax deadline increased: The requirement to file calculations of capital gains due on certain residential property sales and pay any tax due within 30-days of completion – primarily on disposal of second homes and buy-to-let property – has been extended to 60-days. This affects all sales completed on or after 27 October 2021.
  • Business rates relief extended: The business rates multipliers are frozen for a second year until 31 March 2023. The small business multiplier is set at 49.9p and the standard multiplier at 51.2p. Different rates apply in London and in Wales. The freezing of the multipliers will mean that your business rates will not increase in 2022-23. Eligible retail, hospitality and leisure properties will benefit from a 50% relief in their business rates for 2022-23, subject to a cap of £110,000 per business.
  • National Living Wage: The basic NLW rate is increasing to £9.50 per hour from April 2022.

Business gifts and tax

Thursday, December 2nd, 2021

Business gifts are not allowed as a tax deduction against profits. The legislation treats gifts in the same way as business entertaining expenditure, which is also disallowed.

HMRC define a gift as:

“… something that is given to a person without receiving anything in exchange. It is offered voluntarily and without any expectation of a return. An example of this would be gifts provided for potential customers who take a test drive in a new car – there is no obligation to buy the car and so nothing has been given to the trader in return for the gift.

Gifts may also arise where goods or services are supplied at less than the cost to the trader. For instance, a hotel might offer meals to its suppliers at a nominal charge. Here the difference between the cost of the meal and the price paid is a non-allowable gift. By contrast, if a baker reduces the price of fresh bread at the end of the day, this is a normal commercial transaction (as the bread will be worthless by the next day) and the cost is allowed in full.”

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