The Budget – 11 March 2020
The Budget – 11 March 2020: MORE MONEY FOR THE NHS AND INFRA-STRUCTURE IN THE BUDGET
Rishi Sunak received a “hospital pass” when he was appointed Chancellor and was required to deliver the first Budget in nearly 18 months within a month of his appointment. He announced extra spending on roads, rail, broadband and other infrastructure projects as well as extra money for the NHS to help cope with the coronavirus epidemic. But what we were waiting to hear was where the extra money was going to come from? Had he found a “magic money tree”, or would tax and borrowing have to increase? The Office of Budget Responsibility had already downgraded growth forecasts for the UK economy to just 1.1% before the global coronavirus pandemic, which may temporarily plunge the UK into recession.The Chancellor announced a number of measures that will hopefully protect businesses until the economy recovers.
The Budget – 11 March 2020: STATUTORY SICK PAY (SSP) RELIEF
The Government are predicting that up to 20% of the workforce may be unable to work due to the virus at any one time. It had already been announced that employees would be entitled to SSP from day 1 not day 4. It was announced in the Budget that the Government will fully reimburse employers with fewer than 250 employees the SSP paid for the first 14 days of absence, equivalent to the self-isolation period.
The Budget – 11 March 2020 – MORE RATES RELIEF FOR SMALL BUSINESSES
There has again been much lobbying from the small business sector to reduce business rates to enable traditional retailers in particular to compete with internet traders. The Chancellor announced a long term review of the future of business rates, but in the meantime there are some very welcome measures to assist small businesses. The 100% business rates retail discount will be extended to the leisure and hospitality sectors where the rateable value is no more than £51,000. In addition, very small businesses who already pay no business rates at all will be able to claim a £3,000 cash grant.
The Budget – 11 March 2020 – PERSONAL ALLOWANCE AND HIGHER RATE LIMIT FROZEN
The personal allowance for 2020/21 is frozen at £12,500, the same as in 2019/20. The higher rate tax threshold is also frozen at £50,000.
The Budget – 11 March 2020 – NO CHANGES TO INCOME TAX RATES
The basic rate of income tax and higher rate remain at 20% and 40% respectively, and the 45% additional rate continues to apply to income over £150,000. There had again been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. Note that the first £2,000 of dividend income continues to be tax-free. The annual ISA investment limit increased to £20,000 from 6 April 2017 and remains at that level for 2020/21. There will be a significant increase in the Junior ISA limit to £9,000 for 2020/21. Despite a thorough review of all tax reliefs by the Treasury, the much rumoured restrictions in pension tax relief again failed to materialise.
The Budget – 11 March 2020 – TAPERING OF PENSION ANNUAL ALLOWANCE
One welcome change, particularly among hospital consultants and GPs, is the increase in the threshold at which the pension annual allowance starts being tapered. From 2020/21 the adjusted income limit will increase from £150,000 to £240,000 which means that most doctors will not be caught by the restriction.
The Budget – 11 March 2020 – IR35 “OFF-PAYROLL” RULES TO GO AHEAD
Despite considerable opposition from businesses, the Government have decided to go ahead with the new rules for workers providing their services through personal service companies from 6 April 2020. This will represent a significant administrative burden on large and medium-sized businesses who will be required to decide whether the rules apply to payments to workers supplying their services through personal service companies. If the new rules apply to the arrangements, then income tax and NIC will need to be deducted from payments to the personal service company.
The Budget – 11 March 2020 – NIC CHANGES
Employees and the self-employed will not pay national insurance contributions (NIC) on the first £9,500 of earnings from 2020/21, a significant increase from the £8,632 limit in 2019/20. Note that employers will be required to pay 13.8% on earnings over £169 per week, £8,788 per annum. The employment allowance that can be set against employers NIC increases to £4,000 from 2020/21 but will not be available to employers with total employer’s NIC liabilities in excess of £100,000 p.a.
The Budget – 11 March 2020 – STATE BENEFITS INCREASED
Many State Benefits have been frozen, or increases limited, for a number of years. The Government have however decided to increase many State Benefits from 2020/21 including Child Benefit. The amount payable in respect of the oldest child has been increased to £21.05 and £13.95 for each subsequent child. Note however that you may have to pay a tax charge if one of the parents has income in excess of £50,000.
The Budget – 11 March 2020 – CAPITAL GAINS ENTREPRENEURS’ RELIEF RESTRICTED
There were many rumours in the run up to the Budget that CGT entrepreneurs’ relief that allows certain business owners to pay just 10% tax on disposal would be abolished. Rather than abolish the relief the Chancellor has announced that from 11 March 2020 onwards the relief will only be available against the first £1 million of lifetime gains instead of the previous £10 million limit. The relief will therefore still benefit most small business owners.
COMPANY TAX RATE FROZEN AT 19%
As previously announced the corporation tax rate is to remain at 19% for the time being. It was scheduled to reduce to 17% from 1 April 2020.
The Budget – 11 March 2020 – STRUCTURES AND BUILDINGS ALLOWANCE INCREASED TO 3%
In the October 2018 Budget a new tax relief was introduced for the cost of construction or renovation of commercial buildings and structures. As announced in the Conservative Party manifesto the original 2% straight line allowance is to be increased to 3% from 1 April 2020 for companies, 6 April 2020 for unincorporated businesses.
The Budget – 11 March 2020 – R&D TAX CREDIT CHANGES
The Conservative Party manifesto also included a promise to increase R&D expenditure relief for non-SMEs from 12% to 13% and this was confirmed in the March Budget. However, a measure originally announced in the 2018 Budget and consulted on in 2019 will limit the amount of repayable R&D tax credit for SMEs to three times the company’s total PAYE and NIC payments for the period. This measure will now take effect from 1 April 2021 not 2020.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
The Budget 2020 – Are There Any Big Changes?
Yet Another Chancellor – Big Changes In The Budget?
It will be nearly 18 months since the last Budget and, in the meantime, we will have had three different chancellors, following the unexpected resignation of Sajid Javid. The early years of a new Parliament are a good time to make radical changes, and many are predicting significant tax announcements on 11 March. Rather than increasing headline tax rates, we understand the Government is considering the abolition or restriction of many tax reliefs that we have been relying on. This would also have the effect of increasing tax revenue, but it is likely that the changes will impact on those who are better off.
Inheritance Tax In The Spotlight
We are expecting major changes to inheritance tax (IHT) in the March Budget, following two reviews by the Office of Tax Simplification (OTS) and also a report by an All Party Parliamentary Committee. IHT is perceived as a complicated tax with numerous fairly trivial reliefs and exemptions. Currently the tax only generally applies to transfers on death and gifts within 7 years of death. The All Party Parliamentary Committee suggested that there should be a 10% charge on gifts during someone’s lifetime after an annual exemption (suggested £30,000) has been exceeded. A more radical suggestion was the abolition of Business Property Relief (BPR) and Agricultural Property Relief which currently allow a family business or farm to be passed on, without paying IHT. The OTS also recommended a review of BPR, so you may well be considering bringing forward the transfer of all, or part of, the family businesses. More routine IHT planning would be to make use of your current £3,000 annual allowance. Gifts up to £3,000 each year are exempt from IHT. If you haven’t used your £3,000 allowance from 2018/19 you can make gifts of up to £6,000, before 6 April 2020 without the gift being liable to IHT. Also consider making regular gifts out of your income, to minimise the growth of your estate that will be liable to IHT. Gifts out of your surplus income are not subject to IHT, if properly structured and we can assist you in keeping the necessary documentation.
Further Changes To Entrepreneurs’ Relief?
Another tax relief that may be further restricted or even abolished is CGT entrepreneurs’ relief. As a business owner, you only get to pay just 10% CGT, on the first £10 million of capital gains, when you dispose of your business and as this measure was tightened up in the Autumn 2018 Budget. When first introduced, the relief only applied to the first £2 million of your gains, but the limit has been increased twice since 2008 to the current lifetime limit, so the relief may be limited again in the March Budget.
Year End CGT Planning
Have you used your 2019/20 £12,000 annual capital gains exemption? Consider selling shares where the gain is less than £12,000 before 6 April 2020.Also, if you have any worthless shares, consider a negligible value claim to establish a capital loss. You may also even be able to set off that capital loss against your income, under certain circumstances, which could save you tax of up to 45% of the loss.
Pension Planning Before The End Of The Tax Year
For most taxpayers the maximum pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers both contributions by the individual and their employer. You should also be aware that your unused allowance for a particular tax year, may be carried forward for three years and can be added to the relief for the current year, but then lapses if unused. Hence your unused pension allowance for 2016/17 will lapse on 5 April 2020. In addition, under the current rules, the net after tax cost of saving £10,000 in a personal pension for a higher rate taxpayer is only £6,000.
Will Pension Tax Relief Change In The Budget?
Well… This is highly likely this year, as the new Government looks for additional tax revenue to fund its ambitious spending pledges such as the HS2 rail link. To add to this, we understand there is speculation the restriction for those with income over £150,000, may be removed. But at the same time higher rate tax relief may be removed. That tax relief may be “simplified” by limiting relief to say 25% or 30%, so the government would increase a £750 pension saving to £1,000, but with no further tax relief. If you have surplus cash, you might wish to consider maximising your pension relief before Budget Day.
Have You Used Your 2019/20 ISA Allowance?
Your maximum annual investment in ISAs for 2019/20 is £20,000. And your investment needs to be made before 6 April 2020. In addition, have you thought about investing for your children or grandchildren by setting up a Junior ISA? And did you know that in the 2019/20 tax year, you can invest £4,368 into a Junior ISA for any child under 18.
Don’t Lose Your Personal Allowance!
For every £2 that your adjusted net income exceeds £100,000, the £12,500 personal allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce your adjusted net income and save tax at an effective rate of 60%. The restriction applies between £100,000 and £125,000 of your adjusted net income. Another way that you could avoid this trap would be to agree with your employer to sacrifice some of your salary, in exchange for a tax-free benefit in kind, such as an additional pension contribution.
Consider Other Tax Efficient Investments
If you are looking for investment opportunities, have you considered the Enterprise Investment Scheme (EIS)? These investments in certain qualifying companies allow you to set off 30% of the amount invested against your tax bill as well as the ability to defer capital gains tax (CGT), until the shares are sold. An even more generous tax break is available for investment in a qualifying Seed EIS company, where income tax relief at 50 per cent is available. And in addition, it is possible for you to obtain relief against your 2019/20 capital gains. Shares in EIS and Seed EIS companies are risky investments and you should seek specialist advice before investing. 30% income tax relief is also available by investing in a Venture Capital Trust or by investing in a qualifying Social Enterprise.
Buy New Equipment Before 6 April?
Your business year-end, not 5 April, is relevant for capital allowances purposes. If however you are running a business and making up accounts to 31 March or 5 April, you should consider buying plant and machinery to take advantage of the £1 million Annual Investment Allowance (AIA). The AIA provides a 100% tax write-off for equipment used in your business. This tax relief extends to fixtures and fittings within business premises such as electrical, water and heating systems. AIA does not apply to motor cars, but there is a special 100% tax relief, if you buy a new car that emits no more than 50g CO2 per kilometre.
Lotuswise Chartered Accountants and Business Consultants can support your business with the complexities of these tax and payment rules and help you succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
How To Determine Worker Status With CEST
From 6 April 2020
Did you know that from 6 April 2020 the off-payroll working rules are extended? Under the new rules, medium and large private sector organisations engaging workers providing their services through an intermediary, such as a personal service company, must determine the status of the worker if the services were provided direct to the end client rather than via the intermediary. If, ignoring the intermediary, the worker would be an employee, the off-payroll working rules apply. HMRC’s Check Employment Status for Tax (CEST) tool can be used to fulfil the requirement to make a status determination. This tool was updated in November 2019 in preparation for the extension. And on 7 January 2020, the Government announced they were reviewing the rules to facilitate a smooth implementation. As part of the review, they will evaluate the effectiveness of the enhanced CEST tool, available on the Gov.uk website.
What is CEST?
CEST – Check Employment Status for Tax – a tool created by HMRC, can be used to determine whether, for a particular contract, the off-payroll working rules apply. It can also be used to ascertain whether, for a particular piece of work, a worker is employed or self-employed. If you are a medium or large private sector organisation which uses workers who provide their services through an intermediary, such as a personal service company, you can use CEST to meet your obligation to undertake a status determination, under the off-payroll working rules as they apply from 6 April 2020. You must give the worker a copy of the determination, together with reasons for reaching it. Printing off the CEST decision will tick this box. Although using the CEST tool to make your status determination is not compulsory, it is advised. Not least because HMRC will accept the decision reached by the tool, as long as the information entered is correct.
Using CEST
In case you’re wondering, the tool works by asking a series of questions, the answers to which are used to determine the status of the worker. The CEST tool can be used anonymously. However, please bear in mind that there is no facility to save any of your answers and return to them later. Plus if you close the tool before your determination is complete, your answers will be lost. It will also time out if you leave it idle for 15 minutes. We therefore advise you to ensure you have all the relevant information to hand before starting your determination. Your starting point is the contract of employment. The tool assumes that a contract is in place – this highlights the significance of mutuality of obligation, as without mutuality of obligation, there can be no contract. To use the CEST tool, you will need the following information:
• Details of the contract
• The responsibilities of the worker
• Who decides what work needs doing, when and where
• How the worker is paid
• Whether the engagement includes any corporate benefits or reimbursement of expenses
It is then simply a case of you working through the question and selecting the best match answer from the available options. Once you have answered all the questions, you are then given the option of reviewing the answers selected, before the decision is given.
The decision
The CEST tool will use the information you provided in response to the questions, to give you one of the following outcomes:
• Off-payroll working rules (IR35) do not apply
• Off-payroll working rules (IR35) apply
• Unable to make a determination (for whether the off-payroll working rules apply)
• Self-employed for tax purposes for this work
• Employed for tax purposes for this work
• Unable to make a determination (for employed or self-employed for tax purposes).
It will also set out the reasons for the decision reached.
Use of the tool by a worker
If you are a worker providing your services through a personal service company or other intermediary, you can also use the CEST tool to check your status. From 6 April 2020 onwards, you can use it to check a determination given to you be an end client (a medium or large private sector organisation); and if you disagree with the determination given, the CEST decision can be used as the basis for a challenge. Prior to 6 April 2020, and on or after that date where the end client is small private sector organisation, you can use the CEST tool to see if you need to operate the IR35 rules.
Detailed guidance
HMRC produced detailed guidance on using the CEST tool, which can be found in their Employment Status Manual. Check this out before using the CEST tool. The whole area of IR35 and employment status is an area of constantly changing legislation and case law. Remember we’re always here to help you to safely navigate your way through the employment tax minefield.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of these tax and payment rules and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
How To Manage Salary And Bonus Conversations
Let’s talk about salary and bonus
Talking about money with your employees can be uncomfortable. Even when you have good news for an employee, discussing pay can be difficult. Your employee’s performance is inextricably linked to their salary and bonus. However, if you are discussing the two together, this can lead to your employee focusing only on the conversation about pay. As such, as a manager, you should discuss performance in a separate meeting, prior to any discussion about pay or bonuses. That way, you ensure that both conversations are clearly heard by your employee, and expectations can be managed, prior to any conversation about compensation.
Salary and bonus employees expectations
A salary and bonus conversation can get tough, because, often because your employee is not getting the information they need or you, as a manager, feel that they can’t answer certain questions. You need to have key information to hand such as pay scales for the various roles across your business, details regarding potential for pay increases or promotions and any other key information, such as company performance, and how this has affected their salary and bonus figures this year etc.
When things don’t go well
If your salary and bonus conversation is not going well, you should spend more time listening to your employee, in order to understand where they are coming from, what their concerns are etc. There is often a lot to be gained by managers who are curious, when it comes to having tough pay-related conversations. For example, you might learn that your employee feels that their job has not been correctly benchmarked against competitors or the wider market.
Always follow up!
More often than not, a challenging conversation around salary and bonus will require for you to organise a follow up meeting, giving you an opportunity to come back with more facts, and secure a positive outcome with your employee.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
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Business Partnerships: Why do they break?
Business Partnerships Always Start With Passion
Sometimes things don’t work out in business and it’s time for the owners to go their separate ways, and you might have to consider breaking up.
It’s fair to say that your business partnerships might have begun with enthusiasm and passion, grown through balance and communication and endured the highs and lows of life. Sometimes, however, businesses don’t weather the storm and things come to an end, and this is when you have to consider breaking up. As such, it is important for you to have a plan. In business, you must have clear agreements around how your partners can exit the business, as this is good practice. As such, it is important you have this conversation at the beginning a of your business partnership and document it.
Business Partnerships: when selling or exiting a business
When selling or exiting a business, it’s important you remain professional. You might feel disappointed over a failing business partnership, but angry or emotional communications won’t help the process. Take your time, remain calm and if you find yourself drafting a sharp-toned email, save it to your drafts and review it again the next day, before deciding whether or not to send it. Always seek professional guidance – there are lots of financial and legal experts in the market, who have considerable expertise in this area, and who can help you to successfully exit your business.
Business Partnerships: when the time comes
When the time comes, you need to have a good understanding of your firm, its financials, any outstanding issues, etc. If you and your business partner(s) decide to sell the firm to another company, the buyer will be keen to download your knowledge of the business. If you can explain things in detail to the potential new owners, it will help to build their confidence in the deal and could positively affect how much value they assign to the purchase. Financial issues and long-term partnership agreements can complicate matters. However, you should aim to exit your business and end your business partnership, in a way that is mutually beneficial and satisfactory for everyone involved.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Property Taxation 2017-2020: This Is What You Need To Know
2017 Income Tax – Restriction of finance costs for individual property landlords
Did you know that in his 2015 post-election summer Budget, George Osborne informed residential landlords that from April 2017 their ability to claim higher rate tax relief for finance costs was to be withdrawn over a four year period, as follows:
- April 2017 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% available as a basic rate tax reduction.
- April 2018 the deduction from property income will be restricted to 50% of finance costs, with the other 50% available as a basic rate tax reduction.
- April 2019 the deduction from property income will be restricted to 25% of finance costs, with the other 75% available as a basic rate tax reduction.
- April 2020 all financing costs incurred by a landlord will be given as a basic rate tax reduction.
From April 2020, if you are a residential property (not holiday lets) landlord, you will only receive basic rate tax relief on finance costs.
2019 Extension to Non-resident Capital Gains Tax
Since the start of the current tax year (6 April 2019), if you are a non-resident landlord, you would have been required to complete a separate online non-resident Capital Gains Tax return for each property disposal. Including, a computation of gains and losses. Please note that different rules apply for those who are temporarily non-resident and make disposals during a tax year when you were either not resident in the UK or overseas as part of a split year. In addition, corporation tax rather than CGT is now chargeable on chargeable gains linked to UK property or land for all non-resident companies. Non-Resident Capital Gains Tax (NRCGT) is also potentially payable by all non-resident landlords, as the ATED-related gains charge was abolished from 6 April 2019. It now applies to gains arising from the disposal of any type of UK land or property which accrue from 5 April 2015 (residential property) or 5 April 2019 (non-residential property).
2020 Further Capital Gains Tax Restrictions – Coming soon (April 2020)
And did you also know that, as part of his 2018 Budget, the then Chancellor Philip Hammond announced his intention to restrict the Private Residence Relief (PRR) rules from 6 April 2020, by cutting the last period of ownership from 18 months to just 9 months. Please note that, as with the 2014 change, the 36-month exemption period is to be retained for owners with a disability or who are in residential care. As if that wasn’t enough, he also announced that lettings relief (see below) is to be restricted to owners who share occupancy with a tenant. Lettings relief was introduced in 1980, to allow people to let out spare rooms within their property, on a casual basis without losing the benefit of PRR. But HMRC says that it has found that lettings relief is being used for purposes beyond the original policy intention, benefitting those who let out a whole dwelling that has, at some stage, been their main residence. So what are the current lettings relief rules? Well, where the property has been let at any time, each owner can claim lettings relief to reduce the taxable capital gain, the rules are as follows:
- This relief can cover gains of up to £40,000 per owner
- It is only available if the property has been the owner’s main home for a period
- It is also capped at the amount of PPR relief, due for the period of actual occupation by the owner
At the same time, Hammond proposed that CGT would be payable “on account” within 30 days of completion for all UK residential properties. Originally intended to be effective from 6 April 2019, to coincide with the new NRCGT rules, implementation of the proposal was delayed until 6 April 2020. So If you have no gain to report or the gain is covered by exemptions or losses, you won’t have to complete a property disposal return. After the end of the tax year, you will complete a self-assessment return to disclose the property gain. The ‘on account’ payment will be deducted from the end of CGT liability; this could result in a repayment of CGT for you.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of these tax and payment rules and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
7 Top Tips For Tax Return Filing
Self-Assessment Tax Return Tips
You must file your 2018/19 self-assessment tax return online by midnight on 31 January 2020 if you want to avoid a late filing penalty. so, what can you do to help ensure this deadline is met?
Help us to help you
Tax return season is a very busy time for us accountants and tax advisers. With the best will in the world, there is a limit to the number of tax returns that can be filed on 31 January. To ensure your tax return is filed on time, it is advisable to help us help you, as follows:
1. Check what date your accountant needs tax information from you in order to meet the filing deadline, and make sure that you provide the information by that date.
2. Collect together all the relevant paperwork and make sure nothing is missing. This will include your P60 and P11D, dividend vouchers, bank statements, details of trading income and expenses, details of rental income and expenses, details of sales of capital assets and associated expenses, and details of pension contribution and charitable donations.
3. Make sure your paperwork is organised and easy to follow, whether supplied digitally or in hard copy format.
4. Keep copies of the information supplied to your accountant.
5. Advise your accountant of any changes in your personal circumstances – such as change of address, whether you have got married or divorced etc.
6. Deal with any queries promptly.
7. Pay any tax due on time.
What are the penalties for late returns?
Deadlines Apply
You will be charged a late filing penalty if your self-assessment tax return is filed late. The normal deadline for filing the 2018/19 tax return online is midnight on 31 January 2020. A later deadline applies if your notice to file a return was issued after 31 October 2019 – this is three months from the date of the notice.
Underpayments
If you wanted an underpayment (available for underpayments of up to £3,000) to be collected through PAYE, via an adjustment to your tax code, you would have had to file returns by 30 December 2019. And you would have had to file paper returns by 31 October 2019 (or three months from the date of the notice to file, where this was issued after 31 July 2019) to avoid a penalty – however, if you missed this deadline, you can avoid a penalty by filing online, by 31 January 2020.
£100 Penalty And More
You should know that returns filed late, attract a late filing penalty of £100. You will be charged even if there is no tax to pay or the tax is paid on time. You will also be charged further penalties, if your return has not been filed three months after the due date – from that point daily penalties of £10 per day start, to accrue for a maximum of 90 days (£900). At the six month and 12-month point, you will then be charged additional penalties set at the higher of 5% of the tax due and £300. You will also be charged penalties if tax is paid late, in addition to any interest that may accrue. The trigger dates you should watch out for are 30 days late, six months late and 12 months late. At each date, the penalty is 5% of the tax outstanding at the trigger date.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of these payment rules and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
What Are The Key Business Trends for 2020?
So what are the key business trends for 2020, and how could these affect your business in 2020?
1. Key Business Trend One: Workplace Well-being
The environment, well-being, mental health and technology look set to be some of the big key business trends in 2020. As we move into 2020, businesses, including yours, will have to adapt in a world that places greater emphasis on sustainable business practices. People will want to work for firms that take care of their employees, in terms of their physical and mental health.
2. Key Business Trend Two: The Use of Technology & Flexible Working
Technology will continue to be the key enabler to allow us to work flexibly, remotely and more effectively. It looks like 2020 is set to be a busy year for businesses in the UK and internationally.
3. Key Business Trend Three: Environmentally Aware
Another key business trend is that customers are becoming more environmentally aware. Companies like Beyond Meat, the maker of plant-based, protein-rich foods or Everlane, which creates clothes from recycled fibres and plastics, are gaining traction. People are trying to reduce their carbon footprint and are making buying decisions on the basis of the environmental credentials of businesses. As a result, businesses are responding by focusing on their environmental and sustainability policies. Many firms are adapting their CSR activities to include environmental projects, in order to help drive the green agenda in local communities. As we move into 2020, this trend is likely to accelerate and affect your business.
4. Key Business Trend Four: Artificial Intelligence (AI)
On the technology side of things, machine learning and artificial intelligence (AI) are continuing to advance. The AI industry is growing and your business could have access to more powerful tools, in order to create new customer experiences. For example, music-streaming service Spotify uses AI to make the listening experience more personal by creating customised play-lists for each user.
5. Key Business Trend Summary: Embrace New Trends To Attract The Best People
Younger workers are putting greater emphasis on physical wellbeing and their mental health. You, as an employer, will need to adapt in order to attract the next generation of talented employees. Flexible working and wellness programmes are high on the list of priorities for Millennials and Generation Z employees. If your business really embraces these new trends, you will surely attract the best people.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Season’s Greetings
We, the Lotuswise Team, wish all our clients & friends a very Merry Christmas and a Happy New Year!
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Making Tax Digital – How To Set Up Digital Links
MTD – announces more time for digital links…what does this mean for you?
You may have heard that on, 17 October, HMRC made a much-welcomed announcement that some businesses will qualify for an extension to the MTD for VAT (MTDfV) existing twelve months ‘soft-landing’ period. This is to allow businesses to set up digital links. Does your business qualify for an extension?
The basics
In order to explain the significance of this extension, it’s best to reprise some of the basics of what’s required to achieve compliance with MTDfv. Specifically, if you’re a VAT-registered entity with annual VATable turnover greater than £85k. You then need to keep digital VAT records and file MTD-compliant VAT returns.
HMRC’s view
For your information, section 4 of HMRC VAT notice 700/22 ‘Making Tax Digital for VAT’ covers the requirements for your digital record keeping, a fundamental of ensuring compliance with MTD:
- If you are a VAT registered business with annual VAT-able turnover in excess of £85K, you are required to comply with MTDfV rules.
- To achieve compliance, you must keep and preserve certain records and accounts digitally within functional compatible software.
- Functional compatible software can be a software program, or set of software programs, products or applications, that must be able to:
1. record and preserve digital records (see paragraph 4.3)
2. provide HMRC with information and returns from data held in those digital records by using the API platform
3. receive information from HMRC using the API platform
With only limited exceptions, once your VAT data has been digitally recorded into your business’ chosen accounting software any subsequent transfer, recapture or modification of it must be carried out using digital links. While everything required to achieve compliance could be done from within third-party software, it might also mean resorting to transferring your data between disparate pieces of software, in order to achieve compliance. With each piece of software needing to be ‘digitally linked’, to create a digital journey ending with the submission of your MTD-compliant VAT return.
Digital links
So exactly, what are digital links? Well, section 4.2 .1 of 700/22 describes a ‘digital link’ as, “…. a transfer or exchange of data [that] is made, or can be made, electronically between software programs, products or applications”. So, in effect, digital links include:
- Linked cells in spreadsheets
- Emailing a spreadsheet containing digital records, so the information can be imported into another software product
- Transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, or flash drive), and physically giving this to someone else, who then imports that data into their software
- XML, CSV import and export, and downloads and uploads of files
- Automated data transfers
Why?
In the context of MTDfV, a soft-landing period is an amnesty period during which, provided you are a VAT registered entity required to comply with MTDfV regulations, and you have tried your best to satisfy the digital links rules. And that for reasons such as your software providers still working on delivering the required functionality, you have found it impractical to comply, so then no penalty for non-compliance will be issued. Prior to the launch of MTDfV, HMRC announced there would be a one-year soft-landing period for all businesses who, after trying, were initially unable meet the legal requirement for digital links. The period-of-soft-landing was, and remains to be, an essential element of ensuring a smooth roll out of MTDfV. Why…simply…without the soft-landing many businesses, without fully functionally compatible software at the launch of MTDfV, would have been left facing fines for failing to have digital links in place, even though, they and or their software providers, were doing their best to ensure that everything required to achieve compliance would be ready as soon as possible. Which, HMRC realised was not a good position to leave those willing to be compliant in.
The initial soft-landing period
If you are affected, the initial soft-landing period commenced from the first day, of the first return period, after 31 March 2019 for most mandated businesses, or after 30 September for a small number of deferred businesses. Those with the most complex of VAT affairs. As announced on 17 October, businesses with complex or legacy IT systems, who are struggling to have digital links in place within the existing one-year soft-landing window, are now able to apply for additional time to put the required digital subject to meeting certain qualifying criteria. Where your business qualifies, the additional time will be granted as a specific direction from HMRC. It’s important to note that there is no blanket extension to the soft-landing period, and it appears that HMRC will take a fairly strict line on who does and doesn’t qualify.
Why the extension?
Many businesses use bespoke software, specifically tailored to their market sector, to manage bookings, keep records, stocks, etc. Where this is the case, it is not uncommon for there to be a need to manually post totals from one part of a system to another on a weekly, monthly or other basis. While such transfers will not be acceptable once the soft-landing expires, replacing them with a digital link(s) is proving, for some, to be difficult. In much the same way, many businesses with internally developed systems are finding they may need additional time to get their, often very different, software packages to talk to each other. This is particularly proving to be the case for VAT registered entities in VAT groups. In recent months, AAT and its fellow professional bodies have highlighted to HMRC the difficulties some businesses are facing when trying to ensure they have digital links next year. This is a particular problem in industries that use specialist software, which can often be difficult (or even impossible) to link to accounting and VAT systems.
How generous is HMRC likely to be?
While your business can apply for an extension, you will only get one if HMRC accept that one is needed. Section 4.2 .1.3 sets out various criteria which you need to meet for digital link deadline extensions. Key amongst these is that it must be “unachievable and not reasonable” to have digital links in place in the normal one-year soft-landing period. HMRC are very clear that an extension will only be granted in “exceptional circumstances”. The department does not accept that the potential cost of achieving compliance with the digital links requirements, is sufficient grounds for you to apply for an extension. Furthermore, it expects businesses to make every effort to comply with ‘digital links requirements’. HMRC examples of what might be considered “unachievable and not reasonable”, include:
- Part of an IT system is incapable of importing and exporting data to or from another part, and it isn’t possible to update or replace it in time; and
- A business is in the process of updating or replacing its IT system and the planned implementation date is not before the end of the original soft-landing period.
Even where an extension application is granted by HMRC, it will not be a permanent relaxation of the requirement for robust end-to-end digital links.
- Businesses still have to consider how they will put digital links in place, and will need to set out a clear explanation and timetable for when and how this will be implemented in their application to HMRC.
- The length of any extension will be decided on a case by case basis, though HMRC has indicated that they do not expect that this will ordinarily be what businesses should do.
If you think your business may benefit from an extension, you should first look at the detail in the VAT Notice, whether it meets HMRC’s criteria. If you believe it does, then you can make a formal application to HMRC. The VAT Notice sets out the information which this must contain, including the “unachievable and not reasonable” explanation, to have digital links in place by the end of the normal soft-landing period, a map of current VAT systems, a timetable plan to put digital links in place, and details of controls for manual transfers of data in the meantime. You have to submit your application before the current soft-landing-on-digital-links expires. Given the amount of information required, you may want to make a start on your application sooner rather than later.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of making tax digital and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
The Budget – 11 March 2020
The Budget – 11 March 2020: MORE MONEY FOR THE NHS AND INFRA-STRUCTURE IN THE BUDGET
Rishi Sunak received a “hospital pass” when he was appointed Chancellor and was required to deliver the first Budget in nearly 18 months within a month of his appointment. He announced extra spending on roads, rail, broadband and other infrastructure projects as well as extra money for the NHS to help cope with the coronavirus epidemic. But what we were waiting to hear was where the extra money was going to come from? Had he found a “magic money tree”, or would tax and borrowing have to increase? The Office of Budget Responsibility had already downgraded growth forecasts for the UK economy to just 1.1% before the global coronavirus pandemic, which may temporarily plunge the UK into recession.The Chancellor announced a number of measures that will hopefully protect businesses until the economy recovers.
The Budget – 11 March 2020: STATUTORY SICK PAY (SSP) RELIEF
The Government are predicting that up to 20% of the workforce may be unable to work due to the virus at any one time. It had already been announced that employees would be entitled to SSP from day 1 not day 4. It was announced in the Budget that the Government will fully reimburse employers with fewer than 250 employees the SSP paid for the first 14 days of absence, equivalent to the self-isolation period.
The Budget – 11 March 2020 – MORE RATES RELIEF FOR SMALL BUSINESSES
There has again been much lobbying from the small business sector to reduce business rates to enable traditional retailers in particular to compete with internet traders. The Chancellor announced a long term review of the future of business rates, but in the meantime there are some very welcome measures to assist small businesses. The 100% business rates retail discount will be extended to the leisure and hospitality sectors where the rateable value is no more than £51,000. In addition, very small businesses who already pay no business rates at all will be able to claim a £3,000 cash grant.
The Budget – 11 March 2020 – PERSONAL ALLOWANCE AND HIGHER RATE LIMIT FROZEN
The personal allowance for 2020/21 is frozen at £12,500, the same as in 2019/20. The higher rate tax threshold is also frozen at £50,000.
The Budget – 11 March 2020 – NO CHANGES TO INCOME TAX RATES
The basic rate of income tax and higher rate remain at 20% and 40% respectively, and the 45% additional rate continues to apply to income over £150,000. There had again been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. Note that the first £2,000 of dividend income continues to be tax-free. The annual ISA investment limit increased to £20,000 from 6 April 2017 and remains at that level for 2020/21. There will be a significant increase in the Junior ISA limit to £9,000 for 2020/21. Despite a thorough review of all tax reliefs by the Treasury, the much rumoured restrictions in pension tax relief again failed to materialise.
The Budget – 11 March 2020 – TAPERING OF PENSION ANNUAL ALLOWANCE
One welcome change, particularly among hospital consultants and GPs, is the increase in the threshold at which the pension annual allowance starts being tapered. From 2020/21 the adjusted income limit will increase from £150,000 to £240,000 which means that most doctors will not be caught by the restriction.
The Budget – 11 March 2020 – IR35 “OFF-PAYROLL” RULES TO GO AHEAD
Despite considerable opposition from businesses, the Government have decided to go ahead with the new rules for workers providing their services through personal service companies from 6 April 2020. This will represent a significant administrative burden on large and medium-sized businesses who will be required to decide whether the rules apply to payments to workers supplying their services through personal service companies. If the new rules apply to the arrangements, then income tax and NIC will need to be deducted from payments to the personal service company.
The Budget – 11 March 2020 – NIC CHANGES
Employees and the self-employed will not pay national insurance contributions (NIC) on the first £9,500 of earnings from 2020/21, a significant increase from the £8,632 limit in 2019/20. Note that employers will be required to pay 13.8% on earnings over £169 per week, £8,788 per annum. The employment allowance that can be set against employers NIC increases to £4,000 from 2020/21 but will not be available to employers with total employer’s NIC liabilities in excess of £100,000 p.a.
The Budget – 11 March 2020 – STATE BENEFITS INCREASED
Many State Benefits have been frozen, or increases limited, for a number of years. The Government have however decided to increase many State Benefits from 2020/21 including Child Benefit. The amount payable in respect of the oldest child has been increased to £21.05 and £13.95 for each subsequent child. Note however that you may have to pay a tax charge if one of the parents has income in excess of £50,000.
The Budget – 11 March 2020 – CAPITAL GAINS ENTREPRENEURS’ RELIEF RESTRICTED
There were many rumours in the run up to the Budget that CGT entrepreneurs’ relief that allows certain business owners to pay just 10% tax on disposal would be abolished. Rather than abolish the relief the Chancellor has announced that from 11 March 2020 onwards the relief will only be available against the first £1 million of lifetime gains instead of the previous £10 million limit. The relief will therefore still benefit most small business owners.
COMPANY TAX RATE FROZEN AT 19%
As previously announced the corporation tax rate is to remain at 19% for the time being. It was scheduled to reduce to 17% from 1 April 2020.
The Budget – 11 March 2020 – STRUCTURES AND BUILDINGS ALLOWANCE INCREASED TO 3%
In the October 2018 Budget a new tax relief was introduced for the cost of construction or renovation of commercial buildings and structures. As announced in the Conservative Party manifesto the original 2% straight line allowance is to be increased to 3% from 1 April 2020 for companies, 6 April 2020 for unincorporated businesses.
The Budget – 11 March 2020 – R&D TAX CREDIT CHANGES
The Conservative Party manifesto also included a promise to increase R&D expenditure relief for non-SMEs from 12% to 13% and this was confirmed in the March Budget. However, a measure originally announced in the 2018 Budget and consulted on in 2019 will limit the amount of repayable R&D tax credit for SMEs to three times the company’s total PAYE and NIC payments for the period. This measure will now take effect from 1 April 2021 not 2020.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
The Budget 2020 – Are There Any Big Changes?
Yet Another Chancellor – Big Changes In The Budget?
It will be nearly 18 months since the last Budget and, in the meantime, we will have had three different chancellors, following the unexpected resignation of Sajid Javid. The early years of a new Parliament are a good time to make radical changes, and many are predicting significant tax announcements on 11 March. Rather than increasing headline tax rates, we understand the Government is considering the abolition or restriction of many tax reliefs that we have been relying on. This would also have the effect of increasing tax revenue, but it is likely that the changes will impact on those who are better off.
Inheritance Tax In The Spotlight
We are expecting major changes to inheritance tax (IHT) in the March Budget, following two reviews by the Office of Tax Simplification (OTS) and also a report by an All Party Parliamentary Committee. IHT is perceived as a complicated tax with numerous fairly trivial reliefs and exemptions. Currently the tax only generally applies to transfers on death and gifts within 7 years of death. The All Party Parliamentary Committee suggested that there should be a 10% charge on gifts during someone’s lifetime after an annual exemption (suggested £30,000) has been exceeded. A more radical suggestion was the abolition of Business Property Relief (BPR) and Agricultural Property Relief which currently allow a family business or farm to be passed on, without paying IHT. The OTS also recommended a review of BPR, so you may well be considering bringing forward the transfer of all, or part of, the family businesses. More routine IHT planning would be to make use of your current £3,000 annual allowance. Gifts up to £3,000 each year are exempt from IHT. If you haven’t used your £3,000 allowance from 2018/19 you can make gifts of up to £6,000, before 6 April 2020 without the gift being liable to IHT. Also consider making regular gifts out of your income, to minimise the growth of your estate that will be liable to IHT. Gifts out of your surplus income are not subject to IHT, if properly structured and we can assist you in keeping the necessary documentation.
Further Changes To Entrepreneurs’ Relief?
Another tax relief that may be further restricted or even abolished is CGT entrepreneurs’ relief. As a business owner, you only get to pay just 10% CGT, on the first £10 million of capital gains, when you dispose of your business and as this measure was tightened up in the Autumn 2018 Budget. When first introduced, the relief only applied to the first £2 million of your gains, but the limit has been increased twice since 2008 to the current lifetime limit, so the relief may be limited again in the March Budget.
Year End CGT Planning
Have you used your 2019/20 £12,000 annual capital gains exemption? Consider selling shares where the gain is less than £12,000 before 6 April 2020.Also, if you have any worthless shares, consider a negligible value claim to establish a capital loss. You may also even be able to set off that capital loss against your income, under certain circumstances, which could save you tax of up to 45% of the loss.
Pension Planning Before The End Of The Tax Year
For most taxpayers the maximum pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers both contributions by the individual and their employer. You should also be aware that your unused allowance for a particular tax year, may be carried forward for three years and can be added to the relief for the current year, but then lapses if unused. Hence your unused pension allowance for 2016/17 will lapse on 5 April 2020. In addition, under the current rules, the net after tax cost of saving £10,000 in a personal pension for a higher rate taxpayer is only £6,000.
Will Pension Tax Relief Change In The Budget?
Well… This is highly likely this year, as the new Government looks for additional tax revenue to fund its ambitious spending pledges such as the HS2 rail link. To add to this, we understand there is speculation the restriction for those with income over £150,000, may be removed. But at the same time higher rate tax relief may be removed. That tax relief may be “simplified” by limiting relief to say 25% or 30%, so the government would increase a £750 pension saving to £1,000, but with no further tax relief. If you have surplus cash, you might wish to consider maximising your pension relief before Budget Day.
Have You Used Your 2019/20 ISA Allowance?
Your maximum annual investment in ISAs for 2019/20 is £20,000. And your investment needs to be made before 6 April 2020. In addition, have you thought about investing for your children or grandchildren by setting up a Junior ISA? And did you know that in the 2019/20 tax year, you can invest £4,368 into a Junior ISA for any child under 18.
Don’t Lose Your Personal Allowance!
For every £2 that your adjusted net income exceeds £100,000, the £12,500 personal allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce your adjusted net income and save tax at an effective rate of 60%. The restriction applies between £100,000 and £125,000 of your adjusted net income. Another way that you could avoid this trap would be to agree with your employer to sacrifice some of your salary, in exchange for a tax-free benefit in kind, such as an additional pension contribution.
Consider Other Tax Efficient Investments
If you are looking for investment opportunities, have you considered the Enterprise Investment Scheme (EIS)? These investments in certain qualifying companies allow you to set off 30% of the amount invested against your tax bill as well as the ability to defer capital gains tax (CGT), until the shares are sold. An even more generous tax break is available for investment in a qualifying Seed EIS company, where income tax relief at 50 per cent is available. And in addition, it is possible for you to obtain relief against your 2019/20 capital gains. Shares in EIS and Seed EIS companies are risky investments and you should seek specialist advice before investing. 30% income tax relief is also available by investing in a Venture Capital Trust or by investing in a qualifying Social Enterprise.
Buy New Equipment Before 6 April?
Your business year-end, not 5 April, is relevant for capital allowances purposes. If however you are running a business and making up accounts to 31 March or 5 April, you should consider buying plant and machinery to take advantage of the £1 million Annual Investment Allowance (AIA). The AIA provides a 100% tax write-off for equipment used in your business. This tax relief extends to fixtures and fittings within business premises such as electrical, water and heating systems. AIA does not apply to motor cars, but there is a special 100% tax relief, if you buy a new car that emits no more than 50g CO2 per kilometre.
Lotuswise Chartered Accountants and Business Consultants can support your business with the complexities of these tax and payment rules and help you succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
How To Determine Worker Status With CEST
From 6 April 2020
Did you know that from 6 April 2020 the off-payroll working rules are extended? Under the new rules, medium and large private sector organisations engaging workers providing their services through an intermediary, such as a personal service company, must determine the status of the worker if the services were provided direct to the end client rather than via the intermediary. If, ignoring the intermediary, the worker would be an employee, the off-payroll working rules apply. HMRC’s Check Employment Status for Tax (CEST) tool can be used to fulfil the requirement to make a status determination. This tool was updated in November 2019 in preparation for the extension. And on 7 January 2020, the Government announced they were reviewing the rules to facilitate a smooth implementation. As part of the review, they will evaluate the effectiveness of the enhanced CEST tool, available on the Gov.uk website.
What is CEST?
CEST – Check Employment Status for Tax – a tool created by HMRC, can be used to determine whether, for a particular contract, the off-payroll working rules apply. It can also be used to ascertain whether, for a particular piece of work, a worker is employed or self-employed. If you are a medium or large private sector organisation which uses workers who provide their services through an intermediary, such as a personal service company, you can use CEST to meet your obligation to undertake a status determination, under the off-payroll working rules as they apply from 6 April 2020. You must give the worker a copy of the determination, together with reasons for reaching it. Printing off the CEST decision will tick this box. Although using the CEST tool to make your status determination is not compulsory, it is advised. Not least because HMRC will accept the decision reached by the tool, as long as the information entered is correct.
Using CEST
In case you’re wondering, the tool works by asking a series of questions, the answers to which are used to determine the status of the worker. The CEST tool can be used anonymously. However, please bear in mind that there is no facility to save any of your answers and return to them later. Plus if you close the tool before your determination is complete, your answers will be lost. It will also time out if you leave it idle for 15 minutes. We therefore advise you to ensure you have all the relevant information to hand before starting your determination. Your starting point is the contract of employment. The tool assumes that a contract is in place – this highlights the significance of mutuality of obligation, as without mutuality of obligation, there can be no contract. To use the CEST tool, you will need the following information:
• Details of the contract
• The responsibilities of the worker
• Who decides what work needs doing, when and where
• How the worker is paid
• Whether the engagement includes any corporate benefits or reimbursement of expenses
It is then simply a case of you working through the question and selecting the best match answer from the available options. Once you have answered all the questions, you are then given the option of reviewing the answers selected, before the decision is given.
The decision
The CEST tool will use the information you provided in response to the questions, to give you one of the following outcomes:
• Off-payroll working rules (IR35) do not apply
• Off-payroll working rules (IR35) apply
• Unable to make a determination (for whether the off-payroll working rules apply)
• Self-employed for tax purposes for this work
• Employed for tax purposes for this work
• Unable to make a determination (for employed or self-employed for tax purposes).
It will also set out the reasons for the decision reached.
Use of the tool by a worker
If you are a worker providing your services through a personal service company or other intermediary, you can also use the CEST tool to check your status. From 6 April 2020 onwards, you can use it to check a determination given to you be an end client (a medium or large private sector organisation); and if you disagree with the determination given, the CEST decision can be used as the basis for a challenge. Prior to 6 April 2020, and on or after that date where the end client is small private sector organisation, you can use the CEST tool to see if you need to operate the IR35 rules.
Detailed guidance
HMRC produced detailed guidance on using the CEST tool, which can be found in their Employment Status Manual. Check this out before using the CEST tool. The whole area of IR35 and employment status is an area of constantly changing legislation and case law. Remember we’re always here to help you to safely navigate your way through the employment tax minefield.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of these tax and payment rules and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
How To Manage Salary And Bonus Conversations
Let’s talk about salary and bonus
Talking about money with your employees can be uncomfortable. Even when you have good news for an employee, discussing pay can be difficult. Your employee’s performance is inextricably linked to their salary and bonus. However, if you are discussing the two together, this can lead to your employee focusing only on the conversation about pay. As such, as a manager, you should discuss performance in a separate meeting, prior to any discussion about pay or bonuses. That way, you ensure that both conversations are clearly heard by your employee, and expectations can be managed, prior to any conversation about compensation.
Salary and bonus employees expectations
A salary and bonus conversation can get tough, because, often because your employee is not getting the information they need or you, as a manager, feel that they can’t answer certain questions. You need to have key information to hand such as pay scales for the various roles across your business, details regarding potential for pay increases or promotions and any other key information, such as company performance, and how this has affected their salary and bonus figures this year etc.
When things don’t go well
If your salary and bonus conversation is not going well, you should spend more time listening to your employee, in order to understand where they are coming from, what their concerns are etc. There is often a lot to be gained by managers who are curious, when it comes to having tough pay-related conversations. For example, you might learn that your employee feels that their job has not been correctly benchmarked against competitors or the wider market.
Always follow up!
More often than not, a challenging conversation around salary and bonus will require for you to organise a follow up meeting, giving you an opportunity to come back with more facts, and secure a positive outcome with your employee.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Business Partnerships: Why do they break?
Business Partnerships Always Start With Passion
Sometimes things don’t work out in business and it’s time for the owners to go their separate ways, and you might have to consider breaking up.
It’s fair to say that your business partnerships might have begun with enthusiasm and passion, grown through balance and communication and endured the highs and lows of life. Sometimes, however, businesses don’t weather the storm and things come to an end, and this is when you have to consider breaking up. As such, it is important for you to have a plan. In business, you must have clear agreements around how your partners can exit the business, as this is good practice. As such, it is important you have this conversation at the beginning a of your business partnership and document it.
Business Partnerships: when selling or exiting a business
When selling or exiting a business, it’s important you remain professional. You might feel disappointed over a failing business partnership, but angry or emotional communications won’t help the process. Take your time, remain calm and if you find yourself drafting a sharp-toned email, save it to your drafts and review it again the next day, before deciding whether or not to send it. Always seek professional guidance – there are lots of financial and legal experts in the market, who have considerable expertise in this area, and who can help you to successfully exit your business.
Business Partnerships: when the time comes
When the time comes, you need to have a good understanding of your firm, its financials, any outstanding issues, etc. If you and your business partner(s) decide to sell the firm to another company, the buyer will be keen to download your knowledge of the business. If you can explain things in detail to the potential new owners, it will help to build their confidence in the deal and could positively affect how much value they assign to the purchase. Financial issues and long-term partnership agreements can complicate matters. However, you should aim to exit your business and end your business partnership, in a way that is mutually beneficial and satisfactory for everyone involved.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Property Taxation 2017-2020: This Is What You Need To Know
2017 Income Tax – Restriction of finance costs for individual property landlords
Did you know that in his 2015 post-election summer Budget, George Osborne informed residential landlords that from April 2017 their ability to claim higher rate tax relief for finance costs was to be withdrawn over a four year period, as follows:
- April 2017 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% available as a basic rate tax reduction.
- April 2018 the deduction from property income will be restricted to 50% of finance costs, with the other 50% available as a basic rate tax reduction.
- April 2019 the deduction from property income will be restricted to 25% of finance costs, with the other 75% available as a basic rate tax reduction.
- April 2020 all financing costs incurred by a landlord will be given as a basic rate tax reduction.
From April 2020, if you are a residential property (not holiday lets) landlord, you will only receive basic rate tax relief on finance costs.
2019 Extension to Non-resident Capital Gains Tax
Since the start of the current tax year (6 April 2019), if you are a non-resident landlord, you would have been required to complete a separate online non-resident Capital Gains Tax return for each property disposal. Including, a computation of gains and losses. Please note that different rules apply for those who are temporarily non-resident and make disposals during a tax year when you were either not resident in the UK or overseas as part of a split year. In addition, corporation tax rather than CGT is now chargeable on chargeable gains linked to UK property or land for all non-resident companies. Non-Resident Capital Gains Tax (NRCGT) is also potentially payable by all non-resident landlords, as the ATED-related gains charge was abolished from 6 April 2019. It now applies to gains arising from the disposal of any type of UK land or property which accrue from 5 April 2015 (residential property) or 5 April 2019 (non-residential property).
2020 Further Capital Gains Tax Restrictions – Coming soon (April 2020)
And did you also know that, as part of his 2018 Budget, the then Chancellor Philip Hammond announced his intention to restrict the Private Residence Relief (PRR) rules from 6 April 2020, by cutting the last period of ownership from 18 months to just 9 months. Please note that, as with the 2014 change, the 36-month exemption period is to be retained for owners with a disability or who are in residential care. As if that wasn’t enough, he also announced that lettings relief (see below) is to be restricted to owners who share occupancy with a tenant. Lettings relief was introduced in 1980, to allow people to let out spare rooms within their property, on a casual basis without losing the benefit of PRR. But HMRC says that it has found that lettings relief is being used for purposes beyond the original policy intention, benefitting those who let out a whole dwelling that has, at some stage, been their main residence. So what are the current lettings relief rules? Well, where the property has been let at any time, each owner can claim lettings relief to reduce the taxable capital gain, the rules are as follows:
- This relief can cover gains of up to £40,000 per owner
- It is only available if the property has been the owner’s main home for a period
- It is also capped at the amount of PPR relief, due for the period of actual occupation by the owner
At the same time, Hammond proposed that CGT would be payable “on account” within 30 days of completion for all UK residential properties. Originally intended to be effective from 6 April 2019, to coincide with the new NRCGT rules, implementation of the proposal was delayed until 6 April 2020. So If you have no gain to report or the gain is covered by exemptions or losses, you won’t have to complete a property disposal return. After the end of the tax year, you will complete a self-assessment return to disclose the property gain. The ‘on account’ payment will be deducted from the end of CGT liability; this could result in a repayment of CGT for you.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of these tax and payment rules and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
7 Top Tips For Tax Return Filing
Self-Assessment Tax Return Tips
You must file your 2018/19 self-assessment tax return online by midnight on 31 January 2020 if you want to avoid a late filing penalty. so, what can you do to help ensure this deadline is met?
Help us to help you
Tax return season is a very busy time for us accountants and tax advisers. With the best will in the world, there is a limit to the number of tax returns that can be filed on 31 January. To ensure your tax return is filed on time, it is advisable to help us help you, as follows:
1. Check what date your accountant needs tax information from you in order to meet the filing deadline, and make sure that you provide the information by that date.
2. Collect together all the relevant paperwork and make sure nothing is missing. This will include your P60 and P11D, dividend vouchers, bank statements, details of trading income and expenses, details of rental income and expenses, details of sales of capital assets and associated expenses, and details of pension contribution and charitable donations.
3. Make sure your paperwork is organised and easy to follow, whether supplied digitally or in hard copy format.
4. Keep copies of the information supplied to your accountant.
5. Advise your accountant of any changes in your personal circumstances – such as change of address, whether you have got married or divorced etc.
6. Deal with any queries promptly.
7. Pay any tax due on time.
What are the penalties for late returns?
Deadlines Apply
You will be charged a late filing penalty if your self-assessment tax return is filed late. The normal deadline for filing the 2018/19 tax return online is midnight on 31 January 2020. A later deadline applies if your notice to file a return was issued after 31 October 2019 – this is three months from the date of the notice.
Underpayments
If you wanted an underpayment (available for underpayments of up to £3,000) to be collected through PAYE, via an adjustment to your tax code, you would have had to file returns by 30 December 2019. And you would have had to file paper returns by 31 October 2019 (or three months from the date of the notice to file, where this was issued after 31 July 2019) to avoid a penalty – however, if you missed this deadline, you can avoid a penalty by filing online, by 31 January 2020.
£100 Penalty And More
You should know that returns filed late, attract a late filing penalty of £100. You will be charged even if there is no tax to pay or the tax is paid on time. You will also be charged further penalties, if your return has not been filed three months after the due date – from that point daily penalties of £10 per day start, to accrue for a maximum of 90 days (£900). At the six month and 12-month point, you will then be charged additional penalties set at the higher of 5% of the tax due and £300. You will also be charged penalties if tax is paid late, in addition to any interest that may accrue. The trigger dates you should watch out for are 30 days late, six months late and 12 months late. At each date, the penalty is 5% of the tax outstanding at the trigger date.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of these payment rules and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
What Are The Key Business Trends for 2020?
So what are the key business trends for 2020, and how could these affect your business in 2020?
1. Key Business Trend One: Workplace Well-being
The environment, well-being, mental health and technology look set to be some of the big key business trends in 2020. As we move into 2020, businesses, including yours, will have to adapt in a world that places greater emphasis on sustainable business practices. People will want to work for firms that take care of their employees, in terms of their physical and mental health.
2. Key Business Trend Two: The Use of Technology & Flexible Working
Technology will continue to be the key enabler to allow us to work flexibly, remotely and more effectively. It looks like 2020 is set to be a busy year for businesses in the UK and internationally.
3. Key Business Trend Three: Environmentally Aware
Another key business trend is that customers are becoming more environmentally aware. Companies like Beyond Meat, the maker of plant-based, protein-rich foods or Everlane, which creates clothes from recycled fibres and plastics, are gaining traction. People are trying to reduce their carbon footprint and are making buying decisions on the basis of the environmental credentials of businesses. As a result, businesses are responding by focusing on their environmental and sustainability policies. Many firms are adapting their CSR activities to include environmental projects, in order to help drive the green agenda in local communities. As we move into 2020, this trend is likely to accelerate and affect your business.
4. Key Business Trend Four: Artificial Intelligence (AI)
On the technology side of things, machine learning and artificial intelligence (AI) are continuing to advance. The AI industry is growing and your business could have access to more powerful tools, in order to create new customer experiences. For example, music-streaming service Spotify uses AI to make the listening experience more personal by creating customised play-lists for each user.
5. Key Business Trend Summary: Embrace New Trends To Attract The Best People
Younger workers are putting greater emphasis on physical wellbeing and their mental health. You, as an employer, will need to adapt in order to attract the next generation of talented employees. Flexible working and wellness programmes are high on the list of priorities for Millennials and Generation Z employees. If your business really embraces these new trends, you will surely attract the best people.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Season’s Greetings
We, the Lotuswise Team, wish all our clients & friends a very Merry Christmas and a Happy New Year!
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Making Tax Digital – How To Set Up Digital Links
MTD – announces more time for digital links…what does this mean for you?
You may have heard that on, 17 October, HMRC made a much-welcomed announcement that some businesses will qualify for an extension to the MTD for VAT (MTDfV) existing twelve months ‘soft-landing’ period. This is to allow businesses to set up digital links. Does your business qualify for an extension?
The basics
In order to explain the significance of this extension, it’s best to reprise some of the basics of what’s required to achieve compliance with MTDfv. Specifically, if you’re a VAT-registered entity with annual VATable turnover greater than £85k. You then need to keep digital VAT records and file MTD-compliant VAT returns.
HMRC’s view
For your information, section 4 of HMRC VAT notice 700/22 ‘Making Tax Digital for VAT’ covers the requirements for your digital record keeping, a fundamental of ensuring compliance with MTD:
- If you are a VAT registered business with annual VAT-able turnover in excess of £85K, you are required to comply with MTDfV rules.
- To achieve compliance, you must keep and preserve certain records and accounts digitally within functional compatible software.
- Functional compatible software can be a software program, or set of software programs, products or applications, that must be able to:
1. record and preserve digital records (see paragraph 4.3)
2. provide HMRC with information and returns from data held in those digital records by using the API platform
3. receive information from HMRC using the API platform
With only limited exceptions, once your VAT data has been digitally recorded into your business’ chosen accounting software any subsequent transfer, recapture or modification of it must be carried out using digital links. While everything required to achieve compliance could be done from within third-party software, it might also mean resorting to transferring your data between disparate pieces of software, in order to achieve compliance. With each piece of software needing to be ‘digitally linked’, to create a digital journey ending with the submission of your MTD-compliant VAT return.
Digital links
So exactly, what are digital links? Well, section 4.2 .1 of 700/22 describes a ‘digital link’ as, “…. a transfer or exchange of data [that] is made, or can be made, electronically between software programs, products or applications”. So, in effect, digital links include:
- Linked cells in spreadsheets
- Emailing a spreadsheet containing digital records, so the information can be imported into another software product
- Transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, or flash drive), and physically giving this to someone else, who then imports that data into their software
- XML, CSV import and export, and downloads and uploads of files
- Automated data transfers
Why?
In the context of MTDfV, a soft-landing period is an amnesty period during which, provided you are a VAT registered entity required to comply with MTDfV regulations, and you have tried your best to satisfy the digital links rules. And that for reasons such as your software providers still working on delivering the required functionality, you have found it impractical to comply, so then no penalty for non-compliance will be issued. Prior to the launch of MTDfV, HMRC announced there would be a one-year soft-landing period for all businesses who, after trying, were initially unable meet the legal requirement for digital links. The period-of-soft-landing was, and remains to be, an essential element of ensuring a smooth roll out of MTDfV. Why…simply…without the soft-landing many businesses, without fully functionally compatible software at the launch of MTDfV, would have been left facing fines for failing to have digital links in place, even though, they and or their software providers, were doing their best to ensure that everything required to achieve compliance would be ready as soon as possible. Which, HMRC realised was not a good position to leave those willing to be compliant in.
The initial soft-landing period
If you are affected, the initial soft-landing period commenced from the first day, of the first return period, after 31 March 2019 for most mandated businesses, or after 30 September for a small number of deferred businesses. Those with the most complex of VAT affairs. As announced on 17 October, businesses with complex or legacy IT systems, who are struggling to have digital links in place within the existing one-year soft-landing window, are now able to apply for additional time to put the required digital subject to meeting certain qualifying criteria. Where your business qualifies, the additional time will be granted as a specific direction from HMRC. It’s important to note that there is no blanket extension to the soft-landing period, and it appears that HMRC will take a fairly strict line on who does and doesn’t qualify.
Why the extension?
Many businesses use bespoke software, specifically tailored to their market sector, to manage bookings, keep records, stocks, etc. Where this is the case, it is not uncommon for there to be a need to manually post totals from one part of a system to another on a weekly, monthly or other basis. While such transfers will not be acceptable once the soft-landing expires, replacing them with a digital link(s) is proving, for some, to be difficult. In much the same way, many businesses with internally developed systems are finding they may need additional time to get their, often very different, software packages to talk to each other. This is particularly proving to be the case for VAT registered entities in VAT groups. In recent months, AAT and its fellow professional bodies have highlighted to HMRC the difficulties some businesses are facing when trying to ensure they have digital links next year. This is a particular problem in industries that use specialist software, which can often be difficult (or even impossible) to link to accounting and VAT systems.
How generous is HMRC likely to be?
While your business can apply for an extension, you will only get one if HMRC accept that one is needed. Section 4.2 .1.3 sets out various criteria which you need to meet for digital link deadline extensions. Key amongst these is that it must be “unachievable and not reasonable” to have digital links in place in the normal one-year soft-landing period. HMRC are very clear that an extension will only be granted in “exceptional circumstances”. The department does not accept that the potential cost of achieving compliance with the digital links requirements, is sufficient grounds for you to apply for an extension. Furthermore, it expects businesses to make every effort to comply with ‘digital links requirements’. HMRC examples of what might be considered “unachievable and not reasonable”, include:
- Part of an IT system is incapable of importing and exporting data to or from another part, and it isn’t possible to update or replace it in time; and
- A business is in the process of updating or replacing its IT system and the planned implementation date is not before the end of the original soft-landing period.
Even where an extension application is granted by HMRC, it will not be a permanent relaxation of the requirement for robust end-to-end digital links.
- Businesses still have to consider how they will put digital links in place, and will need to set out a clear explanation and timetable for when and how this will be implemented in their application to HMRC.
- The length of any extension will be decided on a case by case basis, though HMRC has indicated that they do not expect that this will ordinarily be what businesses should do.
If you think your business may benefit from an extension, you should first look at the detail in the VAT Notice, whether it meets HMRC’s criteria. If you believe it does, then you can make a formal application to HMRC. The VAT Notice sets out the information which this must contain, including the “unachievable and not reasonable” explanation, to have digital links in place by the end of the normal soft-landing period, a map of current VAT systems, a timetable plan to put digital links in place, and details of controls for manual transfers of data in the meantime. You have to submit your application before the current soft-landing-on-digital-links expires. Given the amount of information required, you may want to make a start on your application sooner rather than later.