HOSPITALITY VAT REDUCTION
DETAILS ON HOSPITALITY VAT REDUCTION
HOSPITALITY VAT REDUCTION: WHAT IS IT ALL ABOUT?
When the Chancellor announced a temporary cut in the rate of VAT for the hospitality sector and attractions in his Summer Statement on 8 July there were a number of areas that needed clarification. The reduction applies to supplies made between 15 July 2020 and 12 January 2021. HMRC have now set out more details of which supplies will attract the 5% temporary rate as well as the impact on invoicing, deposits and the flat rate scheme.
WHAT DOES THE 5% TEMPORARY VAT RATE APPLY TO?
Hospitality VAT: The temporary 5% rate applies to supplies such as catering, including hot takeaway food, accommodation in hotels, guest house and similar places and tourist attractions such as theme parks, zoos, theatres and cinemas. Please note this is not an exhaustive list.
HOSPITALITY VAT REDUCTION: WHAT ABOUT ALCOHOLIC DRINKS?
Hospitality VAT: Note that as far as catering is concerned, the 5% rate only applies to food and non-alcoholic drinks. The 20% rate continues to apply to alcoholic drinks.
HOSPITALITY VAT REDUCTION: HAVE YOU PAID A DEPOSIT?
It is fairly common, particularly in the summer holidays, to pay a deposit when booking a hotel or self-catering accommodation but how should the deposit be accounted for? HMRC have confirmed that the hotel has the option of charging VAT according to the ‘basic tax point’ (dates of the stay) rather than the ‘actual tax point’ (invoice/payment dates).
DEPOSITS: DO YOU HAVE AN EXAMPLE?
For example where the customer paid a non-refundable £300 deposit in February 2020 for a £1000 holiday in Cornwall in August, using the actual tax point, the hotel would account for 20% VAT on the deposit received in February 2020 and 5% on the balance payable after 15 July 2020. The hotel could choose to use the basic tax point rule which would mean that the 5% rate would apply to the entire cost of the stay and make an adjustment for the VAT already accounted for.
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Watch the video here.
Deferring July Self-Assessment Payment
DEFERRING JULY SELF-ASSESSMENT PAYMENT: OPTION TO DEFER JULY SELF-ASSESSMENT PAYMENT ON ACCOUNT
Deferring July Self-Assessment Payment: Taxpayers facing financial difficulties as a result of the COVID-19 pandemic can opt to delay making their second self-assessment payment on account for 2019/20, due by 31 July 2020. As long as the amount is paid in full, together with any outstanding balance for 2019/20, by 31 January 2021, HMRC will not charge any interest or penalties.
Under the self-assessment system, taxpayers are required to make payments on account of their tax and Class 4 National Insurance liability if their self-assessment bill for the previous tax year was £1,000 or more, unless at least 80% of the tax owed for that year was deducted at source, for example, under PAYE.
Each payment on account is 50% of the previous year’s tax and Class 4 National Insurance liability. Although Class 2 National Insurance contributions are collected via the self-assessment system, they are not taken into account when working out payments on account. Payments on account are made on 31 January in the tax year and on 31 July after the end of the tax year, with any balance being paid by the tax return filing date of 31 January after the end of the tax year. If the payments on account are more than the eventual liability, the excess is refunded or set against the next year’s liability.
The first payment on account for 2019/20 was due by 31 January 2020. The second payment would normally need to be paid by 31 July 2020.
DEFERRING JULY SELF-ASSESSMENT PAYMENT: OPTION TO DEFER
This year, taxpayers have the option to defer the second payment on account if they are finding it difficult to make the payment by 31 July 2020 due to Coronavirus. There is no obligation to defer – taxpayers can still make the payment by 31 July 2020 if they so wish.
Where a taxpayer takes the deferral option, the outstanding payment can be made whenever the taxpayer is able to meet the payment, as long as this is no later than 31 January 2021. Any balance owing for 2019/20 must be paid by the same time, together with the Class 2 National Insurance liability for the self-employed and the first payment on account for 2020/21.
Taxpayers choosing the deferral option do not need to tell HMRC – they simply pay the tax by 31 January 2021; nor do they have to provide evidence that they were adversely affected by the COVID-19 pandemic.
Guidance on the deferral option is available on the Gov.uk website. Please also contact us for any advice.
Delaying the payment will no doubt help those struggling as a result of the COVID-19 pandemic. Indeed, it may provide a lifeline for particular groups of taxpayers, for example, those who are self-employed and who do not qualify for a grant under the Self-employment Income Support Scheme and who have been unable to work due to the restrictions.
However, the deferred tax has to be paid eventually, and the payback for having nothing to pay in July is a big bill in January 2020. Not only will the deferred tax be payable then, but also any balance due for 2019/20 and the first payment on account for 2020/21.
FLEXIBLE FURLOUGHING
The Coronavirus Job Retention Scheme (CJRS) has provided a lifeline for many employees and employers during the COVID-19 pandemic. As at 21 June 2020, 9.2 million employees had been furloughed by 1.1 million employers who had, collectively, claimed grants totalling £22.9 billion.
Prior to 30 June 2020, employees who had been furloughed could not work for their employer while on furlough. This changes from 1 July 2020 with the introduction of flexible furloughing.
The CJRS runs until 31 October 2020. As the scheme draws to a close, the grant support provided to employers is gradually reduced from 1 August 2020.
The CJRS enters its second and final phase from 1 July 2020. While employees will continue to receive 80% of their wages for furloughed hours up to the maximum amount for the duration of the scheme, the amount that employers can claim changes each month.
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.
“Flexible Furlough” and Self Employed Grants
“FLEXIBLE FURLOUGH” AND SELF EMPLOYED GRANTS: “FLEXIBLE FURLOUGH” STARTS 1 JULY
“Flexible Furlough” and Self Employed Grants: From 1 July the new CJRS “Flexible furlough” grant scheme starts, which will allow employers to gradually bring their furloughed employees back to work part-time. The new scheme will be in place until the end of October and the Government will gradually reduce the amount of grant towards employees’ furlough pay to 70% in September and 60% in October.
The grant paid by the Government via HMRC will remain at 80% of the employee’s normal pay for July and August but they will stop reimbursing NICs and pension contributions from 1 August 2020.
Further details on the operation of the new scheme were announced on 12 June 2020 which are summarised below.
We will of course continue to assist you in making furlough claims.
“FLEXIBLE FURLOUGH” AND SELF EMPLOYED GRANTS: KEY CONDITIONS FOR NEW “FLEXIBLE FURLOUGH”
Only those employees who have been furloughed and included in a claim under the original CJRS scheme may be included in a claim for the new flexible furlough. That means they must have been furloughed on or before 10 June to allow a full 21 days prior to the end of the original scheme.
A further restriction is that the maximum number of employees that can be included in a flexible furlough claim cannot exceed the maximum number included in a claim under the original scheme.
Thus if the employer has 8 employees split into teams of 4 and furloughed team A for three weeks and then team B for 3 weeks the maximum number of employees that can be included in a flexible furlough claim will be limited to 4.
Unlike the original CJRS furlough scheme there is no minimum furlough period as the intention is to allow employers the flexibility to gradually bring employees back to work. The hours/days worked will need to be agreed between employee and employer which is likely to involve amending the employees’ contracts.
Employees will be entitled to their normal contractual pay for the hours that they work and must be paid at least 80% of their normal pay for the hours that they are furloughed, even when HMRC are only reimbursing 70% or 60%.
Employers will need to notify HMRC of the employee’s usual hours and the hours worked in the claim period. The furloughed hours will be the difference. This will be complicated where the employee’s hours vary. There is currently a lack of clarity in the HMRC guidance on the calculation of “usual hours” and we will of course be available to assist you in making your claim. We will also be able to make the claims on your behalf.
Each claim made by an employer must be for a week or more and no claim period can straddle a calendar month end.
SECOND SELF-EMPLOYED INCOME SUPPORT GRANTS TO BE PAID IN AUGUST
On 29 May the Chancellor announced that the grant scheme to support the self-employed would also be extended with a further payment based on 70% of average profits for the 3 years ended 2018/19, limited to £6,570 rather than £7,500.
The eligibility criteria remain broadly the same as the first grant claim. Self-employed profits in 2018/19 must not exceed £50,000 and must be more than 50% of your total income.
If that test is not met, then the same £50,000 and 50% tests are applied to average profits and total income over the three years (or shorter period) to 5 April 2019.
Self-employed traders need not have claimed a grant under the old scheme to qualify for the August payment and are required to confirm that their business continues to be adversely affected by Covid-19. The deadline for making a claim for a grant under the original SEIS scheme is 13 July 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.
Government Schemes: Furlough and Self Employment
GOVERNMENT SCHEMES: JOB RETENTION “FURLOUGH” SCHEME EXTENDED TO OCTOBER
Chancellor Rishi Sunak announced on 12 May that the CJRS scheme will be extended until the end of October. The scheme will continue in its current form until the end of July with the Government paying 80% of employees wages up to £2,500 a month. For accounts purposes the amounts received should be credited to a “grants received” account, and this will therefore increase taxable profits of the business.
From 1 August to the end of October, HMRC will introduce more flexibility so employers will be able to bring their furloughed employees back to work part-time and contribute to paying employees’ wages while still receiving support from the scheme.
On Friday 29 May the Chancellor announced that the Government will stop reimbursing NICs and pension contributions from 1 August 2020. From 1 September 2020 the amount reimbursed by the Government will be reduced to 70%, limited to £2,190. There will be a further reduction to 60% from 1 October 2020, limited to £1,875.
We will of course continue to assist you in making furlough claims.
GOVERNMENT SCHEMES: SELF-EMPLOYED INCOME SUPPORT GRANTS ALSO EXTENDED
Sole traders and members of partnerships started making claims under the Self-Employed Income Support Scheme on Wednesday 13 May and many have already received their grant.
Unfortunately, unlike the CJRS furlough scheme, claims could not be made by agents on behalf of clients although we can of course check that you have received the correct amount and request a review if the amount is incorrect.
In order to be eligible your self-employed profits in 2018/19 must not exceed £50,000 and must be more than 50% of your total income. If that test is not met, then the same £50,000 and 50% tests are applied to average profits and total income over the three years (or shorter period) to 5 April 2019.
The amount of the grant that can be claimed is 80% of average profits for the three years to 5 April 2019. The grant is capped at £2,500 a month and the maximum amount is £7,500 for the initial 3 month period. The Chancellor has now announced that this scheme would be extended for 3 months from 1 June but reduced to 70% of average profits, limited to £6,570.
There are a number of anomalies, for example if the trade commenced 6 October 2017 the profits for 2017/18 and 2018/19 are divided by 2 to establish an annual profit figure rather than divided by 18 months which we consider to be unfair.
Like the CJRS furlough payments the amounts received are included in your trading profits and thus subject to income tax and national insurance.
CAN WE “FURLOUGH” THE COMPANY CAR?
During the lockdown period many employees and directors have not been using their company cars and it has been sitting on their driveway. You might think that means that the benefit of having a company car does not apply but unfortunately HMRC do not agree.
HMRC have recently confirmed that there continues to be a taxable benefit unless the car is unavailable for private use for 30 or more consecutive days. They would continue to regard the car as available to the employee unless the keys or fobs are returned to the employer or to a third party as instructed by the employer.
This guidance needs to be taken into consideration when form P11Ds are completed.
Note also that where the employee is provided with a motor car with zero CO2 emissions there is no taxable benefit in kind for 2020/21.
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 – 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.
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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.
HOSPITALITY VAT REDUCTION
DETAILS ON HOSPITALITY VAT REDUCTION
HOSPITALITY VAT REDUCTION: WHAT IS IT ALL ABOUT?
When the Chancellor announced a temporary cut in the rate of VAT for the hospitality sector and attractions in his Summer Statement on 8 July there were a number of areas that needed clarification. The reduction applies to supplies made between 15 July 2020 and 12 January 2021. HMRC have now set out more details of which supplies will attract the 5% temporary rate as well as the impact on invoicing, deposits and the flat rate scheme.
WHAT DOES THE 5% TEMPORARY VAT RATE APPLY TO?
Hospitality VAT: The temporary 5% rate applies to supplies such as catering, including hot takeaway food, accommodation in hotels, guest house and similar places and tourist attractions such as theme parks, zoos, theatres and cinemas. Please note this is not an exhaustive list.
HOSPITALITY VAT REDUCTION: WHAT ABOUT ALCOHOLIC DRINKS?
Hospitality VAT: Note that as far as catering is concerned, the 5% rate only applies to food and non-alcoholic drinks. The 20% rate continues to apply to alcoholic drinks.
HOSPITALITY VAT REDUCTION: HAVE YOU PAID A DEPOSIT?
It is fairly common, particularly in the summer holidays, to pay a deposit when booking a hotel or self-catering accommodation but how should the deposit be accounted for? HMRC have confirmed that the hotel has the option of charging VAT according to the ‘basic tax point’ (dates of the stay) rather than the ‘actual tax point’ (invoice/payment dates).
DEPOSITS: DO YOU HAVE AN EXAMPLE?
For example where the customer paid a non-refundable £300 deposit in February 2020 for a £1000 holiday in Cornwall in August, using the actual tax point, the hotel would account for 20% VAT on the deposit received in February 2020 and 5% on the balance payable after 15 July 2020. The hotel could choose to use the basic tax point rule which would mean that the 5% rate would apply to the entire cost of the stay and make an adjustment for the VAT already accounted for.
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.
Deferring July Self-Assessment Payment
DEFERRING JULY SELF-ASSESSMENT PAYMENT: OPTION TO DEFER JULY SELF-ASSESSMENT PAYMENT ON ACCOUNT
Deferring July Self-Assessment Payment: Taxpayers facing financial difficulties as a result of the COVID-19 pandemic can opt to delay making their second self-assessment payment on account for 2019/20, due by 31 July 2020. As long as the amount is paid in full, together with any outstanding balance for 2019/20, by 31 January 2021, HMRC will not charge any interest or penalties.
Under the self-assessment system, taxpayers are required to make payments on account of their tax and Class 4 National Insurance liability if their self-assessment bill for the previous tax year was £1,000 or more, unless at least 80% of the tax owed for that year was deducted at source, for example, under PAYE.
Each payment on account is 50% of the previous year’s tax and Class 4 National Insurance liability. Although Class 2 National Insurance contributions are collected via the self-assessment system, they are not taken into account when working out payments on account. Payments on account are made on 31 January in the tax year and on 31 July after the end of the tax year, with any balance being paid by the tax return filing date of 31 January after the end of the tax year. If the payments on account are more than the eventual liability, the excess is refunded or set against the next year’s liability.
The first payment on account for 2019/20 was due by 31 January 2020. The second payment would normally need to be paid by 31 July 2020.
DEFERRING JULY SELF-ASSESSMENT PAYMENT: OPTION TO DEFER
This year, taxpayers have the option to defer the second payment on account if they are finding it difficult to make the payment by 31 July 2020 due to Coronavirus. There is no obligation to defer – taxpayers can still make the payment by 31 July 2020 if they so wish.
Where a taxpayer takes the deferral option, the outstanding payment can be made whenever the taxpayer is able to meet the payment, as long as this is no later than 31 January 2021. Any balance owing for 2019/20 must be paid by the same time, together with the Class 2 National Insurance liability for the self-employed and the first payment on account for 2020/21.
Taxpayers choosing the deferral option do not need to tell HMRC – they simply pay the tax by 31 January 2021; nor do they have to provide evidence that they were adversely affected by the COVID-19 pandemic.
Guidance on the deferral option is available on the Gov.uk website. Please also contact us for any advice.
Delaying the payment will no doubt help those struggling as a result of the COVID-19 pandemic. Indeed, it may provide a lifeline for particular groups of taxpayers, for example, those who are self-employed and who do not qualify for a grant under the Self-employment Income Support Scheme and who have been unable to work due to the restrictions.
However, the deferred tax has to be paid eventually, and the payback for having nothing to pay in July is a big bill in January 2020. Not only will the deferred tax be payable then, but also any balance due for 2019/20 and the first payment on account for 2020/21.
FLEXIBLE FURLOUGHING
The Coronavirus Job Retention Scheme (CJRS) has provided a lifeline for many employees and employers during the COVID-19 pandemic. As at 21 June 2020, 9.2 million employees had been furloughed by 1.1 million employers who had, collectively, claimed grants totalling £22.9 billion.
Prior to 30 June 2020, employees who had been furloughed could not work for their employer while on furlough. This changes from 1 July 2020 with the introduction of flexible furloughing.
The CJRS runs until 31 October 2020. As the scheme draws to a close, the grant support provided to employers is gradually reduced from 1 August 2020.
The CJRS enters its second and final phase from 1 July 2020. While employees will continue to receive 80% of their wages for furloughed hours up to the maximum amount for the duration of the scheme, the amount that employers can claim changes each month.
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.
“Flexible Furlough” and Self Employed Grants
“FLEXIBLE FURLOUGH” AND SELF EMPLOYED GRANTS: “FLEXIBLE FURLOUGH” STARTS 1 JULY
“Flexible Furlough” and Self Employed Grants: From 1 July the new CJRS “Flexible furlough” grant scheme starts, which will allow employers to gradually bring their furloughed employees back to work part-time. The new scheme will be in place until the end of October and the Government will gradually reduce the amount of grant towards employees’ furlough pay to 70% in September and 60% in October.
The grant paid by the Government via HMRC will remain at 80% of the employee’s normal pay for July and August but they will stop reimbursing NICs and pension contributions from 1 August 2020.
Further details on the operation of the new scheme were announced on 12 June 2020 which are summarised below.
We will of course continue to assist you in making furlough claims.
“FLEXIBLE FURLOUGH” AND SELF EMPLOYED GRANTS: KEY CONDITIONS FOR NEW “FLEXIBLE FURLOUGH”
Only those employees who have been furloughed and included in a claim under the original CJRS scheme may be included in a claim for the new flexible furlough. That means they must have been furloughed on or before 10 June to allow a full 21 days prior to the end of the original scheme.
A further restriction is that the maximum number of employees that can be included in a flexible furlough claim cannot exceed the maximum number included in a claim under the original scheme.
Thus if the employer has 8 employees split into teams of 4 and furloughed team A for three weeks and then team B for 3 weeks the maximum number of employees that can be included in a flexible furlough claim will be limited to 4.
Unlike the original CJRS furlough scheme there is no minimum furlough period as the intention is to allow employers the flexibility to gradually bring employees back to work. The hours/days worked will need to be agreed between employee and employer which is likely to involve amending the employees’ contracts.
Employees will be entitled to their normal contractual pay for the hours that they work and must be paid at least 80% of their normal pay for the hours that they are furloughed, even when HMRC are only reimbursing 70% or 60%.
Employers will need to notify HMRC of the employee’s usual hours and the hours worked in the claim period. The furloughed hours will be the difference. This will be complicated where the employee’s hours vary. There is currently a lack of clarity in the HMRC guidance on the calculation of “usual hours” and we will of course be available to assist you in making your claim. We will also be able to make the claims on your behalf.
Each claim made by an employer must be for a week or more and no claim period can straddle a calendar month end.
SECOND SELF-EMPLOYED INCOME SUPPORT GRANTS TO BE PAID IN AUGUST
On 29 May the Chancellor announced that the grant scheme to support the self-employed would also be extended with a further payment based on 70% of average profits for the 3 years ended 2018/19, limited to £6,570 rather than £7,500.
The eligibility criteria remain broadly the same as the first grant claim. Self-employed profits in 2018/19 must not exceed £50,000 and must be more than 50% of your total income.
If that test is not met, then the same £50,000 and 50% tests are applied to average profits and total income over the three years (or shorter period) to 5 April 2019.
Self-employed traders need not have claimed a grant under the old scheme to qualify for the August payment and are required to confirm that their business continues to be adversely affected by Covid-19. The deadline for making a claim for a grant under the original SEIS scheme is 13 July 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.
Government Schemes: Furlough and Self Employment
GOVERNMENT SCHEMES: JOB RETENTION “FURLOUGH” SCHEME EXTENDED TO OCTOBER
Chancellor Rishi Sunak announced on 12 May that the CJRS scheme will be extended until the end of October. The scheme will continue in its current form until the end of July with the Government paying 80% of employees wages up to £2,500 a month. For accounts purposes the amounts received should be credited to a “grants received” account, and this will therefore increase taxable profits of the business.
From 1 August to the end of October, HMRC will introduce more flexibility so employers will be able to bring their furloughed employees back to work part-time and contribute to paying employees’ wages while still receiving support from the scheme.
On Friday 29 May the Chancellor announced that the Government will stop reimbursing NICs and pension contributions from 1 August 2020. From 1 September 2020 the amount reimbursed by the Government will be reduced to 70%, limited to £2,190. There will be a further reduction to 60% from 1 October 2020, limited to £1,875.
We will of course continue to assist you in making furlough claims.
GOVERNMENT SCHEMES: SELF-EMPLOYED INCOME SUPPORT GRANTS ALSO EXTENDED
Sole traders and members of partnerships started making claims under the Self-Employed Income Support Scheme on Wednesday 13 May and many have already received their grant.
Unfortunately, unlike the CJRS furlough scheme, claims could not be made by agents on behalf of clients although we can of course check that you have received the correct amount and request a review if the amount is incorrect.
In order to be eligible your self-employed profits in 2018/19 must not exceed £50,000 and must be more than 50% of your total income. If that test is not met, then the same £50,000 and 50% tests are applied to average profits and total income over the three years (or shorter period) to 5 April 2019.
The amount of the grant that can be claimed is 80% of average profits for the three years to 5 April 2019. The grant is capped at £2,500 a month and the maximum amount is £7,500 for the initial 3 month period. The Chancellor has now announced that this scheme would be extended for 3 months from 1 June but reduced to 70% of average profits, limited to £6,570.
There are a number of anomalies, for example if the trade commenced 6 October 2017 the profits for 2017/18 and 2018/19 are divided by 2 to establish an annual profit figure rather than divided by 18 months which we consider to be unfair.
Like the CJRS furlough payments the amounts received are included in your trading profits and thus subject to income tax and national insurance.
CAN WE “FURLOUGH” THE COMPANY CAR?
During the lockdown period many employees and directors have not been using their company cars and it has been sitting on their driveway. You might think that means that the benefit of having a company car does not apply but unfortunately HMRC do not agree.
HMRC have recently confirmed that there continues to be a taxable benefit unless the car is unavailable for private use for 30 or more consecutive days. They would continue to regard the car as available to the employee unless the keys or fobs are returned to the employer or to a third party as instructed by the employer.
This guidance needs to be taken into consideration when form P11Ds are completed.
Note also that where the employee is provided with a motor car with zero CO2 emissions there is no taxable benefit in kind for 2020/21.
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 – 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.