Ron Banerjee

Budget 2021

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It is hard to believe that one year ago the Chancellor, Rishi Sunak, was giving his first budget and there was no mention of the word ‘furlough’. A matter of hours later the country was officially in the midst of a pandemic which rendered his budget obsolete (almost). The Chancellor delivered his second budget to the House today and below we have outlined the salient points as they affect our clients. 

Coronavirus Support 

  • Furlough – It was leaked beforehand that the furlough scheme will be extended to 30 September 2021 and this was confirmed. Some notable changes though with Employers asked to contribute 10% in July and 20% in August and September.
  • SEISS (Self-employed Income Support Scheme) – this is also extended and grants 4 and 5 grants will be made available to those who filed their tax returns by midnight on 2 March. Remember this is for those that do not operate via a limited company. 
  • VAT – the VAT cut for hospitality firms to be maintained at 5% until September 2021. There will be an interim rate of 12.5% for the six months after before returning to the standard rate of VAT on 31 March 2022. The VAT threshold remains at £85,000 until 2024. 
  • Business rates – the business rates holiday is extended to 30 June 2021 at the rate of 100% discount. The nine months thereafter the rate goes to 66%. 
  • The loan support schemes offered by the government such as Bounce Back Loan and Coronavirus Business Interruption Loan Scheme are all closing on 31 March 2021. 
  • £20 weekly uplift in Universal Credit worth £1,000 a year to be extended for another six months.
  • Minimum wage to increase to £8.91 an hour from April 21

Housing

  • Stamp duty holiday – this has been extended to 30 June 2021 with the first £500k of property value subject to 0% stamp duty (3% if buying property through a limited company or your second property). The threshold will then fall to £250k until 30 September 2021 and then returning to its usual level of £125k in October. 
  • New homebuyers – the government will provide mortgage guarantees for new homebuyers who cannot afford large deposits with mortgages of up to 95% for home purchases up to £600k 

Income tax 

On income tax, the threshold for paying the basic rate will rise to £12,570 next year. For higher-rate payers, the threshold will be £50,270. Both rates will stay the same until 2026. This is effectively a ‘stealth’ tax meaning that it is not a tax rise but in effect is one because it will net an expected additional £6bn for the Treasury. 

Please note that the threshold for High Income Child Benefit charge remains at £50,000. 

Inheritance tax thresholds, pensions life time allowances and annual capital gains tax exemptions to be frozen at 2020-2021 levels until 2025-26.

Corporation tax

The rate of corporation tax is to rise from 19% to 25% from April 2023. Companies with profits of £50,000 or less will be taxed at 19%. The rate will be tapered for profits above £50,000 until they hit £250,000. 

Other business points

  • Tax breaks for firms to “unlock” £20bn worth of business investment
  • Firms will be able “deduct” investment costs from tax bills, reducing taxable profits by 130%
  • Incentives for firms to take on apprentices to rise to £3,000 and £126m for traineeships
  • £5bn in Restart grants for shops and other businesses in England forced to close
  • £6,000 per premises for non-essential outlets due to re-open in April and £18,000 for gyms, personal care providers and other hospitality and leisure businesses
  • New visa scheme to help start-ups and rapidly growing tech firms source talent from overseas
  • Contactless payment limit will rise to £100 later this year

Other points made in the budget include the following;

  • Wine and beer duties frozen 
  • Petrol duties remain frozen
  • A ‘green bond’ will be issued by the government to raise money for environmental projects. 
  • New UK Infrastructure Bank to be set up in Leeds with £12bn in capital, with aim of funding £40bn worth of public and private projects
  • £1bn fund to promote regeneration in a further 45 English towns, including Middlesbrough, Preston, Swindon, Bournemouth, Newark, West Bromwich and Ipswich

COVID-19 Update 3

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The Chancellor announced on 24 September a whole new raft of measures and support schemes for businesses and individuals during the COVID-19 crisis. Some of this is very welcomed news but some not so much. As with so many things in life we all wish that more could be done by the government (removing the IR35 changes in the private sector expected from April 2021 for a start!) but alas we can only deal with what is in front of us. I have gone through the new measures below. For any questions please get in touch with us via [email protected].

VAT Payment Deferral extended

One of the measures introduced earlier was the deferral of VAT accumulated between 20th March 2020 until 30th June 2020 till 31 March 2021. However, now businesses who deferred their VAT will no longer have to pay a lump sum at the end of March next year. They will have the option of splitting it into smaller, interest-free payments over the course of 11 months.

VAT rate for hospitality and tourism sector

For those companies operating in the hospitality and tourism sector, only the VAT rate was reduced to 5%. This was originally due to end in January but this is now being extended to 31 March 2021.

Business Loans

The term of the Bounce Back Loan and Coronavirus Business Interruption Loan Scheme has been extended from six years to 10 years. This would mean monthly repayments are almost halved. Please note that if you intend to close your company all loans must be repaid first.

The deadline for applying for all government coronavirus loan schemes has been extended to the end of 2020.

There will be no adverse effect on credit ratings because of taking the loans.

Self-assessment

Those with self-assessment tax bills who need more time to pay will be given it as per the Chancellor.

Job Support Scheme (JSS)

The main announcement was the Job Support Scheme, the successor to the Job Retention Scheme (commonly known as the furlough scheme). Under this scheme, the government will cover up to 22% of pay for workers in “viable” jobs for the next six months. The government will subsidise the pay of employees who are working fewer hours than normal due to the COVID-19 crisis.

Simply, employees must work at least a third of their normal hours and their employer will pay two-thirds of their salary and the government will pay one third. The grant is capped at £697.92 with all small and medium-sized businesses eligible for the scheme. The scheme is expected to run from 1 November for six months.

In terms of eligibility and detail on the scheme, the government has produced a factsheet. It appears that this is geared towards small, medium-sized enterprises. Some of the main points to note are the following;

  • Employees must be on an employer’s PAYE payroll on or before 23 September 2020.
  • For the first three months of the scheme, the employee must work at least 33% of their usual hours
  • For every hour not worked by the employee, both the Government and employer will pay a third each of the usual hourly wage for that employee.
  • The Government contribution will be capped at £697.92 a month.
  • Grant payments will be made in arrears, reimbursing the employer for the Government’s contribution.
  • The grant will not cover Class 1 employer NICs or pension contributions, although these contributions will remain payable by the employer.
  • Employers must agree the new short-time working arrangements with their staff, make any changes to the employment contract by agreement, and notify the employee in writing. This agreement must be made available to HMRC on request.
  • “Usual wages” calculations will follow a similar methodology as for the Coronavirus Job Retention Scheme. Full details will be set out in guidance from the government shortly.

Job Retention Bonus

Rishi Sunak also clarified that employers retaining furloughed staff on shorter hours can claim both the Job Support Scheme and the Job Retention Bonus, which will be available in February next year. The bonus will be a one-off payment of £1,000 to UK employers, for every furloughed employee who remains continuously employed through to 31 January 2021. Employees must earn above the National Insurance lower earnings limit (£520 per month) on average between 31 October 2020 when the CJRS ends and the end of January 2021.

The bonus payments will be made from February 2021. Please get in touch with us in February about applying for this.

Update on Government schemes in response to COVID-19

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Update on Government schemes in response to COVID-19

We are now well into the lockdown and we hope that you are keeping safe and well. Here, at Banner & Associates we are adjusting to working from home and although there are some differences to the way we service our clients. Remember if you want a phone call then please email the relevant person to arrange a time for a call.

I have outlined below some updates to the schemes that the Government has announced in relation to COVID-19.

Stay safe and best wishes to all.

Companies House 3-month extension to filing of accounts

You can get a 3-month extension to the filing date for your accounts from Companies House. The application for this extension must be done prior to the due date for the accounts.

This application can be done online using this link, https://www.gov.uk/guidance/apply-for-more-time-to-file-your-companys-accounts

If you do request an extension to the filing date for your accounts, please let us know. Remember this is just an extension and the accounts will still be due at some point.

Time to pay arrangement for COVID-19

The HMRC phone number for arranging a time to pay arrangement has now changed to 0800 024 1222. This should be phoned if you want an extension to corporation tax or PAYE/NI.

Please note that VAT payments are automatically deferred to 31 March 2021.

Self-assessment due on 31 July 2020 has also been automatically been moved to 31 January 2021. This would mean that on 31 January 2021 you will be paying not only the second payment on account that would have been paid on 31 July 2020 but also the tax due for the tax year ended 5 April 2020 and the first payment on account for the 2020/21 tax year. Although the payments on account can be reduced to £nil there are potential consequences of doing this being interest and a requirement to pay the 2020/21 tax bill early.

Self-employed scheme

If you are a Director of a limited company then you do not qualify for the Coronavirus Self-employed Support Scheme you in fact qualify for the Job Retention Scheme.

Also, there are some scammers out there pretending to be HMRC and contacting individuals saying that they qualify for the Coronavirus Self-employed Support Scheme. If you receive a call from HMRC asking for personal information, then hang up immediately!

Job Retention Scheme

There is a lot more information now on the Job Retention Scheme and I am going to go through it all below. Please note that the HMRC portal through which this can be claimed is still under development and is expected to be completed by 20 April 2020. Thereafter the grants will be paid and the timing of when the grants will be paid is still unclear at this time.

  • Employees and Directors can be put on furlough rather than being made redundant. This is available to Directors of Personal Service Companies too, but it is only for your salary NOT dividend.
  • While on furlough the employees must do no work at all! Furlough in this instance is an alternative to redundancy and means a leave of absence from work.
  • Directors are permitted to carry out statutory duties only but not allowed to work or even look for work. Training is permitted though.
  • There is a minimum furlough period of three weeks and currently a maximum of three months, though this could change. Employers can apply furlough for any period within these parameters.
  • Furlough pay granted by Government is 80% of the normal pay as at 28 February 2020.
  • Employees must be on the payroll at 28 February for furlough pay to be available.
  • The maximum amount of furlough pay is £2,500. Employer NIC and mandatory Auto enrolment contributions will be paid in addition. Please note that for most of our clients no Employer NIC or Auto-enrolment apply. This is because if you have more than one employee then we will be claiming the Employment allowance. Auto-enrolment is not mandatory for Directors.
  • Claims will be made through a special portal, which is expected to be available by 20 April 2020.
  • If we are your agent with HMRC for PAYE then we will be able to do this on your behalf. In some instances, we may not be your agent and in which case you as the Employer will have to make the application yourself as this would be quicker than us becoming your agent and then doing the application. 
  • The payments will be taxable on the Employer.
  • Being furlough does not exclude you from continuing to take dividend and you are not excluded from it if you are in receipt of rental income.
  • This is a government grant and not a loan so will not need to re-paid. However, HMRC retains the right to retrospectively audit all claims.

Another point to note that as for most of our clients the monthly salary is equal to the personal allowance, it would make sense that we would continue processing the monthly salary at this amount and then if you are ‘furlough’ we can claim a grant for 80% of this and your company pays you the remaining 20%.

If you are going to be ‘furlough’ it is necessary, that you can demonstrate this and that there is a letter in place confirming your status as being furlough and the same for any other employees. I did a search on google and there are many free furlough templates available. This is essential as per my last point HMRC retains the right to audit claims retrospectively.

Please email Ron at [email protected] if you are going to furlough and from when you wish to claim the Job Retention Scheme grant (1 March 2020 or later) and if for all employees or just you as the Director. Also please ensure you have the evidence of the furlough letter and something to confirm that you are not working. You do not need to send this to us but you must have it in place.

As always, we will help you with the applications and make them on behalf of clients where we are your agent. Please note this is additional work to our usual workload and we will get it done for you but we ask for your patience and understanding. These are unprecedented times that are unimaginable. We are all working hard from home and some of our staff have been sick with suspected COVID-19 including myself. Please be patient we are all in this together!

COVID-19 Government schemes to help

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COVID-19 Government schemes to help

I have compiled this document to help people understand what schemes are available to you from the government.  

These are desperate, strange times that we live in. It goes without saying that your priority is for your health and the health of your family and others. Therefore, stay at home and work from home where possible. We at Banner & Associates are doing this and our staff are working from home. We will still be servicing you our clients as best we can, and any necessary phone calls can be arranged via email to the relevant team member. 

Stay safe. 

 

Job Retention Schemes

If you cannot cover staff costs due to COVID-19 then the government will help via the Coronavirus Job Retention Scheme. This is available to a furloughed employee (someone who would have been laid off as a result of COVID-19). This would mean that the employee is kept on the payroll and will allow the employer to claim 80% of their wage up to £2,500 from the government. Your employer could choose to fund the difference but there is no legal obligation to do so. 

Example

You have one employee earning £2,000 a month, so you will be able to claim 80% of this which is £1,600.  If you have a second employee earning £3,500 per month then 80% would be £2,800 however this would be capped at £2,500.

Points to note;

  • The scheme is expected to start from the 1st April 2020 and last for 3 months. You can backdate claims from the 1st March 2020.
  • All UK businesses regardless of size will be eligible for this scheme.
  • You will need to designate any of your affected employees as furloughed workers and then you will need to notify your employee of this.  Then, you will need to make the claim through HMRC’s portal. We expect the reimbursement portal to be available from 1st April 2020.  

Statutory Sick Pay (SSP)

Statutory sick pay is currently £94.25 per week. If you have had employees on sick due to COVID-19 then you will be refunded the first 2 weeks of statutory sick pay paid to your employee.

The relief will be available to UK businesses with fewer than 250 employees as at 28th Feb 2020. As an employer, you should maintain records of staff absences and payments of SSP made.  

This rebate of SSP is still being developed and as more information is given by the government, I will share this with you. 

Deferring VAT

Any VAT liabilities accumulated between 20th March 2020 until 30th June 2020 will not need to be paid over to HMRC until the 5th April 2021.  

Please note that this is a deferral and not a relief. So eventually, this VAT liability will need to be paid to HMRC.  

No penalties or interest for late payment will be charged in the deferral period.

This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period.

 

Deferrals of other taxes

For Income Tax Self-Assessment, payments due on the 31 July 2020 will be deferred until the 31 January 2021. No penalties or interest for late payment will be charged in the deferral period. This is an automatic offer with no applications required.

If you already have an outstanding tax liability with HMRC and you have or may miss your next tax payment due to COVID-19, then please call HMRC on 0800 0159 559.  These arrangements are agreed on a case by case basis and are tailored to individual circumstances and liabilities.  

 

Business rates

There will be a business rates holiday of 12 months for all retail, hospitality, leisure and nursery businesses in England.

There is no action for you. This will apply to your next council tax bill in April 2020. However, local authorities may have to reissue your bill automatically to exclude the business rate charge. They will do this as soon as possible.

 

Mortgage Payment Holiday

Your mortgage payment may be one of your highest expenses. On the 17th March 2020 it was announced that homeowners including landlords of buy to let mortgages affected by COVID-19 can apply for a mortgage payment holiday of up to 3 months. 

Many banks will have different approaches, speak to your bank to discuss your concerns.  

On the 18th March 2020, the government confirmed it would offer interest free payment holidays to borrowers struggling to pay back their help to buy loans.  

Please get in touch with your bank for more details, alternatively you may be able to apply online to speed up the process. Please note that some lenders may recalculate your monthly mortgage payments after 3 months and this may result in higher capital & interest payments.  

 

The Coronavirus Business Interruption Loan Scheme (CBILS)

A temporary loan scheme should be available from 23rd March 2020 to support small and medium sized businesses.

CBILS: KEY FEATURES

Up to £5m facility: The maximum value of a facility provided under the scheme will be £5m, available on repayment terms of up to six years.

80% guarantee: The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender.

No guarantee fee for SMEs to access the scheme: No fee for smaller businesses. Lenders will pay a fee to access the scheme.

Interest and fees paid by Government for 12 months: The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will benefit from no upfront costs and lower initial repayments.

Finance terms: Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.

Security: At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.

The borrower always remains 100% liable for the debt.

Stay safe.

Budget 2020

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Budget 2020 – Key Points

Newly appointed Chancellor of the Exchequer, Rishi Sunak, has just delivered his first ever Budget to the House of Commons, in fact the first Budget since October 2018 and it’s packed with implications for small businesses. We have highlighted below what would affect our clients the most. We have not gone into detail about other points covered in the Budget regarding the economic outlook and spending plans for the government.

Also please note that there has been no change in the bandings or amounts in respect of income tax thresholds for the 2020/2021 tax year remain the same as those for the 2019/20 tax year. My blogpost, DIVIDEND FOR 2019/20 .

IR35 changes will go ahead

The planned changes to how IR35 operates, moving the compliance requirements from the contractor to the client for large and medium-sized private sector businesses who engage freelancers, will go ahead from 6th April 2020. I have written a separate blogpost about this called ‘New IR35 rules – some guidance’.

Entrepreneurs’ Relief is restricted rather than abolished

There were rumours that Entrepreneurs’ Relief, which reduces the rate of capital gains tax to 10% on the sale of all or part of a business, would be abolished altogether.

This, thankfully, did not happen. Instead, everyone will be able to claim Entrepreneurs’ Relief on a maximum of £1million worth of eligible gains during their lifetime, down from £10million, with the reduction applying from Budget Day, 11th March 2020.

Coronavirus

The Chancellor began speaking about coronavirus as this being the most pressing matter globally and nationally. He introduced various measures to help businesses survive the outbreak. Here are the key points for you.

  • For small businesses with staff, including those who work through their own limited companies, where a director or employee has to self-isolate or falls sick with coronavirus, the affected individual can be paid Statutory Sick Pay for up to two weeks and reclaim the cost in full from the government. This relief applies as long as the business had fewer than 250 employees on 28th February 2020. As Statutory Sick Pay cannot normally be reclaimed, this could bring a welcome cash boost, however small, to your clients. This relief cannot be claimed by sole traders and partners who do not have employees. The rules around claiming certain other state benefits have been relaxed for the duration of the coronavirus outbreak but as not all self-employed individuals claim benefits, this will not help everyone.
  • Small- and medium-sized businesses affected by coronavirus have the option to apply for a loan under the temporary Coronavirus Business Interruption Loan Scheme. Under this new scheme, banks and other lenders will be able to make loans to affected businesses of up to £1.2million per loan, with up to 80% of each loan backed by a free government guarantee.
  • Small businesses in the retail, hospitality and leisure industries will pay no business rates for 2020/21 and many will also be eligible for a £3,000 cash grant to help meet their costs.
  • HMRC’s Time to Pay service will be scaled up to give businesses affected by coronavirus more time to pay their taxes. HMRC will also waive late payment fines and interest where a business is unable to contact HMRC or pay their tax due to coronavirus. Both options are potentially welcome news.

Increase in Employment Allowance

The Employment Allowance will be increased from £3,000 to £4,000 from 6 April 2020. The Primary Threshold and Lower Profits Limit will also both be increased to £9,500, however the Secondary Threshold remains unchanged. This would not necessarily have a drastic impact if you are taking a low salary.

Corporation Tax rate holds steady

The rate at which limited companies pay Corporation Tax was originally planned to fall from 19% to 17% on 1st April, but these plans have been axed. The rate of Corporation Tax will now remain at 19%.

Pensions

The tapered annual allowance on pensions has gone up. This measure increases the income limits used in calculating the tapered annual allowance and decreases the minimum tapered annual allowance. Threshold income, which is broadly total income before tax (less employee/personal contributions), is increased from £110,000 to £200,000. Adjusted income, which is broadly total income before tax plus employer contributions, is increased from £150,000 to £240,000.

The minimum tapered annual allowance is decreased from £10,000 to £4,000. The measure will have effect for the tax year 2020/21 and will be effective for benefits accrued on or after 6 April 2020.

Proposals to offer greater pay in lieu of pensions for senior clinicians in the NHS pension scheme will not be taken forward. Those with adjusted income over £300,000 will see a reduction in their annual allowance and will pay more tax consequently. Likewise, those with adjusted income below £300,000 are likely to see a reduction in the tax they pay because they are either no longer impacted by the taper and are entitled to the full £40,000 annual allowance, or they are still impacted by the taper, but their tapered annual allowance has increased.

A small business-friendly Budget?

While the measures to support businesses through coronavirus will be welcome, there is little tangible support for those self-employed traders who do not have business premises and for whom self-isolation effectively represents a two-week business shutdown. It is also disappointing to see the IR35 changes go ahead in spite of the ongoing House of Lords review and the questions raised by many contractors and representative organisations.

New IR35 rules

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New IR35 rules – some guidance

Well the budget did not deliver for many of us and the new IR35 rules will be coming in from 6 April 2020. We have outlined some points about the new legislation below. If you have any questions, please give us a call or an email to arrange a call with Ron or Roshan.

The new off-payrolling regime in brief

Where a contractor’s personal service company (PSC) receives payments for work done by the contractor (you) from a non-small private sector client, the client must from 6 April 2020 determine whether or not the contractor would have been an employee if they had been hired directly, i.e. not via the contractor’s PSC. If the client determines that they would, then the contractor will be considered a deemed employee and the fees payable to the PSC will be subject to PAYE (with any VAT and expenses paid gross to the PSC).

What are your choices?

Generally, PSCs are (in many cases) automatically deemed to be inside of IR35 and thus being told that if they wish to continue contracting then they must go via an umbrella company. It is either this or the contract would cease from before 6 April 2020 and the contractor would have to go and find another contract (an outside of IR35 contract). From what we understand and have been told there are few outside IR35 contracts available in the market presently. Most of our clients have taken the umbrella contract as they effectively have no other choice and sometimes it is better the devil you know than the devil you don’t!

Having said that, many commentators are saying that slowly the market will respond to these changes and there will be outside of IR35 contracts available in the future (but no one will be able to tell you when). With that in mind, many of our clients are retaining their limited companies with the intention of getting an outside of IR35 contract in the future.

Some of our clients with large sums of money in their company bank accounts have even foregone taking an umbrella contract and are doing ‘nothing’ while the market responds to these changes. They are the lucky few!

Finally, some have taken permanent roles and we are in the process of closing their companies for them (see ‘Closing down the Company’ for more details).

What does contracting via umbrella company mean?

  • If going via an umbrella, then this would mean that your PSC would no longer be invoicing your client and you would become an employee of the umbrella company. The umbrella company would hold the contract for you to work for your end client.   
  • You would cease to take a salary and dividend from your PSC. (see ‘What about my company?’)
  • Once signed up with an umbrella company and becoming an employee of the umbrella you would send your timesheets to them.
  • The umbrella company would raise invoices to your client and receive funds for the work you have performed.
  • The funds received (excluding VAT) by the umbrella company less their fee and Employers National Insurance (roughly 12% of the funds received) is then processed as a gross salary with applicable deductions for Holiday Pay, PAYE (income tax) and Employees National Insurance.
  • The net pay is then paid to you each month and the applicable taxes paid to HMRC by the umbrella company.   

What about my limited company?

As already mentioned, some of our clients are retaining their limited company with a view that the market will respond to these changes and there will eventually be outside of IR35 contracts available.

We can effectively put your company in a ‘dormant’ state and reduce our fees accordingly. If you would like more information about this then please email Ron or Roshan on [email protected] or [email protected] to arrange a call.

Closing the company

In some instances, clients are choosing to close down their limited company. There are some options available here and it really depends on the funds left in the company as to how to close it down.

The starting point for closing is to produce a final set of accounts for the Company. This should be to the end of the month that the last invoice payment from contracting is received.

At the same time as doing this we would need to close the PAYE and VAT schemes and reconcile these to ensure that there are no further liabilities.

Once the final set of accounts have been approved by you and submitted to both Companies House then we will be able to close the company.

There are two methods of closing the company (Solvent Liquidation or Dissolution) and the method employed would depend on the level of funds left in the company. Ron or Roshan would be able to go into more detail on this over the phone or in a meeting but here are some details below.

Solvent Liquidation

If the PSC has over £25,000 of assets, then a solvent liquidation is a tax efficient option of closing the PSC. Any assets of the PSC (including residual cash) will be distributed to the shareholder(s) as a capital distribution meaning that a lower rate of tax can be obtained which currently stands at 20%. In addition, the shareholder(s) may qualify for entrepreneur’s relief which would lower that rate to 10% at current rates. A significant tax saving!

Dissolution

If the PSC has assets of less that £25,000 then a dissolution and strike off of the PSC may be an option of dealing with it in a simple and cost-effective manner. 

IR35 – Off-payroll working in the public sector

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The draft legislation was released on 11 July 2019 for the off-payroll working rules coming into effect for the private sector on 6 April 2020. There was nothing especially new in the legislation with the reform in the private sector mirroring those already in force in the public sector with some small tweaks. The draft legislation will apply to both sectors bringing the policies in line as the ‘off-payroll working rules’ which will pass the responsibility of applying IR35 to the engager.

In my blogpost from 27 March 2019 the draft legislation confirms that the off-payroll working rules will not apply to small and medium sized enterprises. For most of you this makes no difference as you are engaged by big multi-national corporates but something to note.

Status Determination Statement

There was a new term introduced into the draft legislation for IR35 decisions referred to as a ‘status determination statement’.

A status determination statement must be provided to both the contractor and party paying the contractor. It must include both a decision and the reasoning behind the decision. Failure to do so will be a failure by the client to fulfil their obligations, and thus the liability will sit with them until a suitable status determination statement is provided.

This is good news for you as you will now have visibility of the IR35 status determination by their engager. It is hoped that this will also reduce the incentive for blanket decisions by the engager. Although, HSBC maintains its blanket approach asking all contractors to become permanent employees or leave.

Clients must implement a disagreement process

The draft legislation confirmed a client-led disagreement process. Clients will have 45 days to consider and respond to any disagreements of a status decision brought to them by the contractor or fee-payer, with reasoning behind their decision.

There are concerns regarding the client-led process in responding to the consultation – clients will essentially be able to withhold their original decision with no further avenue for contractors to dispute it, providing contractors with nothing more than take-it-or-leave-it ultimatums.

Currently, a contractor can challenge HMRC regarding their IR35 status; an appeal can be heard by Alternative Dispute Resolution (ADR) and/or judge at a tribunal hearing. With the client-led process, clients with no previous IR35 experience or in applying case law, and which are unlikely to remain impartial in the process, are the only route contractors will be able to address any concerns.

What to do?

Firstly, it is highly unlikely that there will be a u-turn on the legislation, therefore, it is imperative that you are aware of it and its implications. It is also worthwhile to have a check of your IR35 status currently in anticipation of the new legislation. You can also sort legal advise about your IR35 status.

Some of you may have used or know of CEST (Check employment status for tax) which is a HMRC online tool to determine IR35 status. Be cautious using this as it appears that CEST fails to reflect many previous tax tribunal decisions on whether a worker is genuinely self-employed or a disguised employee and as such subject to PAYE and NIC. Worse still when the information regarding the TV presenter Lorraine Kelly was put into CEST it said that she was really an employee, contrary to the clear decision of the tax tribunal.

I am attending a seminar next week on IR35 and will report back to you my findings.

Tax-Free Childcare Revisited

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Tax-Free Childcare

Tax-Free Childcare is a government scheme available to working parents, including the self-employed, with children aged 0 to 11.

Eligible parents can get up to £2,000 per child per year towards qualifying childcare.

Parents can use it on a wide range of registered childcare, including:

  • childminders
  • nurseries
  • breakfast clubs, after school clubs and holiday clubs.

Please visit www.childcarechoices.gov.uk  to find out more information and how to apply.

The tax treatment for low emission cars

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With global warming and targets for reducing pollution the government is to encourage more people to use low CO2 emission or zero emission vehicles and there are a number of tax measures that incentivise that behaviour. However, those tax measures are not all perfectly aligned, as different emissions thresholds and cut-off dates apply for capital allowances, leasing costs, employee benefits and optional remuneration arrangements (OpRA).

This article outlines the various tax incentives for low emission vehicles as they apply from 2019/20.

Capital allowances

Cars do not qualify for the annual investment allowance (AIA), even if they have low CO2 emissions. However, the cost of acquiring any commercial vehicles can be claimed under the AIA, so it is important to determine whether a vehicle qualifies as a commercial vehicle for tax purposes. The AIA cap is £1m for purchases made in 2019 and 2020, and will revert to £200,000 on 1 January 2021.

Until 1 April (5 April 2021 for income tax) a low or zero emission car can qualify for a 100% first year allowance (FYA) if its CO2 emissions do not exceed 50g/km and the car is purchased new and unused (s45D, Capital Allowances Act 2001 (CAA 2001)). A similar 100% FYA applies for zero emission vans, where the vehicle is purchased new and unused before 1 April 2021, or 5 April 2021 for income tax (s45DA, CAA 2001).

Cars with CO2 emissions of between 51g/km and 110g/km are added to the main pool for capital allowance purposes, so attract an annual writing down allowance (WDA) of 18%. Cars with CO2 emissions exceeding 110g/km must be allocated to the special rate pool, where the WDA is 6% from 1 April 2019, from 6 April for income tax (s56, CAA 2001). A hybrid rate of WDA between 8% and 6% will apply for accounting periods that straddle 1 or 6 April 2019.

Benefits-in-kind

The percentage of list price of a company car which is taxed as a benefit is determined by the CO2 emissions of the vehicle. For 2019/20 low emission cars (up to 50g/km) are taxed at 16% of list price, or 20% for diesels. The list price includes the cost of any optional accessories but does not include any discount negotiated with the dealer, so the taxable list price may significantly exceed the actual amount paid for the vehicle.

Hybrids encouraged

From 6 April 2020 the policy is switched round to once again encourage the provision of electric cars and hybrid vehicles. The appropriate percentages for cars with CO2 emissions of up to 50g/km will consider the range for which the car can be driven using only electric power (as shown in the table).

The tax year 2020/21 will be the sweet spot for buying an electric company car, when 100% FYA can be claimed by the purchaser and the employee will be taxed on only 2% of the vehicle’s list price. However, government policy regarding electric company cars beyond 2021 remains uncertain.

Leased cars

Where cars are leased the amount of deduction which would otherwise be allowable is reduced by 15% if the car has high CO2 emissions. In this case the threshold for ‘high’ is aligned with that for capital allowances, being over 110g/km for leases commencing on or after 1 April 2018 (6 April 2018 for income tax).

Electric vans

The taxable benefit for having the private use of an electric van is gradually being aligned with that for ordinary vans. In 2019/20 the taxable benefit for using a normal company van is £3,430 and the benefit for an electric van is 60% of that figure: £2,058. In 2020/21 the electric van will be taxed at 80% of the benefit for a normal van, and in 2021/22 at 90% (s115(1C), Income Tax (Earnings and Pensions) Act 2003). There is no taxable benefit at all if the van is only used for business journeys and ordinary commuting.

Cost of charging

Where the employer pays for the cost of charging the company-provided electric vehicle there is no taxable fuel benefit for the driver, as electricity is not classified as a fuel for the car or van benefit regulations.

Where the driver of the electric vehicle pays for the electricity to power it, either from their domestic supply or by charging at a roadside station, the employer may reimburse the employee for that cost. With a roadside charge it is easy to see what the total cost is, but it is not so easy to calculate the cost per mile when charging from a domestic supply.

This problem has been solved from 1 September 2018, as the employer can pay the company car driver 4p per mile, to reimburse them for the cost of the electricity used for business journeys, with no tax implications. This rate only applies to company-owned electric cars, not to private vehicles.

Where the employee uses his or her own electric car for business journeys the company can pay the normal tax-free mileage allowance to the individual of 45p per mile for the first 10,000 miles driven in the year, with additional business miles reimbursed at 25p per mile. The driver may also claim the passenger rate of 5p per mile for every person he or she takes on the same business journey.

Dividend for 2019/20

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Another reminder to you all that there is now tax on dividend! This has been the case since 6 April 2016. The tax-free dividend allowance is £2,000 from the 2018/19 tax year and beyond.

What I have done is gone through some examples below of how much dividend you can take while remaining in the basic rate threshold of 7.5% tax on the dividend. The below assumes no other income besides salary and dividend. 

Remember dividend is the last income item to be taxed, therefore, if you have property rental income or foreign income then you would have to reduce your dividend by the total of the other income in order to remain in the basic rate threshold.

Remember you should yourselves be aware of how much dividend you are taking out of the business (see point 3 below). We have a dividend tax calculator on our website which you can use to work out your tax. 

You can take more than the basic rate threshold in dividend and the below table is just given as guidance.

I have listed out below some useful hints and tips.

  1. As a basic rule move 20% of your revenue into a separate business savings account and use this to pay your corporation tax. The remaining 80% is available for you to take out in a combination of reimbursed petty cash expenses, salary and dividend.
  2. You must maintain enough money in the company account to pay your corporation tax. Cash and accounts work on two separate principles. Cash works on an actuals basis. Accounts work on an accruals basis meaning that at your year-end there will be liabilities which are outstanding (the biggest of which is corporation tax) and the Company must hold enough money to pay these liabilities. If it doesn’t then effectively you have taken the ‘would be corporation tax’ money out as a Directors Loan.
  3. Take out dividend separately to salary and reimbursed expenses. You should do separate transfers for salary, dividend and reimbursed expenses using the correct reference for each. DO NOT take lumpsums to account for all three; salary, dividend and reimbursed expenses.
  4. If your tax liability through self-assessment is greater than £1k then HMRC will ask you to pay next year’s tax in advance via two payments on account, one due on 31 January and the other due on 31 July.

 

 

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