The answers provided to the questions below cannot be relied upon without checking with your accountant and/or tax advisor first. The information is correct for the specific question asked, but may change over time as a result of legislation and may not apply in your particular case. We cannot take any responsibility for action taken as a result of relying on these Q&A scenarios.
Corona Virus - Furlough Scheme
The Furlough scheme is winding down, but what are the rules?
The furlough scheme ends on 30 September and from 1 July 2021 HMRC are gradually reducing the level of furlough support from the current 80% of gross salary up to a maximum of £2,500 per month, as follows:
July 70% of gross salary up to a max. of £2,187.50
August 60% of gross salary up to a max. of £1,875.00
September Same as for August
The employer MUST continue to pay the employee 80% of their gross salary up to a max. of £2,500 per month, even as HMRC supports is reduced.
What is happening with the Furlough scheme?
The Government has further extended the Furlough scheme to the end of September 2021.
The grant remains at 80% of an employee’s salary up to as maximum of £2,500 per month and any employee on the payroll as at 31 October 2020 can be furloughed.
The employer must pay the Employers NI and pension contributions on the furloughed salary.
Employer will be required to contribute 10% in July and 20% in August and September towards the cost of furlough.
Can I bring a ‘furloughed’ employee back to work on a part-time basis?
Yes. Flexi-furlough is not only permissible but encouraged and any arrangement is allowed, as long as the employee agreed.
Can I be furloughed in my main job, whilst having another job in which I am still working?
The answer is yes, as long as your main employer agrees. As far as HMRC are concerned, it is not a problem.
Is there a deadline to submit furlough claims each month?
Yes, HMRC now require the claim to be submitted by the end of 14th day of the following month, after which it will be rejected
Corona Virus- Self Employed
What is the Self Employment Income Support Scheme (SEISS) ?
SEISS is designed to provide a grant to self employed persons whose profits are below £50,000 in the previous tax year and is payable quarterly.
It is currently capped at the lower of 80% of self employed earnings for the previous year with a maximum payout of £7,500 per quarter.
When does the SEISS come to an end?
The SEISS has been extended until September 2021.
The next quarter to 30 April 2021 will continue under same rules as before, but the last period from May-September2021 will be dependent on the loss of income; those whose income fell by at least 30% will get the full grant, but those which fell by less will be capped at 30% of trading profits instead of 80%.
Corona Virus- Other Government Support
What is the Government doing to help employers ?
The Govt. have introduced a series of measures intended to help businesses survive during this period of enforced closures. They have been well documented on the Govt. website, www.Gov.UK and in articles in our Relevant News section on this website.
The following is a list of those measures:
- Furlough scheme (running until 30 April 2021)
- Postponement of payment of VAT due between Apr-Jun2020, until January 2021
- Postponement of personal tax, due 31 July 2020, until 31 January 2021
- Business Interruption loan scheme
- Bounce back loan
- Self employed Income support scheme
- One year rates holiday and Govt. grant of £10,000/£25,000 for businesses occupying premises with a rateable value below £50,000
What is a bounce back loan ?
This is a 100% Government guaranteed bank loan calculated as a maximum of 25% of the businesses’ annual turnover, to a maximum of £50,000, in which there are no charges, interest or repayments in Year 1. Thereafter, interest Is capped at 2.5%pa and the loan repayable over 5 years. The business must be based in the UK and affected by the coronavirus.
The Government announced on 17 December that bounce back loans will still be available until 31 March 2021, so apply soon if you require one.
PERSONAL AND BUSINESS TAX
What are the recent changes to Stamp Duty Land Tax (SDLT) and what does it mean for a house buyer?
SDLT is paid on the purchase of UK based property.
When purchasing a UK residential property as your main and only home, the first £125,000 was free of SDLT and then SDLT was charged on higher rates as the value increased.
The Chancellor has increased the free band to £500,000 from 31 March 2021 until 30 June 2021, so no SDLT is payable at all on this amount during this period, saving £15,000 in SDLT.
However, if it is a second (or more) property there remains a 3% SDLT surcharge and there is no saving to be had,
I don’t think I will be able to pay my self-assessment tax in January 2021. What should I do?
If you cannot pay your Self-Assessment tax bill next January 2021 and owe £30,000 or less then you might be able to set up a Time to Pay Arrangement (‘TTP’) arrangement which lets you pay your Self-Assessment tax bill in instalments.
You must call the Self-Assessment helpline (details below) and explain your predicament; HMRC are willing to help with payment arrangements, but may ask for evidence of your income and expenses and reasons why you cannot pay; Covid related reasons are viewed favourably.
Only agree to monthly amounts that are affordable and do not be pressurised into making unrealistic payments that you cannot maintain.
We can help you, if you need to present information to HMRC.
Self Assessment Payment Helpline
Telephone: 0300 200 3822
HMRC Coronovirus Helpline
Telephone: 0800 015 9599
What is the rate of VAT?
The VAT rate remains at 20% but from 31 March 2021 until 30 September 2021 there is a temporary reduced rate of VAT to 5% for certain supplies of:
• Hotel and holiday accommodation
• Admission to certain attractions
Please go to the Government website (www.gov.uk) for the full list of supplies, but a sample of the most popular are:
• Food and non alcoholic drink sold on premises
• Hot takeaway food
• Sleeping accommodation min hotels
• Admission fees to theatre, cinema, exhibitions, concerts etc
What changes to VAT on Imports are happening from 1 January 2021?
From 1 January 2021, VAT on goods imported into the UK will no longer need to be paid at the port under a deferred tax system. Instead, as long as your business is registered for VAT in the UK and you have an EORI number beginning with GB, you will be able to account for the VAT on your VAT return by declaring it as an Output in Box 1 and recovering it by including it in Box 4, Input VAT.
This self-certification is a simplification of a currently cumbersome and bureaucratic process of paying VAT deferment and reclaiming it back.
The net effect is the same, as currently VAT paid under deferment is reclaimed on the next VAT Return, so the net VAT position is nil, but it has a huge, detrimental effect on cashflow, as well as on bank borrowing.
There will still be payment of duty by deferment, but this is usually very small in comparison to the VAT.
There is no requirement to opt into these rules and no request to HMRC that needs to be made, but you must inform your shipping/courier companies that you are now operating under the ‘Postponed Import VAT Accounting’.
What are the rules for VAT on food?
- Food and drink is usually zero rated except for catering, hot food, hot takeaway, soft drinks, savoury snacks, which are all standard rated
- Restaurants must always charge VAT on anything eaten on the premises or communal areas designated for customers
- Restaurants must charge VAT on all hot takeaway and home deliveries
- Restaurants do not charge VAT on cold takeaway, unless eaten in a customer designated area
From 15 July 20 – 30 Sep 21 the standard 20% VAT rate was reduced from 20% to 5% and then it will rise to 12.5% until 31 March 2022, before returning to 20%.
What is inheritance tax?
This is a tax on the Estate of a deceased person.
It is a flat rate tax of 40% which applies on the total value of the Estate after the tax free IHT band of £325,000 is exhausted.
There are numerous exceptions and complications to this general rule, but that is the starting point.
There is no IHT applicable on assets transferred between spouses/civil partners.
Are all assets subject to Inheritance Tax (‘IHT’)?
No. Business assets, including unlisted shares held in a trading business, enjoy a 100% exemption from IHT if held for at least two years before death. This is known as Business Property Relief (‘BPR’)
Can I give away assets whilst alive so my Estate can escape IHT on those assets?
Yes , but no, but yes, but no!!
There is no IHT on lifetime gifts, but gifts of assets such as (shares, property, etc) in which there may be a gain, may be subject to Capital Gains Tax.
Gifts of cash are free of any Capital Gains Tax.
However, any gift made within 7 years of death will be brought back into the Estate and subject to IHT. The amount of IHT is 40% if death is within the first three years after the gift, but reduces by 4% each year thereafter.
So, take care when making gifts.
What qualifies for Business Relief ?
You can get 100% Business Relief on:
- a business or interest in a business
- shares in an unlisted company
You can get 50% Business Relief on:
- shares controlling more than 50% of the voting rights in a listed company
- land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled
- land, buildings or machinery used in the business and held in a trust that it has the right to benefit from
You can only get relief if the deceased owned the business or asset for at least 2 years before they died.
If someone gives away business property or assets, the recipient must keep them as a going concern until the death of the donor if they want to keep the relief.
- replace the property or assets – like machinery – with something of equal value if it’s for use in the business
- only get relief if the donor owned the business or asset for at least 2 years before the date it was given
What doesn’t qualify for Business Relief
You can’t claim Business Relief if the company:
- mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments
- is a not-for-profit organisation
- is being sold, unless the sale is to a company that will carry on the business and the estate will be paid mainly in shares of that company
- is being wound up, unless this is part of a process to allow the business of the company to carry on
You can’t claim Business Relief on an asset if it:
- also qualifies for Agricultural Relief
- wasn’t used mainly for business in the 2 years before it was either passed on as a gift or as part of the will
- isn’t needed for future use in the business
If part of a non-qualifying asset is used in the business, that part might qualify for Business Relief.
I bought a property in my name some years ago to provide me with additional income both now and in my retirement. I understand the HMRC have changed several things that affect the tax I pay on this rental income, but I am not sure what they are. Can you help?
Thank you for your question. This is something which affects many taxpayers and there is a lot of ignorance surrounding these important changes.
From 1 April 2016, HMRC withdrew the right to deduct 10% from the rental income on furnished lettings that previously allowed for general wear and tear. The immediately increased the profits subject to tax.
Furthermore, HMRC withdrew the ability to deduct loan interest from the rent, to calculate taxable profit. Instead, they tax the rent at the top rate but only allow tax relief on the interest at 20%, which significantly increases the tax liability for 40% taxpayers where interest was a large part of the cost.
Somebody told me that when I sell a property, I have to pay tax straightaway. Is that right?
If you are selling your own home, then as long as it is within 9 months of moving out, then there is no tax to pay, as any gain is exempt, After 9 months, any future gains may be subject to Capital Gains Tax.
If you are selling an investment property, then the gain arising between the time you bought it and the selling price less direct expenses, is subject to capital gains tax at up to 28%.
As from 6 April 2020, this must be paid within 30 days of the sale, whereas prior to that date it was the 31 January following the year of the sale, so a very significant difference.
The important thing to be aware of, is not just the tax, but having the information from when you purchased the house and any major improvements, so as to be able to calculate the gain.
Can I gift my property to my children, as I don’t need the income and maybe it will help reduce any Inheritance Tax when I’m gone? I presume there is no tax on making the gift?
Thank you for this question, which seems simple, but is anything but.
The simple answer is ‘yes,’ you can gift anything as there is no Inheritance Tax on lifetime gifts, BUT if you die within 7 years of making the gift, it will be included in your Estate for Inheritance Tax.
But the second part of your question is not so obvious. Making a gift of property will trigger Capital Gains Tax, even though no money changes hands. The gain is the difference between the purchase price (or value at 5 April 1982 if later) and the sales price and the Capital Gains Tax @28% of this figure is payable 30 days later.
If the donor dies within 3 years of making a gift of a property, then it the worst of all worlds; both the Capital Gains Tax @ 28% at the time of the gift and the Inheritance Tax on the property at value at date of death at 40%.
I am the director of a UK limited company and we are growing very quickly. Last year our company’s Turnover was £7 million with total assets of £6 million and over 100 employees. I am not sure if I need an audit, as my turnover is below the £10 million audit limit.
The short answer is you do need an audit. The reason is there are 3 statutory limits, and an audit is required if any 2 of them are breached. You company’s turnover is below the £10.2M limit but breaks both the other limits of £5.2M assets and 50 employees.
My company does not need an audit, but I am worried that something is not right. Is the audit a ‘sort of’ guarantee?
The audit process is what you think; it is not a guarantee of anything, but rather our objective as auditors is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. The word ‘material’ is defined as anything that could reasonably be expected to influence a reader of the accounts to form a different conclusion. It is true that as part of the audit, we highlight in the audit report whether: The accounting records are accurate The financial statements agree to those records All required disclosures have been made We received all the information and explanations we requested and if we are not satisfied, we qualify our audit and explain the problems we encountered.
I have offered my top manager a company car, but he is nervous about being taxed on it. Is there a cost for him and is there a cost to me, his employer?
MAYBE and MAYBE This seems a strange answer, but it’s true. It depends on what car you provide The car is a benefit to the employee, provided by the employer and this benefit is calculated by a fixed percentage of the list price of the car when new and not the cost paid by the company. From 6.4.20 for one yea only, the % for electric cars is Zero! Hence the benefit is zero and the tax for both employee and employer is zero. For tax year 2021/22 this increases to 1% and for 2022/23 to 2%, so it is extremely tax efficient to receive an electric company car. Hybrids, petrol and diesel cars have higher and higher %s, which can be checked online, applied to the list price and hence the benefit is higher.
How much can I earn tax free?
This depends on the type of income and gain.
The basic rules are as follows:
|Income Tax||£12,500 tax free allowance on any income|
|Savings allowance||£5,000 tax free if majority of income is from savings|
|£1,000 tax free if minority of income from savings|
|Dividend allowance||£2,000 tax free|
|Capital Gains Tax||£12,000 tax free|
|Rent a room||£7,500 tax free|
In a possible scenario, a tax payer could have:
|Rent a room in their home||£7,500|
|And pay no tax|