FAQs

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

What is the Government doing to help employers ?

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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 aritcles in our Relevant News section on this website.

 

The main areas are:

 

  • For small businesses in retail, leisure and entertainment with rateable value below £50,000pa, a full year’s rates holiday and a £25,000 grant
  • For all businesses, the ability to ‘furlough’ staff under the Cornoavirus Job Retention Scheme
  • Postponement until 2021 of VAT payments due between 20 March and 30 June 2020
  • Access to Govt. backed, Business Interruption Loan Scheme

I intend to flexi-furlough some staff, so they work 10 hours per week, but what do I need to do?

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Firstly, you need to discuss this with them and obtain their agreement

Secondly, once agreed, you need them to sign a new ‘flexible furlough’ agreement, as it a change to their employment contract.

You can see an excellent example on the ACAS website

I am an employee earning £30,000pa, but my company does not need me until this is over. What can I do?

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Your company has the option to furlough your employment, which means they change your employment status such that you cannot work for them during this period, but remain on the payroll as an employee and HMRC will pay your employer a grant of 80% of your gross salary up to £2,500 per month, so they can pay you.

  1.  Your employer may decide to top up the missing 20% if they so wish.

  2.   As an employee, you do nothing, this is done for you.

 

I am self employed and last year my profit was £25,000. What help can I get? My wife is self employed too, but she earned £60,000 last year. Can she get help too?

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There is good news and bad news.

1.Any Self employed person (or partner in a business) who earned less than £50,001 last year (2018/19) and whose self employed income was less than 50% of their total income, will be eligible for support under the Self Employed Income Support Scheme (SEISS).

2.The SEISS was initially only for the period Apr-Jun20 and consisted of a grant from HMRC of 80% of their profit in equal monthly instalments, up to a max. of £2,500 per month, being £7,500 in total. This will be paid in one lump sum.

3.The SEISS has now been extended for another 3 months – see Q&A below for more details.

4.Your wife, who earned over £50,001 is disqualified from this scheme and gets nothing.

5. You must contact HMRC and make a claim, via the online form, but the claim for the first period Apr-Jun20 must be made before 13 July 2020

Can I be furloughed in my main job, whilst having another job in which I am still working?

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The answer is yes, as long as your main employer agrees. As far as HMRC are concerned, it is not a problem

What is the Government’s Corona Business Interruption  Loan Scheme ?

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The Government will support small and medium businesses by standing behind finance provided by the banks and other lenders to businesses that need help to weather the Corona Virus pandemic
     
ON new loans, the Govt. will guarantee up to 80% of the loan, pay all interest and loan fees in the first year and are insisting that lenders do not take any Personal Guarantee for loans up to £250,000.

However, the bank still need to be persuaded that the loan is viable and for this they need to see a business plan and projections.

What is a bounce back loan ?

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It is the latest Government initiative to help small businesses.

It is a 100% Government guaranteed loan up to £50,000 but limited to 25% of Turnover, for max. period of 6 years, with no capital payments or interest charged in year 1.

It will be available from 4 May 2020, by a  simple online application.

Can I bring a ‘furloughed’ employee back to work for just one week ?

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Yes, but prior to 1 July,  after that week’s work, the employee had to be furloughed for 3 more consecutive weeks. From 1 July the furlough rules have been relaxed and flexi-furlough is now possible, where the employee can be working part of the time and on furlough for the remainder. 

When will the furlough scheme be stopped ? Are there any changes to this help?

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 The Furlough scheme is due to end at the end of October 2020. There is a major change to the rules on 1 July 2020; please see Q&A below

Please explain the furlough rules, as I understand they have changed from 1 July 2020.

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You are correct; from 1 July 2020 the furlough rules have become more flexible to encourage employers to help ease employees back to work by allowing them to work part of the time and furloughed for the remainder. 

 At the same time, the Govt. furlough support is being reduced as employers take more of the burden of the furlough cost.

From 19 March until 30 June 2020, an employee who was furloughed was not allowed to carry out any work for their employer. The employer could apply to HMRC for a full refund of 80% of the Employees gross salary (up to a maximum of £2,500 per month) plus associated Employers NI and pension costs.

From 1 July, HMRC support will slowly reduce and is due to stop on 31 October 2020.

The changes are as follows:

July- No change to previous support

August – As for July, but furlough no longer reimburses  Employers NI and Pension payments

September – As for August, but furlough support is only 70% of Employees Gross salary up to a max. of £2,187.50 per month

October-  As for September, but furlough support is only 60% of Employees Gross salary up to a max. of £1,875.

Please note that despite HMRC support reducing in September and October,  the furloughed employee is still entitled to 80% of their gross salary; it is just the HMRC support which is reduced.

 

Has the scheme to help self employed workers been extended beyond June ?

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Yes. The Self Employment Income Support Scheme (SEISS) which initially covered the period Apr-Jun20 only and was capped at the lower of 80% of self employed earnings for the previous year, with a maximum payment of £7,500 for the 3 months, has been extended for a further 3 months to cover the period Jul-Sep20, but the maximum payout has been reduced to the lower of 70% of self employed earnings with a maximum payout of £6,570 for the 3 months.

If we want to bring staff back from furlough but they refuse to return because of fear of contracting the virus, then what should be done?

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The prime consideration for the employer is that they have implemented adequate safety precautions, in line with Govt. guidance on working safely during the Corona Virus (see www.Gov.uk/guidance). The 5 key steps are:

1. Carry out a Covid-19 risk assessment
2. Develop cleaning, handwashing and hygiene procedures
3. Help people to work from home
4. Maintain 2M social distancing
5. Manage transmission risk

If this is implemented and the employee is still refusing to return, it may be grounds to take disciplinary action, but see the ACAS guidelines and consult an HR expert.

PERSONAL AND BUSINESS TAX

What are the recent changes to Stamp Duty Land Tax (SDLT) and what does it mean for a house buyer?

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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 8 July 2020 until 31 March 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,

VAT

What is the rate of VAT?

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The VAT rate remains at 20% but from 15 July 2020 until 12 January 2021 there is a temporary reduced rate of VAT to 5% for certain supplies of:
• Hospitality
• 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

Property Questions

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?

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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.

 

Eg.

  Pre 5.4.16
£
Post 5.4.16
£
Rental income 40,000 40,000
Loan interest 40,000 40,000
Tax 0 8,000

Somebody told me that when I sell a property, I have to pay tax straightaway. Is that right?

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It depends.

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?

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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%.

Audit Questions

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.

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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?

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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.

Employer/Employee Questions

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?

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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?

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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:

Salary £12,500
Dividend £2,000
Interest £1,000
Rent a room in their home £7,500
Capital Gain £12,000
And pay no tax