Budget predictions 11 March 2020

Following the resignation of Sajid Javid last week, there has been much speculation on how this will affect the direction of the budget to be presented to parliament next month.

Rishi Sunak, who replaces Sajid, is stepping into the Chancellor’s role with little experience but does seem to have “rising star” status as far as number 10 is concerned.

What can we expect from the forthcoming budget?

Infrastructure and the NHS seem to be the two major areas for investment. HS2 and other rail improvements in the North are likely to be beneficiaries as will carbon capture and other climate related projects, for example, improving the energy efficiency of homes, schools and hospitals.

The government has already said it will not be increasing any of the major taxes and has recently published details of an increase in the NIC threshold, to £9,500.

Corporation tax was due to reduce to 17% (from the present 19%) from April 2020. However, Boris Johnson, during the recent election campaign, did say that this intended increase would be dropped, and the rate maintained at 19%.

There is speculation that higher rate tax relief will be trimmed for contributions into private pension funds.

A cross-party group of MPs has called for a reduction in the rate of inheritance tax, from 40% to 10%, together with a reduction in many of the inheritance tax allowances and reliefs.

  1. rates are another target for relief in an attempt to support beleaguered High Street businesses. Additional support has already been announced for retailers and pubs.

Meanwhile, back at number 11 Downing Street, Rishi Sunak will be burning the midnight oil to prepare himself for his dispatch-box presentation on 11 March. We will be reporting on the outcome of his disclosures in due course.

Breathing space for those in debt

In a recent news story published to the Government website it was announced that a new breathing space period will freeze interest, fees and enforcement for people in problem debt, with further protections for those in mental health crisis treatment.

The article is reproduced below:

Millions of people with problem debt, including those facing mental health problems, will be helped by the government to get their finances under control, new figures released on Time to Talk Day (Thursday 6 February) show.

A 60-day breathing space period will see enforcement action from creditors halted and interest frozen for people with problem debt. During this period, individuals will receive professional debt advice to find a long-term solution to their financial difficulties.

As well as this, those receiving mental health crisis treatment will receive the same protections until their treatment is complete, in acknowledgement of the clear impact problem debt can have on wellbeing.

The impact assessment for breathing space, published today, forecasts that it will help over 700,000 people across the UK get professional help in its first year, increasing up to 1.2 million a year by the tenth year of operation.

Of this, 25,000 to 50,000 people in mental health crisis treatment are expected to benefit from breathing space every year.

As well as covering debts like credit cards and loans, breathing space will cover a wide range of government debts.

Creditors will also benefit from introducing breathing space, with over £400 million in extra repayments expected in the first year, as individuals get the support they need to get their payments back on track.

The announcement builds on previous government work to alleviate the impact of problem debt, including reforming regulation around consumer credit, widening access to professional debt advice and helping build individual financial resilience.

Tax-free gifts

There are certain gifts you can make that will not create a capital gains tax (CGT) charge, but care should be taken as there are exceptions. This article outlines some of the more common issues that need to be considered.

Gifts to your spouse or civil partner

Ordinarily, you will not pay CGT if you gift assets – that would normally create a charge to CGT if sold elsewhere – to your spouse or civil partner.

The major exception to this rule is if you were separated and did not live together at any time during the tax year in which your gift was made (the tax year ends 5 April).

Another exception is if you gave them goods to sell-on as part of their business activity.

When the receiving partner subsequently sells the gifted item, they will pay CGT on the difference between the sales proceeds less the cost when the asset was first purchased. For example, If Jon buys shares for £1,000, keeps them for two years and then gives them to his civil partner Tim – when the shares are worth £5,000 – and Tim subsequently sells the shares a year later for £10,000; Tim’s CGT charge will be based on a gain of £9,000 (£10,000 less the original cost £1,000).

For this reason, it is recommended that the person gifting assets should provide evidence of the original purchase as this will be needed to calculate the amount of any future capital gain.

Gifts to a charity

You should not have to pay CGT if you gift a chargeable asset to a charity.

However, you may create a CGT charge if you sell an asset to a charity for more than you paid for it or less than its market value.

The CGT gain would be worked out based on the amount the charity pays you rather than the value of the asset when sold.

Planning options

If you are considering making a significant gift it is always advisable to check out any tax consequences before transferring ownership. Aside from CGT, there may also be stamp duty or inheritance tax complications. Please call so we can help you consider your options.

Do you have a furnished holiday lets business?

Most property owners who let property under the Furnished Holiday Let (FHL) tax rules, submit their income and expenditure details on their tax return each year.

This article considers occupancy, and the need to review occupancy of FHL properties each year.

If your FHL business accounts year is the end of the tax year, 31 March (5 April), we suggest that you take out your calculator and booking diary before this date. If you do not meet HMRC’s criteria you may lose some or all of the valuable tax concessions for which FHL businesses qualify.

Here’s HMRC’s summary of the occupancy regulations:

The pattern of occupation condition

If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, this condition isn’t met so your property won’t be a FHL for that year.

Availability conditions

Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year.

Don’t count any days when you’re staying in the property. HMRC don’t consider the property to be available for letting while you’re staying there.

The letting condition

You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.

Don’t count any days when you let the property to friends or relatives at zero or reduced rates as this isn’t a commercial let.

Don’t count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens.

The averaging election – if you’ve more than one property

A period of grace election – if your property reaches the occupancy threshold in some years but not in others.

If your initial run-through of the number crunching indicates that you may not meet the requirements to qualify as an FHL on one or more properties, please call so that we can help you check your calculations and see if the averaging rules apply in your favour.

Don’t fall for this scam

The Insolvency Service has issued a warning that fraudsters have been contacting investors in insolvent schemes claiming to be from the Official Receiver’s office or to have been appointed by the Official Receiver to help recover funds for a fee.

These approaches are always fraudulent.

Official Receivers or any agent legitimately instructed to act on their behalf will never ask you to pay a fee to get some or all of your investment back.

The Official Receiver can only make a return to you as a creditor in failed schemes if it is possible to identify and sell any remaining assets owned by the liquidated company you bought your investment from. All too often businesses of this nature have few if any, assets left to repay creditors and it can take several years to undertake complex asset recovery work and complete a liquidation.

Paying a fee will not make you a priority creditor, meaning you get paid faster or increase the chance of you getting any money back.

If you are asked to pay a fee to get your money back someone is attempting to scam you.

The Official Receiver does not charge investors a fee to get money back and does not employ anyone else to do this on their behalf.

You should report all fraudulent contact from individuals, stating they can get your lost investments back for a fee, to the Official Receivers. You can also report these approaches to Action Fraud.

Loans to directors and staff

If a company makes loans to its employees (including directors) there may be tax consequences. The same may also apply to loans extended to their family members.

For example, the employer will have an obligation to report a beneficial loan to HMRC (and pay Class 1A NIC) and the deemed benefit would be a taxable benefit in kind for the relevant employee.

A beneficial loan is one that is interest free or the rate charged is below the “official rate” and the benefit is the difference between these interest rate charges.

Fortunately, not all loans create a tax problem, certain loans are exempt from this reporting obligation. These could include loans employers provided:

  • in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee),
  • with a combined outstanding balance due from an employee of less than £10,000 throughout the whole tax year,
  • to an employee for a fixed and never changing period, and at a fixed and constant rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out – the current rate is 2.5%,
  • under identical terms and conditions as those provided to the public (this mostly applies to commercial lenders),
  • that are ‘qualifying loans’, meaning all the interest charged to the loan account qualifies for tax relief.

Loans written off will also create a National Insurance Class 1 charge for the employee. They must be reported on a P11D and the employer has an obligation to deduct and pay Class 1 NIC, from the employee’s salary, on the amount written off for tax purposes.

And finally, loans by a company to its directors or shareholders may create additional corporation tax charges.

If you are contemplating loans to employees (or director/shareholders) or have current loans outstanding can we suggest that we undertake a review to ensure any tax consequences are minimised.

Current Advisory Fuel Rates

To assist with your calculations, see previous article, we have reproduced below the current, HMRC Advisory Fuel Rates. They are:

These rates apply from 1 December 2019.

Engine size

Petrol – amount per mile

LPG – amount per mile

1400cc or less

12 pence

8 pence

1401cc to 2000cc

14 pence

9 pence

Over 2000cc

21 pence

14 pence

 

Engine size

Diesel – amount per mile

1600cc or less

9 pence

1601cc to 2000cc

11 pence

Over 2000cc

14 pence

 

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Advisory Electricity Rate

The Advisory Electricity Rate for fully electric cars is 4 pence per mile. Electricity is not a fuel for car fuel benefit purposes.

Tax Diary February/March 2020

1 February 2020 – Due date for Corporation Tax payable for the year ended 30 April 2019.

19 February 2020 – PAYE and NIC deductions due for month ended 5 February 2020. (If you pay your tax electronically the due date is 22 February 2020)

19 February 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2020.

19 February 2020 – CIS tax deducted for the month ended 5 February 2020 is payable by today.

1 March 2020 – Due date for Corporation Tax due for the year ended 31 May 2019.

2 March 2020 – Self assessment tax for 2019/19 paid after this date will incur a 5% surcharge.

19 March 2020 – PAYE and NIC deductions due for month ended 5 March 2020. (If you pay your tax electronically the due date is 22 March 2020)

19 March 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2020.

19 March 2020 – CIS tax deducted for the month ended 5 March 2020 is payable by today.

We are out, but no immediate change

The 31 January has past and we are out of the EU. But what difference does this make and what is the transition period?

The word “transition” is defined as:

A change from one to another or the process by which this happens…

Essentially, until 31 December 2020 – when the transition period ends – the UK will continue to pay into the EU and be subject to its various rules and regulations. The pre-Brexit rules on trade, travel and businesses between the EU and the UK will continue to apply until the end of the year.

During this transition period our government has determined it will negotiate the detailed arrangement that will apply from 1 January 2021.

If these negotiations fail, we may still face the prospect of a “no-deal” scenario next year.

Most political commentators have made the point that a detailed agreement on all issues will be difficult to achieve in 2020; there is an awful lot of ground to cover, and as our Prime Minister has underlined his determination to avoid any extension of the transition period beyond the end of the year, UK businesses face uncertainty yet again: no-deal or a yet to be determined trade agreement.

Our advice to clients is to spend some time during 2020 undertaking a risk assessment based on this uncertainty. It would seem to be sensible to create a plan to cover both extremes.

This makes planning difficult if you buy or sell goods and services to or from EU countries. Unfortunately, even those companies that have no direct trade with the EU will likely find that their suppliers and customers – who do trade in Europe – will be affected and may create disruptions in their supply lines.

Tackling this conundrum – what will be the effects on our businesses from 1 January 2021 – is like playing darts when the board is nailed to the side of a moving bus. As we get closer to the end of the year outcomes will be easier to predict. In the meantime, sensible planning would seem to be appropriate.

Call if you would like our help to set up a formal review of your business prospects once the present transition period has run its course.

Pay-back to save tax

At first sight, company car drivers whose private fuel costs are met by their employers may seem to be onto a good thing, but there is a nasty tax hit…

Enter, the Car Fuel Benefit charge.

Let’s say the following circumstances apply:

  • list price of your car when new was £30,000
  • your employer pays for all your private fuel
  • CO2 emissions are 147 g/km, and
  • the car has a diesel engine, 2000 cc.

 

The 2019-20 benefit in kind charge for the use of the car (this is added to your taxable income for the year) is £9,900. This would cost a standard rate taxpayer £165 a month in Income Tax.

But then the provision of private fuel would trigger an additional Car Fuel Benefit charge of £7,953. This would cost a standard rate taxpayer an extra £133 a month.

As the title of this article suggests it is possible to reimburse your employer for private fuel provided and avoid this Car Fuel Benefit charge completely. Here’s what you would need to do:

  • First of all, calculate your private mileage for the 2019-20 tax year. Estimates won’t do, you will need to create evidence, a mileage log for example.
  • Multiply this private mileage by HMRC’s Advisory Fuel Rate. The present rate per mile for a 2000 cc diesel car is 11p.

Armed with this information you can now do the sums. In the above example, if the driver’s private mileage was 5,000 miles during 2019-20, the amount that needs to be repaid to the employer is £550. That’s just £46 per month.

Which means, for an effective outlay of £550, the car driver – if a basic rate tax payer – will save £1,593 in tax (£7,953 x 20%). That’s an overall cash saving of £1,043.

If you are receiving private fuel from your employer, or indeed providing private fuel for your employees, it is well worth crunching the numbers to see if there is a cash advantage to repaying any private fuel.

There are deadlines to consider and we can help you with the math and the reporting processes required.

Final planning note for employers

The Car Fuel Benefit Charge not only creates a tax charge for the employee, it also creates a National Insurance charge for the employer. And so, allowing employees to repay their private fuel costs will also reduce your NIC costs. A classic win-win outcome.