Current tax year will still end 5 April 2021

It is doubtful that HMRC will change the tax year end date. The current tax year will therefore come to an end on 5 April 2021.

Which means that tax-payers still have two months (February and March 2021) to take advantage of any tax planning strategies that may advantage their tax liabilities for 2020-21.

As COVID disruption is likely to take most of 2021 to unwind – and may spill over to 2022 – any action you can take to reduce a drain on cash flow by saving tax should be considered.

For example:

  • If your self-employed business income has dropped significantly during 2020-21, any tax losses created may be available to carry back to previous tax years when you paid tax. As a result, it may be possible to boost your cash flow with a tax repayment.
  • You still have time to fully utilise any capital gains tax exemptions for 2020-21.
  • Have you considered the annual gifts allowances that are basically tax-free for 2020-21?

If your finances allow, have you considered:

  • Topping up your pension contributions?
  • Making further charitable donations to reduce higher rate tax?
  • Strategies to reduce your income below £100,000 and thus avoid losing all or part of your personal tax allowance.
  • If you or your spouse has increased their taxable income to more than £50,000 during 2020-21, and you claim child benefits, this may trigger an additional tax charge to recover all or part of the child benefits you have received.

To check out these and numerous other tax-saving opportunities please call so that we can discuss your options. Your chance to take advantage of tax planning ideas for 2020-21 will end for individuals on 5 April 2021.

Tax office moves the penalty spot

During the last week of January, HMRC finally accepted that many tax-payers would not make the filing deadline – 31 January 2021 – for their 2019-20 self-assessment tax return; due, in the main, to continuing COVID disruption.

As a gesture, they have confirmed that:

Self-Assessment tax-payers who cannot file their tax return by the 31 January 2021 deadline will not receive a late filing penalty if they file online by 28 February.

Whilst this a welcome recognition of the difficulties many tax-payers face as they struggle with lock-down or are actually infected by the virus, the filing deadline has not changed, only the date from which late filing penalties will apply.

Accordingly, any tax or NIC due on 31 January 2021 – determined when 2019-20 returns are finally filed – will still be payable by 31 January 2021. Payments made after this date will be subject to interest charges.

If COVID has depleted your cash reserves and you are struggling to pay any tax due on 31 January, you can apply to HMRC to spread the payments up to twelve months. In their press release issued 25 January 2021, HMRC said:

Tax-payers are still obliged to pay their bill by 31 January. Interest will be charged from 1 February on any outstanding liabilities. They can pay online, or via their bank, or by post before they file. More information on how to pay is at GOV.UK.

Tax-payers who cannot afford to pay their tax bill on time can apply online to spread their bill over up to 12 months. But they will need to file their 2019-20 tax return before setting up a time to pay arrangement, so HMRC is encouraging everyone to do this as soon as possible.

In other words, to make a formal agreement to spread the cost of any tax payments, tax-payers will need to file their 2019-20 return.

The late filing penalty deferred is the automatic £100 fine. This will now be applied if your tax return is still outstanding after 28 February 2021.

Repay private petrol and save tax

At first sight, company cars 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.

When the current tax year ends, 5 April 2021, the illustration below demonstrates how a cash payment to an employer to payback any private fuel provided can create overall cash savings. This will not apply to all company car drivers, but it is well worth checking to see if a repayment is possible.

Let’s say the following circumstances apply:

  • list price of your company 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 2020-21 benefit in kind charge for the use of the car (this is added to your taxable income for the year) is £10,200. This would cost a standard rate taxpayer £170 a month in Income Tax.

But then the provision of private fuel would trigger an additional Car Fuel Benefit charge of £8,330. This would cost a standard rate taxpayer an extra £138 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 2020-21 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 10p.

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 2020-21, the amount that needs to be repaid to the employer is £500. That’s just £42 per month.

Which means, for an effective outlay of £500, the car driver – if a basic rate tax payer – will save £1,666 in tax (£8,330 x 20%). That’s an overall cash saving of £1,166.

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 notes 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.

Online payment plans

Almost 25,000 Self-Assessment customers have set up an online payment plan to manage their tax liabilities in up to 12 monthly instalments, totalling £69.1 million, HMRC revealed recently.

In October, HMRC increased the threshold for self-serve Time to Pay arrangements from £10,000 to £30,000 for Self-Assessment taxpayers. Once they have completed their 2019-20 tax return and know how much tax they owe, taxpayers can use the self-serve facility to set up monthly direct debits and spread the cost of their tax bill.

Taxpayers can apply for the payment plan via GOV.UK. However, they must meet the following requirements:

  • they need to have no:
    • outstanding tax returns
    • other tax debts
    • other HMRC payment plans set up
  • the debt needs to be between £32 and £30,000
  • the payment plan needs to be set up no later than 60 days after the due date of a debt

Please call if you want to take advantage of this facility, we can point you in the right direction.

Did you defer VAT payments last year?

If you took advantage of the offer to defer VAT payments falling due between 20 March 2020 and 30 June 2020 – to help out with the impact of COVID disruption – your now have three choices. You can:

  • pay the deferred VAT in full on or before 31 March 2021
  • opt in to the VAT deferral new payment scheme when it launches in 2021
  • contact HMRC if you need more help to pay

If you want to opt in to the new payment scheme

You cannot opt in yet. The online opt-in process will be available in early 2021. You must opt-in yourself, we cannot do this for you. Instead of paying the full amount by the end of March 2021, you can make up to 11 smaller monthly instalments, interest free. All instalments must be paid by the end of March 2022.

The scheme will allow you to:

  • pay your deferred VAT in instalments without adding interest
  • select the number of instalments from 2 to 11 equal monthly payments

To use this scheme, you must:

  • still have deferred VAT to pay
  • be up to date with your VAT returns
  • opt-in before the end of March 2021
  • pay the first instalment before the end of March 2021
  • be able to pay the deferred VAT by Direct Debit

If you opt-in to the scheme, you can still have a time to pay arrangement for other HMRC debts and outstanding tax.

Get ready to opt in to the new payment scheme

Before opting in you must:

  • create your own Government Gateway account if you don’t already have one
  • submit any outstanding VAT returns from the last 4 years. You will not be able to join the scheme if you have not done so
  • correct errors on your VAT returns as soon as possible. Corrections received after 31 December 2020 may not show in your deferred VAT balance
  • make sure you know how much you owe, including the amount you originally deferred and how much you may have already paid

You should also:

  • pay what you can as soon as possible to allow HMRC to show the correct deferred VAT balance
  • consider the number of equal instalments you’ll need, from 2 to 11 months

Tax Diary February/March 2021

1 February 2021 – Due date for Corporation Tax payable for the year ended 30 April 2020.

19 February 2021 – PAYE and NIC deductions due for month ended 5 February 2021. (If you pay your tax electronically the due date is 22 February 2021)

19 February 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2021.

19 February 2021 – CIS tax deducted for the month ended 5 February 2021 is payable by today.

1 March 2021 – Due date for Corporation Tax due for the year ended 31 May 2020.

2 March 2021 – Self assessment tax for 2019/20 paid after this date will incur a 5% surcharge.

19 March 2021 – PAYE and NIC deductions due for month ended 5 March 2021. (If you pay your tax electronically the due date is 22 March 2021)

19 March 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2021.

19 March 2021 – CIS tax deducted for the month ended 5 March 2021 is payable by today.

Reminder of CIS VAT changes

Contractors and subcontractors registered for VAT and the Construction Industry Scheme will need to use the VAT reverse charge process for building and construction services from 1 March 2021.

VAT registered subcontractors affected by this change will no longer add VAT to their invoices to contractors. Instead, the contractors’ accounting system will need to add the deemed VAT to their VAT return on behalf of subcontractors, and at the same time, deduct the same amount as input VAT on the same return.

This will sound complicated but most accounting software can cope with the entries required. If you need help to set this up please call.

Contractors will only pay their VAT registered subcontractors the VAT-free amount invoiced, and as the reverse charge adjustment increases both input and output VAT by the same amount there is no cash penalty for either party

This new process only applies to certain types of services provided by subcontractors.

Please check with us if you feel you are affected but don’t know how to make or judge what you need to do.

If you have bookkeeping software that can be adapted to deal with this change then once appropriate changes are made, processing subcontractors’ invoices should be no more difficult than before the change to the reverse charge.

Business relief for Inheritance Tax

It is possible that your estate will pay no IHT on the valuation of any business assets. The amount of relief available depends on the type of assets held at death. Your estate may be able to claim 50% or possibly 100% 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 two years before they died.

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.

For example, if you use one room in a building as a shop and the other rooms are used as your home, the shop will qualify for Business Relief, but the rooms will not.

Relief for agricultural property

You may be able to get Business Relief on a transfer of agricultural property (e.g., farmland, buildings or farm equipment) which isn’t eligible for agricultural relief.

Please call if you need more information on this topic or any other aspect of your family estate tax planning.

Do you continue to trade with the EU?

Government have set out a list of six actions that all businesses who continue to trade with EU customers or suppliers should complete now that the formal transition has ended..

The list is:

  1. Goods – if you import or export goods to the EU, you must get an EORI number, make customs declarations or employ an agent to do them for you, check if your goods require extra papers (like plant or animal products) and speak to the EU business you’re trading with to make sure they’re completing the right EU paperwork. There are also special rules that apply to Northern Ireland. Hauliers must obtain a Kent Access Permit and have a negative COVID test before they head to port in Kent.                                     
  2. Services – if you deliver services to the EU, you must check whether your professional qualification is recognised by the appropriate EU regulator.                  
  3. People – if you need to hire skilled staff from the EU, you must apply to become a licensed sponsor.                                                                                         
  4. Travel – if you need to travel to the EU for business, you must check whether you need a visa or work permit.                                                                        
  5. Data – if your goods are protected by Intellectual Property (IP), you will need to check the new rules for parallel exporting IP protected goods from the UK to the EU, Norway, Iceland and Liechtenstein. You risk infringing on IP rights if you do not follow the new rules.                                                                      
  6. Accounting and reporting – if your business has a presence in the EU you may need to change how you undertake accounting and reporting to ensure compliance with the relevant requirements.

These six key actions should act as a guide for every business affected by the new rules, with more detailed, personalised advice available through the checker tool on gov.uk/transition.

Private residence, court actions available on separation or divorce

Couples may have experienced the difficulties that can arise when couples separate or divorce. One area where they may need to resolve are the options that courts have to direct ownership of the marital home. The courts can exercise their jurisdiction in the following ways.

  • By recognising an existing equitable interest of the spouse or civil partner who does not have legal title to the dwelling house.
  • By ordering the spouse or civil partner owning the home (or an interest in it) to transfer it to the other spouse or civil partner.
  • By ordering the spouse or civil partner owning the home (or an interest in it) to hold it on trust for the other spouse or civil partner for a limited period.
  • By ordering the spouse or civil partner owning the home to sell it and to pay the other spouse or civil partner a capital sum out of the proceeds of sale.
  • By both determining that one of the spouses or civil partners had an equitable interest in the home and ordering the other spouse or other civil partner to transfer some or all of their interest in the home or to pay a capital sum out of their share of the sale proceeds.

Where the marital home is the couple’s main asset the outcome of these deliberations is clearly significant.