News

The government has confirmed its intention that furloughed employees will be paid 80% of their wages for hours not worked under the furlough scheme.

Up to 30 June 2021, this payment will be fully-funded by government and capped at £2,500 per month.

From 1 July 2021, employers are required to contribute 10% of the 80% (capped at £312.50 per month) government contributing 70% of the 80% (capped at £2,187.50 per month).

From 1 August 2021, until the scheme is due to end 30 September 2021, employer contributions rise to 20% of the 80% (capped at £625 per month) government contributing 60% of the 80% (capped at £1,875 per month).

Readers are reminded that one of the conditions to apply for this support is that you can demonstrate that your business continues to be adversely affected by COVID disruption.

Throughout this period, employers are fully responsible for payment of any hours worked.

Many businesses across the UK are likely to make losses in the 2020-21 tax year due to the havoc resulting from COVID disruption.

Which was why the announcement in the recent Budget that losses can be carried back for an extended period was most welcome.

The policy objective aims to provide a cashflow benefit to affected businesses by providing additional relief for trading losses, thereby generating repayments for tax paid for two additional years.

Legislation will be introduced in Finance Bill 2021 to extend the period for which trading losses can be carried back against previous profits. This extension will apply to trading losses made by companies in accounting periods ending between 1 April 2020 and 31 March 2022 and to trading losses made by unincorporated businesses in tax years 2020-21 and 2021-22.

To facilitate this change, trade losses carry back will be extended from the current one year entitlement to a period of three years, with losses being carried back against later years first.

If you became self-employed after 5 April 2019 and you have submitted your 2019-20 tax return before 2 March 2021, you may be eligible for the next two Self-Employed Income Support Scheme (SEISS) grants for the quarter end 30 April 2021 and the final claims period to 30 September 2021.

HMRC has announced that they are adding a new layer of security to these SEISS claims and will be calling taxpayers to verify their identity. The announcement on the GOV.UK website says:

From March to April 2021 HMRC will write to customers who became self-employed in 2019-20 and submitted a self-assessment return for that period.

As a result of the Chancellor’s announcement that the fourth Self Employment Income Support Scheme (SEISS) grant will take into account the 2019-20 tax returns, these customers may be eligible for support under SEISS.

The letter will tell customers to expect a telephone call on the number they provided on their tax return.

If the customer provided an agent’s number on their return, we will ask the agent to pass on the customer’s number as we need to speak to the customer directly.

When we call, we’ll ask for proof of identity and evidence of trade in the form of bank statements.

We are aware of increased scam activity related to HMRC’s coronavirus support schemes. The purpose of this letter is to explain to customers that this is a genuine call, and to give customers details on how to recognise it as such.

Perhaps the most innovative give-away in the recent budget was “Super-deductions for investment expenditure”.

What does this mean?

Companies that invest in qualifying plant and machinery in the period from 1 April 2021 to 31 March 2023 will benefit from enhanced capital allowances. Investments in assets that qualify for the main rate of capital allowances of 18% will benefit from a 130% first-year allowance. This means that for every £100 that you spend, you can deduct £130 in computing your taxable profits. This is equivalent to a tax saving of 24.7%.

What this change does not mean is the notion that you can deduct 130% of the cost of a qualifying purchase from your tax bill. The deduction is made from your company’s taxable profits.

For example, if your company invests say £5,000 in qualifying plant it will be able to write off £6,500 (£5,000 x 130%) against its taxable profits. As long as your company has taxable profits in excess of £6,500, it will save £1,235 (£6,500 x 19%) in corporation tax. Which means:

• Your tax saving is 24.7% (£1,235/£5,000) of your investment cost, and

• The net cost of your investment is £3,765 (£5,000 – £1,235).

As you would expect, there will be circumstances – grey areas – where the legislation that maps out the do’s and don’ts to claiming this relief will deny you the 130% deduction. In their notes describing the proposed changes HMRC said:

“Certain expenditures will be excluded…, there will be exclusions for used and second-hand assets and expenditures on contracts entered into prior to 3 March 2021 even if expenditures are incurred after 1 April 2021. Plant and machinery expenditure which is incurred under a Hire Purchase or similar contract must also meet additional conditions to qualify for the super-deduction…”

However, this is a significant incentive to invest if your company is likely to be profitable from 1 April 2021. To ensure that any significant investment you make will qualify, please call so we can consider the likelihood of a successful claim.

The government has announced new measures to support a safe and successful reopening of the high streets and seaside resorts ahead of the summer season.

A new £56 million Welcome Back Fund will help councils boost tourism, improve green spaces and provide more outdoor seating areas, markets and food stall pop-ups – giving people safer options to reunite with friends and relatives.

Part of this funding will be allocated specifically to support coastal areas, with funding going to all coastal resorts across England to safely welcome holiday makers in the coming months. The funding can also be used by councils to:

• Boost the look and feel of their high streets by investing in street planting, parks, green spaces and seating areas to make high streets as beautiful and welcoming as possible
• Run publicity campaigns and prepare to hold events like street markets and festivals to support local businesses
• Install signage and floor markings to encourage social distancing and safety
• Improve high streets and town centres by planting flowers or removing graffiti

To make sure that businesses can make the most of the summer, businesses such as pubs and restaurants, including where these premises are in listed buildings, will be allowed to use their land more flexibly to set up marquees and provide more outdoor space for diners as restrictions ease, allowing them to serve more customers and recover from the effects of the pandemic. They can be kept up for the whole summer rather than the 28 days currently permitted.

In another major boost for the high street, the government has published its response to the Parking Code Framework which will curb unfair tickets and tackle cowboy parking firms through a new, simplified appeals process.

Caps on private parking fines for millions of motorists are also set to be introduced. This will give drivers more confidence in heading into town knowing they won’t be unfairly penalised by rogue operators.

An outline of the Finance Bill 2021 has been published and provides the legal framework for changes announced in the recent Budget. We have reproduced below the published text. This is subject to scrutiny by parliament and may change before the Bill receives Royal Assent.

The Bill will ensure a number of tax changes set out by the Chancellor at last week’s Budget will take effect from the start of the next tax year beginning in April 2021, including:

• the extension of the stamp duty holiday
• extending the VAT cut for tourism and hospitality to September

As the country begins to recover from the effects of the pandemic, the Bill also legislates to help strengthen the public finances in the medium term through:

• Increasing the rate of Corporation Tax to 25% on profits over £250,000 from April 2023, balancing the need to raise revenue with the objective of having an internationally competitive tax system. Over 90 per cent of businesses will pay less than the 25%.
• Maintaining Income Tax Personal Allowance and Higher Rate Threshold at 2021 levels. This is a progressive measure: the richest households will contribute the most.
• keeping the Capital Gains Tax Annual Exempt Amount (AEA), the inheritance tax nil-rate band and the pensions Lifetime Allowance at their current levels

The Bill also helps deliver a fairer and more sustainable tax system too through legislating to:

• Implement a Plastic Packaging Tax which encourages the use of recycled plastic instead of new plastic within packaging. The rate of the tax is £200 per tonne of plastic packaging which contains less than 30% recycled plastic content.
• Reform the penalty regime for VAT and Income Tax Self-Assessment (ITSA) to make it fairer and more consistent. The new late submission regime will be points-based, and a financial penalty will only be issued when the relevant threshold is reached.

The Bill helps drive an investment-led recovery through:

• the ‘super deduction’ – from 1 April 2021 until 31 March 2023. The independent OBR have forecast that, at its peak, the super-deduction will raise the level of business investment by 10%, or roughly £20bn a year.
• supporting the introduction of Freeports through allowing the government to designate ‘tax sites’ in Freeports in Great Britain, where businesses will be able to benefit from a number of tax reliefs.

The Bill will now follow the normal passage through parliament.

HMRC has recently clarified the action you need to take if you have claimed too little or too much under the furlough scheme (Coronavirus Job Retention Scheme). They are published in a FAQ format. Here’s what they say:

What if I’ve claimed too much in error?

If you have claimed too much CJRS grant and have not already repaid it, you can repay as part of your next online claim without needing to call us. If you claimed too much but do not plan to submit further claims, you can let us know and make a repayment online through our card payment service or by bank transfer – go to 'Pay Coronavirus Job Retention Scheme grants back' on GOV‌‌‌‌‌‌‌‌‌‌.‌‌‌‌‌‌UK.

You must notify us and repay the money by the latest of whichever date applies below:

• 90 days from receiving the CJRS money you’re not entitled to
• 90 days from the point circumstances changed so that you were no longer entitled to keep the CJRS grant.

If you do not do this, you may have to pay interest and a penalty as well as repaying the excess CJRS grant. For more information on interest search 'Interest rates for late and early payments' on GOV‌‌‌‌‌‌‌‌‌‌.‌‌‌UK.

What if I haven’t claimed enough?

If you made a mistake in your claim that means you received too little money, you’ll need to amend it within 28‌‌ ‌calendar days after the month the claim relates to – unless this falls on a weekend or bank holiday, in which case the deadline is the next weekday. The deadline to amend claims for February is Monday‌‌ ‌29‌‌ ‌March.

To find out how to amend your claim, search 'Get help with the Coronavirus Job Retention Scheme'.

Most company business owners understand that if you incur a cost that is wholly and exclusively for the purpose of your trade, then it can be deducted from your taxable profits or added to tax losses.

Likewise, if companies invest in plant or other equipment that qualifies for tax relief, even though the expenditure is the acquisition of an asset – something that will be working in your business for years – it can be partly or wholly written off for tax purposes in the year it was acquired.

The facility that allows assets to be written off are called capital allowances and currently, they range from just a few percent per annum to a 100% write down. That was the case until Mr Sunak delivered his Budget last week…

Business owners have become accustomed to this writing off process and it had proved to be an incentive for companies to invest in new equipment.

But last week the Chancellor surprised us all by saying that companies investing in plant and machinery in the period from 1 April 2021 to 31 March 2023 will be able to benefit from enhanced capital allowances. These are:

• Investments in assets that qualify for the main rate of capital allowances of 18% will benefit from a 130% first-year allowance. This means that for every £100 that you spend, you can deduct £130 in computing your taxable profits. This is equivalent to a tax saving of 24.7%. For example, if a company bought a new machine for its factory for £10,000 during April 2021, it could deduct £13,000 from its profits; at the present 19% rate of corporation tax this would save £2,470 in corporation tax. And so, for an expenditure of £10,000 the company would reduce its tax bill be £2,470, amounting to 24.7%.
• In a further twist, investments in assets qualifying for special rate capital allowances benefit from a 50% first year allowance (although claiming the 100% annual investment allowance instead where this is available will be more beneficial).

If you are looking to invest in plant and machinery, it can be advantageous to do so within this window to benefit from the super-deduction. However, it is not available where contracts were agreed before Budget day.

The 2020/21 tax year comes to an end on 5 April 2021. As this date approaches, it is prudent to review your pension contributions and consider whether it would be beneficial to top up your pension before the end of the tax year.

Is there a limit on tax-relieved contributions?

Yes — tax relief is only available on contributions to registered pension schemes up to certain limits. Individuals can make contributions to the higher of £3,600 and 100% of their earnings, as long as they have sufficient annual allowance available to shelter the contributions. Contributions can be made by (or on behalf of) non-taxpayers up to £3,600 a year. Net of basic rate relief at 20%, this will cost £2,880.

 

How much is the annual allowance?

The annual allowance is set at £40,000 for 2020/21. However, a taper applies which reduces your annual allowance if you have:

• adjusted net income of £240,000 or more (broadly income including pension contributions); and
• threshold income of £200,000 or more (broadly income excluding pension contributions).

Where both of these apply, the annual allowance is reduced by £2 for every £1 by which adjusted net income exceeds £240,000 until the minimum level of the annual allowance is reached. This is set at £4,000 for 2020/21.

The impact of the taper means that if your adjusted net income is £312,000 or more, and your threshold income is at least £200,000, you will only receive the minimum annual allowance of £4,000 for 2020/21

A reduced annual allowance – the money purchase annual allowance (MPAA) — also applies if you have flexibly accessed a money purchase pension pot having reached the age of 55. This is set at £4,000 for 2020/21.

 

What about employer contributions?

Contributions made by your employer count towards the annual allowance. They are also considered when working out adjusted net income for the purposes of determining whether the annual allowance taper applies.

 

Don’t forget unused allowances from earlier years

Where the annual allowance is not fully utilised in a tax year, the unused portion can be carried forward for up to three years. This means that when working out the total tax relieved pension contributions that you can make before 6 April 2021, you need to consider not only the available annual allowance for the current tax year, but also any unused allowances brought forward from:

• 2019/20;
• 2018/19; and
• 2017/18.

Allowances brought forward from a previous year can only be used once the current year’s annual allowance has been used up. Once this has been done, brought forward allowances from an earlier year are used before those of a later year. Any allowances brought forward from 2017/18 are lost if they are not used by 5 April 2021. However, remember, contributions cannot exceed 100% of your earnings (or £3,600 if higher).

 

Why make additional pension contributions?

Making pension contributions is tax-efficient as relief is given at your marginal rate of tax. This means that a contribution of £100 will only cost you £60 if you are a higher rate taxpayer, and £55 if you are an additional rate taxpayer.

Planning ahead to secure an income in retirement is worthwhile in itself.

If you have some or all of the 2017/18 annual allowance available, making contributions to mop it up prevents it from being lost.

 

Pension contributions may also protect your personal tax allowance

Making pension contributions can also be useful if you want to reduce your income, for example to preserve some or all of your personal allowance for 2020/21 or to move into a lower tax bracket. The personal allowance, set at £12,500 for 2020/21, is reduced by £2 for every £1 by which adjusted net income (in this instance, income before personal allowances and less trading losses, charitable donations and pension contributions) exceeds £100,000. For 2020/21, this means that the personal allowance is lost once adjusted net income reaches £125,000. Because of the taper, the marginal rate of tax between £100,000 and £125,000 is 60%. Where making additional pension contributions is an option, this can be valuable, whether to prevent losing any of the personal allowance or to preserve some of it or more of it.

 

We can help

If you are thinking of making additional pension contributions before the end of the tax year, we can help you work out your options in conjunction with your pension’s adviser.

One aspect of the recent budget will please self-employed business owners that have previously been unable to claim under the Self-Employed Income Support Scheme (SEISS) as they commenced trading after 5 April 2019.

As long as you submitted your self-assessment tax return for 2019-20 before midnight 2 March 2021, and you meet the other qualifying criteria – basically that you have been adversely affected by COVID disruption – then you should be able to claim.

Two grants will be available. The fourth grant under the scheme covers February to April 2021. It is worth three months’ average profits capped at £7,500. It can be claimed from late April.

The fifth and final grant covers the period from May to September 2021. The amount of the grant will depend on the impact that Covid-19 has had on your profits. If your turnover has fallen by 30% or more because of Covid-19, you will be able to claim a grant equal to 80% of your average profits for three months, capped at £7,500. However, if your turnover has dropped by less than 30%, you will be entitled to a reduced grant of 30% of three months’ average profits, capped at £2,850.

The final grant can be claimed from late July. At present, this scheme is therefore timed to end 30 September 2021.

Remember, you can only claim the grant if you have been adversely affected by the pandemic.

Grants received under the scheme are taxable and must be considered in working out your profits.