Skip to main content

Month: December 2020

Is An Increase in Capital Gains Tax Inevitable?

Written by admin on . Posted in Budget, Capital Gains Tax, Tax. No Comments on Is An Increase in Capital Gains Tax Inevitable?

A recent report could herald changes to capital gains tax.

Last July the Chancellor asked the Office of Tax Simplification (OTS) to undertake a review of capital gains tax (CGT) “in relation to individuals and smaller companies”. The request was something of a surprise for two reasons. Firstly, there had been no suggestion that Mr Sunak wanted to reform capital gains tax. Secondly, two earlier reports on another capital tax, inheritance tax, had been sitting in the Treasury’s in-tray for over a year, awaiting attention.

Cynics pointed out that while the Conservatives’ 2019 manifesto promised no increases to the rates of income tax, VAT and national insurance, there was no such protection for CGT. Certainly, the ideas put forward by the OTS would raise extra revenue for the Treasury’s depleted coffers, but probably not the £14bn seen in some of the November headlines.

The OTS made eleven proposals for the government to consider. The more significant were:

  • CGT rates should be more closely aligned with income tax rates, implying the maximum tax rate on most gains could rise from 20% to 45%.
  • The annual exempt amount, currently £12,300 of gains, should be reduced to a ‘true de minimis level’ of between £2,000 and £4,000.

When inheritance tax relief applies to an asset, there should be no automatic resetting of CGT base values at death, as currently occurs. The OTS also suggested that the government should consider whether to end all rebasing at death, meaning that the person inheriting an asset would be treated as acquiring it at the base cost of the person who has died.

The £1m Business Asset Disposal Relief, which only replaced the £10m Entrepreneurs’ Relief in March 2020, should itself be replaced with a new relief more focused on retirement.

The OTS paper underlines just how favourably capital gains are currently treated relative to income. As the tax year end approaches the report is also a reminder to examine your use-it-or-lose-it options for the 2020/21 annual exemption.

Photo by Kelly Sikkema on Unsplash

 

Changes to the National Minimum and Living Wages

Written by admin on . Posted in Budget, Employment Law, Employment Tax, Tax. No Comments on Changes to the National Minimum and Living Wages

One of the announcements to come out of the Chancellor’s Spending Review was welcome increases to minimum wages.

From 1 April 2021, the National Living Wage will get a 19p increase, going up to £8.91 per hour, with this rate being extended to employees aged 23 and over. It currently applies to employees aged 25 year and over.

The original plan was for a more substantial increase, but the Low Pay Commission advised against this as it would have had a negative effect on businesses already struggling from Covid-19 restrictions. National Minimum Wage rate increases are similarly constrained, although the apprentice rate will go up by 3.6%. Future and current rates are:

Age From 1 April 2021 Current
National Living Wage 23 and over (currently 25 and over) £8.91 £8.72
National Minimum Wage 21 to 22 (currently 21 to 24) £8.36 £8.20
National Minimum Wage 18 to 20 £6.56 £6.45
National Minimum Wage 16 to 17 £4.62 £4.55
Apprentices under 19 or in first year £4.30 £4.15

 

Apprentices over 19 who have completed the first year of their apprenticeship are entitled to the rate for their age. The provision of accommodation is the only benefit that counts towards national minimum pay, with the maximum offset increasing to £8.36 per day (£58.52 per week).

What counts as working time?

If you are required to work off-site from the main premises, deciding when to charge for your time is not always straightforward. For example:

  • Count time on standby near the workplace, or waiting to collect goods, meet someone for work or start a job, but not rest breaks.
  • Count time travelling in connection with work (including travelling from one assignment to another) and for training, but not travelling between home and work.

For example, if an employee has an appointment in the morning, then travels to the office to work there she should be paid minimum wage for the duration of the appointment plus the journey to the office. The break she takes for lunch at the office, however, is unpaid.

HMRC has a calculator to check if you paying the correct amounts of National Living Wage and National Minimum.

Social media suggestion
The government announced increases to both the National Living and National Minimum wages, although Covid-19 curtailed more substantial rises.

Photo by Annie Spratt on Unsplash

 

Tougher criteria for third SEISS grant

Written by admin on . Posted in COVID-19, Self-Employed, Tax. No Comments on Tougher criteria for third SEISS grant

Applications for the third Self-Employment Income Support Scheme (SEISS) grant opened from 30 November, and you have until   29 January 2021 to make a claim. Be warned, however, that some of the conditions for this grant are different from those applicable to the previous grants.

Due to Covid-19, you must either:

  • Be currently trading but impacted by reduced demand, or
  • Have been trading but are temporarily unable to do so.

This status must be met during the period 1 November 2020 to 29 January 2021.

Additionally, you must declare that:

  • You intend to continue to trade, and
  • You reasonably believe there will be a significant reduction in your trading profits.

Make sure you keep evidence showing how your business has been unable to operate as normal due to Covid-19, so that your case for a loan is robust. The criteria are defined as follows.

  • Reduced demand – You have fewer customers or clients than you would normally expect, or contracts have been cancelled and not replaced. Simply having increased costs is not a reason for making a claim.
  • Temporarily unable to trade – Your business has had to close due to government restrictions, or you have been instructed to shield, self-isolate, have tested positive for Covid-19 or cannot work due to parental caring responsibilities. You cannot claim if you can work from home or have to self-isolate after going abroad.
  • Significant reduction – There must be a reduction in your trading profit for the whole accounting period, not just between 1 November and 29 January 2021. If you prepare accounts to 31 March or 5 April this shouldn’t be too difficult to establish, although there is a disincentive to work longer hours to make up lost income. It is impossible to apply if you are just starting your accounting period with, say, a 31 October 2021 year end, but it seems likely that HMRC will overlook this as profits will not be reported until 31 January 2023. The first two SEISS grants must be included in your 2020/21 trading profit.

HMRC has further guidance on what is meant by reduced demand and temporary closure, along with some examples.

If you are planning on applying for the third SEISS grant and need clarification, please get in touch.

Photo by Arthur Osipyan on Unsplash

Surviving Winter In the Midst of A Pandemic

Written by admin on . Posted in Bounce Back Loans, COVID-19, Restructuring & Insolvency. No Comments on Surviving Winter In the Midst of A Pandemic

A recent survey of small businesses has revealed that only a quarter of them are confident of their survival into 2021, with many worried about cash flow. Those businesses that took out Bounce Back Loans (BBLs) have already used up most of this funding.

Cash flow

Some two-thirds of businesses are waiting longer to be paid, with a significant number having had their customer payment terms renegotiated to three months or more. As they wait longer for cash to come in, these businesses in turn are withholding payments to suppliers.

If cash flow is an issue, businesses need to view sales and contracts in a completely different light. Payment terms are likely to be more important than short-term profitability.

The latest high-profile corporate collapse will see creditors of the Arcadia Group badly hit. With such giants of the high street unable to survive, it is essential to check a customer’s financial health before going ahead with a large sale or contract.

Coronavirus Business Interruption Loan Scheme (CBILS)

The CBILS is going to be the key to winter survival for many cash-strapped businesses. Now, here’s the really interesting bit; whilst it is not possible to benefit from both the CBIL and a BBL, a BBL can normally be refinanced into a CBILS. The CBILS borrowing limit is £5 million, so considerably more than the BBL maximum of £50,000, and with four times the number of lenders in the CBILS, there is much more choice.

There are, however, some downsides:

  • The government only guarantees 80% of the loan, rather than 100%.
  • Interest rates are set by the lender, rather than a set rate of 2.5%.
  • The application process can be more onerous, rather than just making a self-declaration.
  • Repayment terms are stricter, with, for example, no automatic repayment holiday.

The CBILS runs until 31 January 2021, although, with lenders reporting high levels of demand, don’t wait to apply.

Details of how to apply for a CBILS can be found on the British Business Bank’s website.

 Photo by Matthias Kinsella on Unsplash

Known Knowns and Not knowing What You Don’t Know

Written by admin on . Posted in BREXIT. No Comments on Known Knowns and Not knowing What You Don’t Know

One of my favourite quotes from the Bush II administration (and there were a few) is the famous quote from then Secretary of Defence, Donald Rumsfeld who famously said:

“Reports that say that something hasn’t happened are always interesting to me because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tends to be the difficult ones.”

Reliable reports have it that with less than a month to go until the Brexit transition period ends, just one in five businesses have a good understanding of the risks and enough preparations in place, according to a survey by one of the largest accountancy firms EY. Many firms believe that after some initial challenges, business as usual will resume soon after 1 January 2021. In reality, whether or not the UK and EU succeed in negotiating a trade deal, there will be massive changes to the UK’s trading, regulatory and immigration systems. Business disruptions are guaranteed and it is still unclear how many new processes will work effectively.

Businesses that trade goods with the EU will be significantly affected, regardless of whether there is a trade deal. And getting ready for the new processes takes time. Businesses that trade with Europe will have to make customs declarations for, and pay the relevant tariffs on, goods moved between the UK and Europe. You may need to take advantage of one of the specialist services available to complete the often complex forms. Some businesses may be able to delay declarations and duty payments, but there are conditions.

Moving goods between Great Britain and Northern Ireland will be subject to special rules under the Northern Ireland Protocol. Businesses involved in such trade can sign up to a free government trader support service but need to be preparing now.

There will also be new rules for providing services. If you rely on professional qualifications to practice in the EU, you may need to act to get them recognised by EU regulators. You may need a work permit or visa if you travel on business to the EU and Brexit will also affect the cross-border transfer of personal data.

It will be more difficult for businesses to hire workers from the EU. A points-based immigration system will treat EU and non-EU citizens equally and only businesses registered as licensed sponsors will be able to hire non-UK workers.

Opportunities to supply the public sector in the UK will be advertised on a new UK internet portal instead of on the EU Tenders Electronic Daily.

The UK will also leave EU intellectual property systems and this will affect how the rules for trademarks and designs operate. You may have to take steps to ensure your intellectual property is protected in your main markets.

So, returning to Mr Rumsfeld’s quote, I’ve come up with a shorter version: “Whilst I May Not Know What I Don’t Know, I Do Know What I Do Know” and the above represent just some of the known changes. It is essential that businesses watch out for announcements of changes to UK and EU guidance and be ready to act upon them. Further information on some of these issues is available at https://www.gov.uk/transition.

Photo by KE ATLAS on Unsplash