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Don’t forget to include Covid-19 payments on self-assessment returns

Written by admin on . Posted in COVID-19, Income Tax, self-assessment. No Comments on Don’t forget to include Covid-19 payments on self-assessment returns

With the 2021 self-assessment tax return deadline on 31 January, HMRC has been busy reminding taxpayers to declare any Covid-19 grant payments they might have received. This is the first year they need to be included.

Most self-employed taxpayers will have received Self-Employment Income Support Scheme (SEISS) grants during the Covid-19 pandemic, and now must include the following related grants and payments in their tax returns:

  • Business support grants (from local authorities or devolved administrations);
  • Furlough payments;
  • Eat Out to Help Out;
  • Coronavirus statutory sick pay (SSP) rebates; and
  • Test and trace/self-isolation payments.

All grants are taxable.

Reporting

There is a separate entry on the self-assessment tax return to report SEISS grants. All other grants and payments should be shown in the “any other business income” box.

The tax-return process is a bit more complicated for partnerships; other grants and payments go on to the partnership tax return, with each partner’s respective SEISS grants included on their personal returns.

If you have already submitted your 2021 tax return and omitted any Covid-19 grants or payments, then amend the return as soon as possible.

Which SEISS grants?

The first three SEISS grants should be included in your tax return, with the fourth and fifth grants not due to be reported until next year. The payment windows for these three grants were:

Grant Payment window
First 13 May to 13 July 2020
Second 17 August to 19 October 2020
Third 29 November 2020 to 29 January 2021

If you cannot pay

If you are unable to pay your self-assessment tax bill in full by 31 January, you can use HMRC’s self-serve time to pay facility. This online payment plan lets a taxpayer create a bespoke monthly payment plan based on how much tax is owed and the length of time needed to pay.

The facility can only be used if the tax owed does not exceed £30,000, the 2021 tax return has already been filed, you are within 60 days of the 31 January payment deadline and the debt will be paid off within 12 months.

On owing tax that does not exceed £30,000, HMRC recently outlined that taxpayers will no longer be liable for late penalties if bills are paid in full, or set up a Time to Pay arrangement, by 1 April. In the same announcement, HMRC said taxpayers who cannot file their return by the 31 January deadline will not receive a late filing penalty if they file online by 28 February.

You will need to call the self-assessment helpline should you owe more than £30,000 or need longer to pay.

HMRC guidance on reporting Covid-19 grants and payments can be found here.

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New Covid-19 business support package

Written by admin on . Posted in Business Rates, COVID-19. No Comments on New Covid-19 business support package

A new support package has been announced to assist businesses impacted by the Covid-19 Omicron variant. Applications are open to the end of February, but many have said the measures don’t go far enough given the extensive losses suffered in the hospitality and leisure sectors over the festive period.

Although no businesses were legally required to close when the move to Plan B was announced in December, the use of face masks was extended, Covid-19 passes required for some venues and people encouraged to work from home. Combined with advice to limit socialising, these measures led to dramatic falls in the number of people going to pubs, restaurants and shows.

Business grants

Around 200,000 businesses in the hospitality and leisure sectors in England, such as restaurants, hotels and pubs, are eligible for one-off grants of up to £6,000 on a per-property basis. Businesses must be solvent to qualify. The amount of grant is dependent on the property’s rateable value.

 

Rateable value Amount of grant
Up to £15,000 £2,700
£15,001 to £51,000 £4,000
Over £51,000 £6,000

The scheme will close for applications on 28 February, with payments made by 31 March at the latest.

Grants may well be paid automatically, but you should keep an eye on your local authority’s website just in case you need to register to apply. The Chancellor has so far refused to bring back any form of furlough, and – based on previous experience – grants may not be paid to businesses for several weeks.

Extra funding has been made available to the devolved administrations so they can provide similar support.

Some £100 million of discretionary funding has also been provided for English local authorities to support other businesses, such as those who supply the hospitality and leisure sectors, so keep checking your local authority’s website to see what may be on offer as some may allocate funding on a first-come-first-served basis. Additional funding is available to support theatres, museums and orchestras.

Guidance on the new local authority business grants can be found here.

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Student loans – normal debt rules do not apply

Written by admin on . Posted in Student Loans, Uncategorized. No Comments on Student loans – normal debt rules do not apply

The issue of student loans weighs heavily on students and their families, and even political parties – remember the Lib Dems? But the name itself has created misunderstanding about how they operate and the best way to manage them.

A recent article published by MoneySavingExpert.com debunks some of these common myths. Because normal debt rules don’t apply, a student loan should usually be taken instead of self-funding fees, and it is generally not worth trying to pay a loan off early.

This approach to student debt is, of course, the complete opposite to the approach towards normal debt, such as borrowing to buy furniture. The misconceptions surrounding student debt are because the amount borrowed to pay fees and living costs are largely irrelevant; what is important is how much has to be paid back. Also, in regard to student loans:

  • There are no debt collectors;
  • There are no entries on credit files; and
  • The impact on mortgage affordability checks is not the amount of debt but just the value of the repayments.

Repayment

English and Welsh students don’t make any repayments until annual income exceeds £27,295, with repayment at the rate of 9% on the excess. So only those with reasonably well-paid jobs pay back the debt. After 30 years, any remaining debt is wiped out.

Anyone nearing retirement is in a very appealing position if they take out a student loan to study for a degree. Unless they will have substantial pension income, they will never have to repay.

Do not self-fund

Given the way student loans are repaid, self-funding university costs can be a bad idea. Self-funding means 100% of the costs are paid, but someone who earns less than £27,295 will effectively get their degree for free.

Even worse is where parents borrow to avoid taking out a student loan – it is much better to help out children later in life with a mortgage deposit.

Early repayment

Although it is usually a good idea to repay debt as quickly as possible, this may be a bad decision when it comes to a student loan.

Overpaying a student loan each month is pointless if that person will not fully repay the loan within 30 years. Even someone with a good income may not make full repayment given the relatively high rate of interest that can be charged.

Guidance on repaying student loans can be found here.

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Freeports up and running

Written by admin on . Posted in Capital Gains Tax, National Insurance Contributions, Stamp Duty, Tax. No Comments on Freeports up and running

The first eight Freeport designated tax sites have now opened in Teesside, Humber and Thames. Freeports and their tax sites benefit from various incentives and tax breaks, but it remains uncertain whether they will provide the promised boost to the UK economy.

The question to what extent economic activity will simply be moved from one place to another just so businesses can benefit from the incentives and tax breaks offered by Freeports and their tax sites. These designated tax sites are relatively small areas within each Freeport. There are currently two tax sites in the Humber Freeport, and three each in Teesside and Thames.

Freeport advantages

Outside of the tax sites, the main advantage of operating within a Freeport is being able to bring in imports with simplified customs documentation and delayed payment of tariffs; particularly relevant if goods are manufactured using the imports, and then exported.

The government has recently published guidance regarding when goods can be moved into, or stored in, a Freeport.

Tax incentives

Some of the tax breaks are not as beneficial as they might first appear. The tax breaks include:

  • National Insurance Contributions (NICs): Relief will be available from April 2022 for new hires working at least 60% of the time at a single tax site. There is a 0% rate of employer NICs, but only on annual earnings up to £25,000.
  • Capital allowances: For new plant and machinery used primarily in a tax site, a 100% deduction is given. This is only worthwhile if either the 130% super-deduction or the 100% annual investment allowance is not available.
  • Structures and buildings allowance: Qualifying buildings situated within a tax site can be written off over ten years rather the usual 33⅓-year period. For example, the annual write-down for a warehouse that costs £1,200,000 will be £120,000, compared to £36,000 if the warehouse was situated elsewhere.
  • Stamp duty land tax (SDLT): Full relief is given when buying land and buildings situated within a tax site. The land and buildings must be used for a qualifying commercial purpose, with residential property excluded. Continuing with the above example, if the warehouse and land cost £1,600,000, then SDLT of £69,500 will be saved.

Maps of the current Freeport locations and their designated tax sites can be found here.

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Temporary changes to sickness absence rules…………

Written by admin on . Posted in COVID-19, Employment Law. No Comments on Temporary changes to sickness absence rules…………

The government has introduced temporary sickness absence rules, effective 10 December 2021 until January 26th 2022.

The new rules provide an exemption the provision of proof of sickness until 28 days of being off work. Guidance for employees, employers and line managers.

The new rules are introduced to provide relief from GPs having to provide fit notes during the period so they can concentrate on working on the Covid booster programme.

For further information on this, click here

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Universal Credit eligibility expands to higher rate taxpayers

Written by admin on . Posted in COVID-19, Income Tax, self-assessment, Self-Employed, Tax. No Comments on Universal Credit eligibility expands to higher rate taxpayers

Autumn Budget reforms have created a surprising clash of benefits and income tax.

The Covid-19 pandemic was the first time many people utilised Universal Credit (UC) for the first time – between February and May 2020, the number of households claiming UC rose by 1.7 million to 4.2 million. In March 2020, the UC standard allowance was temporarily increased by the equivalent of £1,000 a year, but in October 2021, that extra payment came to an end. In its place, the Budget contained announcements of two UC improvements that are now in effect:

  • All working elements were increased by £500 a year, meaning that an extra £500 of net income can be earned before any clawback of UC started; and
  • The rate of clawback was reduced from 63% to 55%. As a result, if an extra £100 of net income is received and this leads to a reduction in UC payments, the loss of UC will be £55 rather than the previous £63.

So what?

The Institute for Fiscal Studies (IFS) has looked at this question and produced a surprising answer. The lower taper rate, applying to a higher starting point, now means that it is possible for higher rate taxpayers to be eligible for UC, a situation that once only applied in Scotland, where the higher rate threshold is £6,608 lower than in the rest of the UK.

One example the IFS gave is that a single earner couple with two children and monthly rent of £750 could have earnings of up to £58,900 a year in 2020/21 before losing all their UC entitlement – £9,600 more than before the Budget announcement. Not only is that ceiling well into the higher rate tax band, it is also above the £50,000 level at which the notorious High Income Child Benefit Tax Charge begins to take effect.

There are many assumptions underlying that IFS calculation, not the least of which is that the couple are not disqualified from any UC entitlement by having savings of above £16,000. In practice, the IFS calculates that 26% of all families will be entitled to UC, a proportion that rises to 84% for lone parents.

The interaction of the tapering of UC, higher rate tax and child benefit tax is complex. If you think you might be caught by that trio, make sure you understand the ramifications – you might find an extra £100 of gross earnings are worth less than £10 net.

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Cryptoassets tax confusion

Written by admin on . Posted in Capital Gains Tax, Cryptocurrency, Income Tax, Tax, Wealth. No Comments on Cryptoassets tax confusion

HMRC is sending letters to taxpayers who they believe hold cryptoassets, advising them of the potential capital gains tax (CGT) implications and linking to relevant guidance. Many taxpayers will be unaware that simply exchanging one type of token for another is a disposal for CGT purposes.

It is estimated that more than two million people in the UK hold cryptoassets. Although certain transactions will be taxed as income, most are subject to CGT.

HMRC is particularly concerned that people wrongly believe their crypto transactions to be tax free. The buying and selling of crypto assets is not considered to be the same as gambling.

What is a disposal?

There is a CGT disposal if you:

  • Sell tokens (even if the proceeds are not withdrawn from the exchange);
  • Exchange one type of token for a different type of token;
  • Use tokens to pay for goods or services; or
  • Make a gift of your tokens to another person (unless it’s to your spouse or civil partner).

There is no disposal if, for example, you simply move tokens between different wallets.

CGT treatment

For CGT purposes, tokens are treated similarly to shares, so each type of token is pooled.

If tokens are exchanged, an appropriate exchange rate must be established in order to convert the transaction to pound sterling. With more than a few transactions, things can easily become complicated. Software is available to help work out your tax bill.

Example

An investor purchases a new token using some of their Ether tokens. The new token increases in value, so the investor converts the new token back to Ether. Both transactions are disposals, so CGT will be due if the £12,300 annual exemption is exceeded. There may be no funds to pay this bill, but any further sale of Ether to realise cash will be another disposal, meaning more tax.

The guidance highlighted in HMRC’s letters, which was set out three years ago, can be found here.

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Treasury sets aside CGT and IHT change agendas

Written by admin on . Posted in Capital Gains Tax, Inheritance Tax, Lasting Will & Testaments, Tax, Wealth, Wills & Probate. No Comments on Treasury sets aside CGT and IHT change agendas

Tax and Administration Maintenance (TAM) Day is a new phenomenon brought in by the Treasury to try and move away from the traditional all-in-one Budget. Following the first ‘Tax Day’ in March, the end of November saw another round of announcements.

The government set out steps to modernise and simplify the UK tax system, but of more interest is the response to the Office of Tax Simplification’s (OTS) reviews into inheritance tax (IHT) and capital gains tax (CGT).

Inheritance tax

The review into IHT had made various recommendations, particularly regarding exemptions and reliefs as these can be quite complicated. Given that the nil rate band and the residence nil rate band are frozen until 2025/26, the government has decided not to proceed with any IHT changes for the time being, although the door has been left open for changes in the future.

Reduced IHT reporting requirements from 1 January 2022 have already been announced, and the latest confirmation of the status quo will be welcomed by anyone who has recently undertaken IHT planning.

Capital gains tax

Wide ranging and more radical OTS suggestions on CGT, such as aligning the rate of CGT with income tax rates and significantly reducing the amount of the annual exemption, have been put on hold for now.

The time limit for reporting and paying CGT in respect of residential property disposals has already been extended from 30 days to 60 days. Other measures that the government intends to go ahead with include:

  • Integrating the different ways of reporting and paying CGT into a single customer account;
  • Extending the no gain, no loss window on separation and divorce; and
  • Relaxing the rollover relief conditions where land and buildings are acquired under a compulsory purchase order.

Although less definite than the above, the government will also review principal residence relief nominations and the rules for enterprise investment schemes; however, any changes are expected to be merely procedural in nature.

Details of the government’s response to both of the OTS’s reviews can be found here.

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Import VAT confusion continues

Written by admin on . Posted in VAT. No Comments on Import VAT confusion continues

The system of postponed VAT accounting for import VAT has been up and running since the start of the year, but there is still a lot of confusion. You may be experiencing some of these common problems.

Monthly statements

Some importers have had difficulty accessing their monthly import VAT statements. The trick is to start from the link here, rather than trying to directly log on via your Government Gateway.

Remember that import VAT statements are only available online for six months from the date of publication, so they should be downloaded and stored securely.

No feedback

Despite importing goods, you might not have paid any import VAT or received any paperwork. What has most likely occurred is the freight agent has defaulted to postponed VAT accounting without asking you. As a matter of urgency, you therefore need to enrol for the customs declaration service given the six-month statement availability. You can then declare, and normally reclaim, the import VAT on your VAT returns.

No import VAT shown

The lack of a VAT figure on an invoice for imported goods can be confusing, and different freight agents may well adopt different approaches.

Import VAT will generally be dealt with by VAT return entries under postponed VAT accounting, as explained above. However, the freight agent may have paid the VAT to release the goods, and you will then receive a form C79 from HMRC. This document is used to reclaim the VAT paid.

Form C79 not received

If you have not received a form C79 from HMRC, it may be because:

  • The form is sent by post, so it might have got lost; or
  • The freight agent may have defaulted to postponed VAT accounting without telling you.

Accounting software

Finally, there is also the common problem of accounting for the import VAT. The correct VAT coding will be particularly important for partially exempt businesses because they may not be able to recover all of the VAT. If in doubt, the best advice is to get help from your software provider; each accounting package may well have a different approach to dealing with import VAT.

You can check when it is possible to use postponed VAT accounting here and of course we’re here to help.

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CGT reporting and payment deadline extended

Written by admin on . Posted in Budget, Capital Gains Tax, Property, self-assessment, Tax. No Comments on CGT reporting and payment deadline extended

I’ve taken a few calls recently, from a number of clients, on CGT on disposal of UK residential property, and although information on this is already in the public domain, here’s a brief summary in case anyone else (non-tax professionals that is) needs clarification on the new regime.

For disposals of UK residential property completed on or after 27 October 2021, the reporting and capital gains tax (CGT) payment deadline has been extended from 30 days after completion to 60 days. The previous 30-day time limit has proved to be quite challenging for taxpayers.

For UK residents, the government has clarified that where a gain is made on the disposal of a mixed-use property, the 60-day time limit only applies to the residential element.

Non-residents

The new deadline also applies to non-UK residents who have to report and pay CGT on the disposal of any type of UK property, whether it is residential or commercial.

Non-UK residents have faced particular problems because a Government Gateway login is required in order to set up a CGT on UK property account. Activation codes are sent by post, so they are often received outside the 30-day time limit. The alternative means having to complete a paper reporting form. The extra 30 days to report and pay should help but setting up a Government Gateway could still be problematic for those living overseas.

Ongoing issues

One of the biggest ongoing issues is that taxpayers are simply not aware of the reporting and CGT payment requirement when they make a property disposal.

  • It seems that solicitors and estate agents are not mentioning the requirements.
  • Accountants are often not informed until the tax return submission comes round. This could be up to 22 months after the completion date.

There is also a problem for self-assessment taxpayers who find they have overpaid CGT via their property account. In theory, the refund should be included within the self-assessment calculation, but this is not happening. It might be possible to obtain a CGT refund by amending the original property return, but otherwise it means having to phone HMRC.

If you believe you are affected, please get in touch with us as soon as possible so we can help you process your requirements. The start point for reporting and paying CGT on UK property can be found here.

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