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Bounce Back Loans – Repayment Options

Written by admin on . Posted in Bounce Back Loans. No Comments on Bounce Back Loans – Repayment Options

The bounce back loan scheme (BBLS) has kept many businesses afloat over the past year, but, with the first repayments now starting to become due, many of the 1.5 million businesses that borrowed money could fall into difficulty.

Default position

The BBLS was launched in May 2020, with no interest charged or repayments required for the first twelve months. Bounce back loans are repayable over five years, so 1/60th of the capital is repaid each month, plus the interest accrued for that month, at a fixed annual interest rate of 2.5%. Repayments will therefore reduce over the term of loan as capital is repaid. The first repayment on a £20,000 loan, for example, will be £375.00 (£333.33 capital plus £41.67 interest).

Although loans are guaranteed by the government, banks will be under pressure to recover cash without triggering guarantees. However, since lenders were not permitted to require personal guarantees, even unincorporated businesses are not at risk of having their home or car seized.

Managing repayment

There are various measures that you can take if repaying a BBL is going to cause difficulty:

  • The term of the loan can be extended to ten years so that capital repayments are reduced.
  • You can move to interest-only repayments for a period of up to six months (this option can be used three times).
  • You can pause repayments altogether for a period of up to six months (this option can only be used once).
  • Consider topping up your finances under the recovery loan scheme launched in April, although your existing BBL will be taken into account and you must be able to afford the additional debt.

Your BBL lender will inform you of the first three measures, known as pay as you grow. They will all result in more interest being paid overall. Do let me know if you need advice on how best to deal with repaying your BBL. I can be reached at femi.ogunshakin@nexa.law

Photo by Konstantin Evdokimov on Unsplash

Focus on national insurance contributions

Written by admin on . Posted in DOTAS, Employment Tax, National Insurance Contributions, Tax. No Comments on Focus on national insurance contributions

New government proposals target the promoters of national insurance contribution (NIC) avoidance schemes, while plans are in place to introduce a zero rate of employer contributions in Freeports. Both measures are included in the National Insurance Contributions Bill 2021.

Crackdown on avoidance

NIC avoidance is already within the scope of the Disclosure of Tax Avoidance Schemes (DOTAS) regime, but these measures will strengthen HMRC’s ability to clamp down on the market for NIC avoidance. HMRC will be able to act quickly and decisively where promoters fail to provide information on their NIC avoidance schemes.

One area which has received considerable publicity is the use of mini-umbrella companies, where a temporary workforce is split into hundreds of small, limited companies. Each company benefits from the £4,000 employment allowance, avoiding the annual employer NICs on this amount.

HMRC is on the lookout for particular actions. The new measures target promoters that:

  • Respond by restructuring their business when challenged by HMRC;
  • Engage in protracted circular correspondence; or
  • Simply deny they are a promoter even with clear evidence.

Freeport employees

From 6 April 2022, employers with business premises in a Freeport tax site will be able to benefit from a zero rate of employer NICs (visit www.britishports.org.uk/Freeports to find out more about Freeports). Eligible employees will be those who spend at least 60% of their working time at the site. However, only new hires will qualify, and then only on annual earnings up to £25,000. Relief will apply for 36 months per employee. At current rates, a Freeport employer will save a potential £6,690 in NICs per employee over 36 months.

Relief is available until at least 5 April 2026, although it might run for a further five years. Regardless of whether relief is extended, new hires employed by 5 April 2026 will qualify for 36 months of relief.

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The future of capital gains tax takes shape

Written by admin on . Posted in Capital Gains Tax, Tax. No Comments on The future of capital gains tax takes shape

A recently released report on capital gains tax (CGT) by the Office of Tax Simplification (OTS) has made several recommendations on the future of a tax, about which it says many people have limited awareness or understanding. The 30-day reporting and payment deadline for residential property disposals comes in for particular criticism.

Although around half a million people need to report disposals each tax year, the majority will only be affected on a one-off basis. Reporting may be via self-assessment, 30-day reporting or the real time CGT service, so the OTS has suggested integration into a single customer account.

Residential property

The OTS considers 30 days to be a challenging requirement and has therefore recommended the reporting deadline is increased to 60 days. An alternative proposal suggests estate agents and conveyancers could be more involved.

However, HMRC may well resist extending the deadline given that over £1.3 million was raised in late filing penalties for the last six months of 2020.

Private residence relief nominations

The OTS found a lack of awareness of the nomination procedure for second homes, and recommends:

  • A review of the practical operation of nominations;
  • Raising the level of awareness of how the rules operate; and
  • Using a new, single customer account for nominations.

Some 1.5 to 2 million homeowners are estimated to benefit from private residence relief annually, although a common misunderstanding is to assume all private homes are exempt.

Divorce and separation

Divorced and separated couples do not incur any CGT on transfers between themselves for the tax year of separation, but very few are able to come to an agreement and transfer assets during this timeframe unless separation occurs near the start of the year.

The OTS therefore suggests relief be extended until the later of:

  • At least two years after separation, and
  • Any reasonable time set for the transfer of assets in accordance with a financial agreement.

Whether the government takes on board any of these suggestions may be unveiled in the anticipated autumn Budget.

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Unhappy families – challenging inheritance issues

Written by admin on . Posted in Inheritance Tax, Lasting Will & Testaments, Wealth, Wills & Probate. No Comments on Unhappy families – challenging inheritance issues

The outcome of a recent High Court case is a warning for anyone challenging a will. 

As inheritances become more valuable, the number of disputes about wills have increased. Court cases rose by almost 50% to 188 in 2019 compared to the previous year according to the latest Ministry of Justice figures. Many more are settled or abandoned along the way. The cases which do reach the High Court tend to be those involving the ‘right’ mix of large sums and elevated emotions. An example that appeared in April 2021 is Miles v Shearer.

Tony Shearer died in October 2017, leaving nearly all of an estate worth about £2.2 million to his second wife, Pamela. His two daughters, Juliet and Lauretta, born in the early 1980s to his first wife, received nothing. This prompted them to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975.

Lauretta wanted a payment from her father’s estate to cover:

  • The cost of a home, so that she could move out of her mother’s property;
  • Fees for training as a dog behaviourist, to enable her to support herself; and
  • The expenses of caring for her autistic daughter.

Juliet sought funds to:

  • Reduce her mortgage by about £245,000, so that it would become affordable for her on a repayment basis: and
  • Buy out her ex-husband’s share of a flat in which she was living – about another £100,000.

In 2008, shortly after his divorce, Tony gave £177,000 to Juliet and £185,000 to Lauretta. At the time he made clear there would be no further financial support to his daughters. This was an important factor in the case as it reinforced the decisions Tony made in the creation of his will.

The judge rejected the claims of both daughters, stating that neither had established a need for maintenance to be funded from their father’s estate. Two lessons can be drawn from the case:

  • Make your intentions clear in advance to try to reduce potential disappointment and the likelihood of legal action when a will is finally read.
  • Tony’s will achieved what he wanted to happen. Had he left matters to English intestacy laws, Pamela would have received only £125,000 and personal chattels outright, with Juliet and Lauretta immediately jointly receiving half the residue (less about £285,000 of inheritance tax).

Photo by Morgan Housel on Unsplash

 

Wheat, Chaff and Umbrella Companies – Separating Them Out

Written by admin on . Posted in Employment Tax, IR35, Tax. No Comments on Wheat, Chaff and Umbrella Companies – Separating Them Out

Contractors have turned to umbrella companies as a hassle-free way of providing their services to clients following the recent changes to the off payroll working rules. They receive no tax savings, but pass on some administration and pay less than a standalone limited company would charge. However, not all umbrella companies are equal.

The main advantage to using an umbrella company is that the off payroll working rules will not apply. All of your earnings become subject to PAYE in the hands of the umbrella company. HMRC has published a useful guide explaining how and what you will be paid when working through an umbrella company (www.gov.uk/guidance/working-through-an-umbrella-company).

Employment

You, as the contractor, will be an employee of the umbrella company, and the umbrella company will therefore pay you for the work carried out for clients, whether contracted directly, or via an employment agency. Gross pay is calculated after various costs, such as:

  • the umbrella company’s administration costs;
  • employer NICs;
  • workplace pension contributions; and
  • holiday pay.

As an employee, you are entitled to 5.6 weeks of paid holiday pay a year, and the umbrella company must pay you for this if you leave with holiday entitlement accrued.

However, holiday pay must normally be taken in the year it is accrued and cannot be carried forward. This is one area where an unscrupulous umbrella company can cost you, with some simply pocketing pay for unclaimed holidays.

Tax avoidance

Most umbrella companies are compliant with tax rules, but some use tax avoidance schemes. Be wary of an umbrella company that:

  • Claims they can help you keep more of your earnings than others; or
  • Asks you to sign an annuity, loan or other agreement involving a non-taxable element of pay, especially if this involves a different organisation to the umbrella company.

Moreover, avoidance schemes may come with a high, non-refundable, fee.

HMRC has published guidance to identifying schemes that wrongly claim to increase take-home pay.

Photo by Tim Matras on Unsplash

 

Business Relief, IHT and Holiday Homes

Written by admin on . Posted in Inheritance Tax, Tax, Wealth. No Comments on Business Relief, IHT and Holiday Homes

There are various tax advantages to a rental property being treated as a furnished holiday letting, but inheritance tax (IHT) business relief is generally not one of them. Even though the law supports HMRC’s view, property owners regularly appeal against their refusal to give relief.

The tax advantages

The most immediate benefit is full tax relief for finance costs. For normal rentals, relief is restricted to the basic rate, so a higher-rate taxpayer with a £250,000 mortgage at an interest rate of 2.5% will receive extra tax relief of £1,250 annually.

When it comes to disposing of a property, business asset disposal relief and holdover relief will be available.

Business relief

Some £225,000 in IHT was at stake in the recent appeal by the executors appointed by Sheriff Graham Loudon Cox against business relief being denied. Although the late taxpayer worked hard to ensure guests enjoyed their stay in his three furnished holiday flats, the First Tier Tribunal dismissed the appeal, finding that there was nothing exceptional about the business to elevate it beyond being one of mainly investment.

And that is the essential problem. The level of additional services provided must be sufficient that the activity is considered as non-investment. This needs to be more than just:

  • cleaning;
  • providing heating and hot water;
  • a welcome pack; and
  • being on call to deal with queries and emergencies.

These are considered as simply incidental or ancillary activities. The extra services which would have helped the appeal, such as dog-sitting, childminding, transport, breakfast and supper, were not provided to guests with sufficient regularity. Owners of holiday lets could consider making use of the CGT reliefs by gifting furnished holiday property to the intended beneficiaries during their lifetime. The property then drops out of charge to IHT after seven years.

Details about the reliefs available for furnished holiday lettings, and the qualifying conditions, can be found here.

Photo by Outsite Co on Unsplash

Wealth Divide Increase Through Inheritance

Written by admin on . Posted in Inheritance Tax, Property, Stamp Duty, Tax, Wealth. No Comments on Wealth Divide Increase Through Inheritance

Research by the Institute for Fiscal Studies provides a stark warning of how important inheritances are going to be for younger generations in terms of both lifetime income and wealth.

Wealth passed down from one generation to the next is fast becoming the most important determinant of how well off a person will become, with those born in the 1980s projected to inherit almost twice as much as those born in the 1960s. The average inheritance for those born in the 1980s will be worth 16% of their lifetime (non-inheritance) income. One in ten can expect to receive more than £500,000, and it will come as no surprise that graduates generally have wealthier parents.

Security comes from inheriting property

With a potential £1 million exemption from IHT, your inheritance may well be tax-free if you inherit the family home. Depending on your circumstances, you may then be able to live mortgage-free or enjoy rental income.

Be warned, however, that the inequalities created by inheritances could see a wealth tax imposed at some point.

Struggle for those without family funds

Without parental help, it is becoming increasingly difficult to get a first step on the property ladder. The temporary stamp duty cut should have helped, but any saving has been wiped out by a surge in property prices. Despite this, there is better news:

  • A new government guarantee scheme has been launched, alongside the return of 95% mortgages. Mortgage rates are of course lower for those who can find a 10% deposit.
  • The latest version of the help to buy equity loan scheme means you can borrow up to 20% (40% in London) towards the cost of a newly built home, so a smaller mortgage is then required.
  • First-time buyers will again have a stamp duty advantage later in 2021 once the temporary reliefs come to an end.

Guidance on help to buy, including the equity loan scheme, is available on the government website.

Photo by Elena Mozhvilo on Unsplash

Thinking of retiring anytime soon?

Written by admin on . Posted in Uncategorized. No Comments on Thinking of retiring anytime soon?

A recent survey of people who have retired or plan to retire in 2021 provides interesting insights, whatever your intended retirement year.

The average age of people planning to retire in 2021 is 60, according to a recently published survey by investment manager, Standard Life Aberdeen. That is six years before current state pension age, which will rise from 66 to 67 between 2026 and 2028. Those 2021 retirees will, on average, live for another 25 years if they are men, and 28 if they are women, according to the Office for National Statistics (ONS). A quarter will survive to age 92 and 94, respectively, implying over a third of their life is spent in retirement.

The Class of 2021 report found that 37% of respondents had brought forward their retirement date because of the Covid-19 pandemic – a reminder of the importance of building flexibility into your retirement planning. Perhaps the acceleration of plans also explains why only about two in five felt very confident they were financially ready to finish working this year. The lack of financial confidence also showed up in other responses:

  • Nearly half intended to cut their spending in an effort to support their retirement.
  • Just over a quarter said they would work part-time for the same reason.
  • One in five planned to sell their property or downsize to meet their retirement costs.

Those costs may have been underestimated, as the average planned retiree’s household spending was £21,000 a year, almost a third less than the average 2020 household income, according to the ONS.

The most concerning statistic was not one directly supplied by the retirees, but the result of an assessment by the survey’s sponsor, the Pensions and Lifetime Savings Association.  They calculated that even using the £21,000 annual spending target and allowing for the eventual arrival of the state pension, two thirds of the 2021 retirees were at risk of running out of money. The association’s estimate was that a savings pot of £390,000 was needed to cover 30 years of retirement expenditure.

All food for thought, whatever your planned year of retirement…

Photo by Marc Najera on Unsplash

HMRC Official rate of interest, beneficial Loans et al

Written by admin on . Posted in benefit-in-Kind, Benefits, Budget, Employment Tax, Tax. No Comments on HMRC Official rate of interest, beneficial Loans et al

HMRC’s official rate of interest has been cut from 2.25% to 2% from 6 April 2021. This will affect any directors or employees who have a beneficial loan from their employer, as well as directors who have an overdrawn current account with their company. The official rate is also used in some other tax calculations.

Beneficial loans

Assuming no change to the official rate throughout 2021/22, the cut will reduce the tax payable by a higher rate taxpayer with an employer-provided interest-free loan, of, say, £50,000 from £450 to £400. Alternatively, the director or employee will need to pay interest of £1,000 rather than £1,125 for 2021/22 to avoid the tax charge.

Where an employer-provided loan is cheap rather than interest-free, the benefit charge is based on the difference between the official rate and the amount of interest actually paid. There will be no benefit if:

  • The balance of beneficial loans provided to a director or employee throughout 2021/22 does not exceed £10,000.
  • The loan is for a qualifying purpose, such as buying shares in a close company.

Directors should be particularly careful to not let an overdrawn current account go just over £10,000 at any point during the tax year.

Other uses

The official rate is also used in regard to employer-provided living accommodation and pre-owned assets tax (POAT).

  • Living accommodation – There is an additional benefit charge on the excess of the cost of the accommodation over £75,000. For example, if living accommodation cost £250,000, then the additional benefit charge for 2021/22 will be (£250,000 – £75,000) at 2% = £3,500.
  • Pre Owned Asset Tax (POAT) – There is an income tax charge on certain inheritance tax planning arrangements. Where chattels and intangible assets are concerned, the amount of deemed income subject to tax is the value of the asset multiplied by the official rate.

More detail on beneficial loans from an employer’s perspective can be found here.

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Repaying Furlough Grants

Written by admin on . Posted in Budget, COVID-19, Employment Tax, Tax. No Comments on Repaying Furlough Grants

The government reports that 3,000 businesses have voluntarily repaid over £760 million of furlough grants received under the Coronavirus Job Retention Scheme (CJRS) where the reality of the impact of the pandemic was not as bad as first anticipated.  For those less forthcoming, the government is targeting fraudulent claims.

The March Budget unveiled a new task force to find those who have exploited the various Covid-19 support schemes, including the CJRS. With over £100 million invested, this represents one of the largest responses to a fraud risk by HMRC. The task force will have around 1,000 investigators.

Fraudulent activity

There has been no specific requirement for a business to demonstrate they have been financially impacted by the pandemic to claim under the CJRS. HMRC guidance simply says employees can be furloughed where a business cannot maintain its workforce because operations have been affected by Covid-19.

The new task force is therefore likely to focus on businesses who have:

  • furloughed more people than actually employed, or used inflated wage figures;
  • claimed for workers who continued doing their jobs;
  • not passed the grants on as wages to furloughed employees; or
  • abused the flexible working arrangements.

Given that each CJRS claim provides the opportunity to repay any amounts previously overclaimed, HMRC is likely to consider incorrect claims as deliberate and concealed. This means a penalty of up to 100% of the grant.

Repaying furlough grants

Even if CJRS rules have been complied with, voluntarily repaying a grant where it is not needed creates the right impression for your business.

Regardless of whether repayment is voluntary or because of an overclaim, repayment is normally done with a correction on the next claim. If an overclaim is corrected, no penalty is incurred provided HMRC is notified within 90 days of when the grant was received. You can find out about paying back CJRS grants here.

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