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Positive news for business rates from the Chancellor

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The Autumn Budget announcements included a series of measures to alleviate the burden of business rates in England. For 2022/23, 50% relief will be available for eligible retail, hospitality and leisure properties, and the business rates multipliers will again be frozen.

2022/23 measures

The business rates multipliers for the current year have already been frozen at 2020/21 levels, and this measure will continue until 31 March 2023, keeping the multipliers at 49.9p (small business) and 51.2p (standard).

Many businesses already pay no business rates due to small business rates relief, and retail, hospitality and leisure properties currently benefit from a 66% discount. For 2022/23, retail, hospitality and leisure properties not qualifying for small business rates relief will receive a 50% business rates discount, subject to a cash cap of £110,000 for each business.

Eligibility for the 2022/23 50% discount will not be as wide as the current 66% discount, although detailed guidance has not yet been published.

Longer term

The Budget announcements are a far cry from the hoped-for radical reform of business rates, although a raft of other measures effective from 2023 will help over the longer term. These include:

  • Revaluations to take place every three years starting from the next revaluation in 2023 (recently, the interval has been longer than the scheduled five years);
  • A 100% improvement relief will provide relief for 12 months from any additional rates charge where improvements increase a property’s rateable value. Most plant and machinery has no impact on rateable value, but the new relief will help, for example, if CCTV is installed or bike sheds added.
  • For green investments, an exemption from higher rates bills will apply where, for example, rooftop solar panels or electric charging points are installed. A 100% relief will also be provided for eligible low-carbon heat networks.

Details of current business rates relief for properties in England can be found here.

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No room for giveaways in OBR risk report

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The Office for Budget Responsibility has given Rishi Sunak its new worry list. It gives the Chancellor little wriggle-room for potential Budget generosity.

Every other year the Office for Budget Responsibility (OBR) must issue a Fiscal Risks Report (FRR). Unlike the six-monthly economic outlooks the OBR produces for Budgets and (theoretically) Spring Statements, the FRR takes a longer view of the UK’s financial position and the risks it faces. Past reports have been, in the OBR’s words, “encyclopaedic”, but in 2021, the FRR focused on just three areas:

Coronavirus (Covid-19) pandemic The OBR says that despite all that has been spent to date, there is an as yet unfunded need for another £10 billion a year to cover:

  •  NHS programmes such as test and trace, revaccinations and the backlog of
  • 5 million elective treatments;
  • catch-up schooling for pupils; and
  • ‘the holes in the fareboxes’ of the railways and Transport for London created by the collapse in passenger numbers.

Climate change Although the government has committed to the climate change agenda, the OBR highlights one elephant in the room that would frighten any politician: the loss of revenue from fuel and excise duties in an all-electric world. The OBR says these are worth about 1.5% of Gross Domestic Product (GDP) – £33 billion. In the short term some of the lost income may be replaced by carbon taxes, but in the long term the hole will have to be filled.

Government debt Government debt is currently just about equal to one year’s output of the UK economy, against 40% in 1980. However, at present the net interest the government pays on that debt is less than a quarter of the 1980 bill (as a proportion of GDP). Ultra-low interest rates are the reason, but the corollary is that even only a small rise in rates would increase that cost significantly.

Last month, the Chancellor asked the OBR to work on its next six-monthly report for presentation on 27 October. That might be Budget Day, although many commentators believe Mr Sunak will wait until spring, ditching the Autumn Budget once again. Whether or not that happens, the OBR’s message is that the Chancellor cannot afford any giveaways. You have been warned.

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HMRC Official rate of interest, beneficial Loans et al

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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

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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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Some ‘new’ tax year opportunities

Written by admin on . Posted in Budget, Capital Gains Tax, Employment Tax, self-assessment, Self-Employed. No Comments on Some ‘new’ tax year opportunities

“A bit late in the day, Femi” I hear you thinking. But is it? Some tax planning should happen before the end of the tax year; but the start of a new tax year also presents opportunities. With many people experiencing a drastic change to their circumstances due to the pandemic, it is more important than ever to keep on top of your tax affairs.

If your income is now at a different level than pre-pandemic, you need to re-evaluate any previous tax planning. For example:

  • Child benefit – A claim may now be worthwhile if income is below £60,000. Act soon to benefit from a full claim for 2021/22.
  • Marriage allowance – A claim may now be possible if neither you nor your spouse/civil partner is a higher rate taxpayer. You can claim for 2021/22 or backdate a claim for three years.
  • Working from home – Employees can claim a £26 per month deduction if required to work from home. Claim for 2021/22 or backdate a claim to 2020/21. Although the tax year 2020/21 has ended, some carry backs are possible. Gift Aid donations and SEIS/EIS investments made during the current tax year can all be carried back.

Investments

Savings rates hit record lows last year, and many companies cut their dividend payments. You may also have used up savings to replace lost income. Therefore, make sure you and your partner are making the best use of the savings and dividend allowances, and decide whether any ISA saving is still the best option.

You might also have had to realise investments during 2020/21. If you are now facing a CGT bill, it might be possible to crystallise some capital losses to offset against the gains. This is done by making a negligible value claim for assets that have become virtually worthless.

Tax payments

Some simple procedural checks can make a difference:

  • Employees – Check your PAYE codes for 2021/22. Your allowance might be too low if deductions have increased (such as professional subscriptions) or taxable investment income has fallen.
  • Self-employed – If profits have fallen, you might be able to reduce payments on account. This will reduce the payment coming up in July, as well as obtain a refund from this January’s payment.

A good starting point when reviewing your tax affairs is HMRC’s income tax webpage. This contains many useful links and can be found here.

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Freeport tax incentives

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Among the development measures the Chancellor announced in the March Budget were eight new freeports in England. These are due to enter operation in late 2021, with each freeport including a defined tax site within which a range of tax incentives and reliefs for businesses will apply. These tax breaks will mostly last for five years.

Discussions are ongoing regarding the creation of freeports in Scotland, Wales and Northern Ireland. Businesses operating within a freeport’s tax site will benefit from several incentives:

  • Enhanced capital allowances – Investment in plant and machinery that is new and unused will qualify for a 100% deduction against profits, regardless of whether the expenditure falls into the main or special rate capital allowances pool. The assets purchased must primarily be for use within the freeport tax site. Relief will be available from when a site is designated until 30 September 2026.
  • 10% rate of structures and buildings allowance – This enhanced rate will mean that investment in non-residential structures and buildings within a freeport tax site will be written off over ten years rather the usual 33⅓-year period. To qualify, the structure or building will have to be brought into use by 30 September 2026.
  • Relief from stamp duty land tax – Land and property purchased in an English freeport tax site and used for a qualifying commercial purpose will benefit from 100% relief, with relief available from designation until 30 September 2026.
  • Business rates relief – Full relief will be available for all new businesses and certain existing businesses where they expand. Relief will apply for five years from the point at which relief is first given.
  • Employer NICs – Still to be confirmed, but the intention is to give full relief from employer NICs for employees working in a freeport tax site. Relief will run from April 2022 (or when a site is designated) to April 2026 but could be extended until April 2031.

The government published a series of questions and answers following the freeport bidding process which can be found here.

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Businesses prepare for long term tax hike

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The 3 March Budget provided an immediate sweetener for businesses in the form of a temporary extension to carry back of trading losses, plus, for companies only, a temporary super-deduction for investment in plant and machinery. However, in two years’ time, the main rate of corporation tax will rise to 25%.

Trading losses

The period over which businesses can carry back trading losses has been extended from one year to three years:

  • For the self-employed, a maximum £2 million of trading losses made in either 2020/21 or 2021/22 can be set against trading profits of the three previous tax years.
  • For companies, carry back against total profits is extended to 36 months for loss making accounting periods ending between 1 April 2020 and 31 March 2022. The £2 million cap applies to claims beyond the normal 12-month carry back.

Super-deduction

From 1 April 2021 to 31 March 2023, companies investing in qualifying plant and machinery will benefit from a 130% super-deduction. This means that for every £10,000 spent, there will be a £13,000 deduction against profits, saving corporation tax of £2,470. Currently, the tax saving would be just £1,900 within the annual investment allowance. The super-deduction is for those assets that would normally qualify for the 18% writing down allowance. However, only expenditure on new plant and machinery qualifies; motor cars are also excluded.

There is also a 50% first-year allowance for expenditure falling into the special rate pool, but this is less generous than the 100% annual investment allowance.

Corporation tax

From 1 April 2023, there will be two rates:

  • A small profits rate of 19% where profits are below a £50,000 lower limit, and
  • A main rate of 25% where profits exceed a £250,000 upper limit.

 

Where profits are between the lower and upper limits, a marginal taper will apply so that the rate of tax is gradually increased from 19% to 25%. However, this means the rate on this band of profits will be an even more punitive 26.5%.

Some examples of how the temporary loss relief extension will apply for both the self-employed and for companies can be found here.

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Covid-19 relief measures extended again

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The latest, and hopefully last, lockdown is not due to be completely lifted until at least 21 June, so it was no surprise to see Covid-19 relief measures extended in the Budget on 3 March. The furlough scheme will now run until 30 September and there will be two more self-employed grants, plus various other measures.

Furlough (CJRS)

Furloughed employees can continue to receive 80% of their wages for hours not worked, up to a cap of £2,500 per month, until 30 September. By continuing for a few months after restrictions end, the scheme will help businesses slowly recover from the disruption they have faced.

The current level of support will continue until 30 June. In July, the scheme will then only cover 70% of wages for the hours not worked, up to a cap of £2,187.50. This will reduce to 60% for August and September, with a cap of £1,875. Employers will need to pay national insurance contributions and pension contributions throughout.

Self-employed grants (SEISS)

There are to be two more grants; a fourth grant in late April, and a fifth grant in late July. However, extra conditions will apply for the fifth grant.

  • The fourth grant will again be worth 80% of three months’ average profits (now including results reported for 2019/20 but capped at £7,500.
  • The fifth grant will be similar if a business’ turnover has dropped by 30% or more. However, if less, the grant will only be worth 30% of average profits (capped at £2,850).

 

Other measures

A range of additional loans and grants were also extended to provide ongoing relief ahead of the gradual easing of lockdown measures:

  • VAT: The temporary reduced rate of 5% for businesses in the tourism and hospitality sectors has been extended until 30 September 2021, with a rate of 12.5% then applying until 31 March 2022.
  • Recovery loan scheme: The government will guarantee 80% of loans between £25,000 and £10 million.
  • Restart grant: Hospitality and leisure businesses in England will receive a grant of up to £18,000 per premise; up to £6,000 for non-essential retail businesses.
  • Business rates relief: The 100% relief for eligible retail, hospitality and leisure properties in England will continue to 30 June 2021, followed by 66% relief until 31 March 2022.

Details of the levels of CJRS support can be found here or get in touch with us for further guidance.

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The Spring 2021 Budget – still some surprises

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A quiet turning of the tax screw.

Just before the Budget arrived on 3 March, it seemed as if the Chancellor would have nothing to say that was not already public knowledge. However, while some of the torrent of leaks were confirmed, none of the pre-Budget pundits correctly predicted the Chancellor’s strategy. Instead of cutting borrowing, Mr Sunak increased it sharply in 2021/22 over the estimates produced just four months earlier in his Spending Review.

The Chancellor’s approach was:

  • To stimulate investment in the next two years with extremely generous allowances. In effect, for every £1,000 a company invests in new plant and machinery, the government will reduce their corporate tax bill by £247.
  • To pay for this largesse and start to repair public finances:
    • From April 2023, when the enhanced investment allowances end, the rate of corporation tax for companies with profits of at least £250,000 will jump by 6%, from 19% to 25%.
    • Many personal tax thresholds, bands and allowances will be frozen until the end of 2025/26.

The big freeze of everything from the pensions lifetime allowance to the inheritance tax nil rate band counts as a stealth tax. Look at the raw numbers and there is no increase in tax – everything stays the same. In practice, the effect of inflation will take its toll. As incomes and wealth rise, thresholds are crossed and tax bands filled more quickly. More people become taxpayers and all taxpayers pay more tax.

A good (or possibly bad) example is the inheritance tax nil rate band, which was set at its current £325,000 level (now running through to 2026) way back in April 2009. Had the band been linked to the CPI inflation index, it would be about £90,000 higher in 2021/22. That difference equates to an extra £36,000 in inheritance tax at the standard 40% rate.

In other words, you may think you were spared higher tax bills by the Chancellor, but that is not necessarily the case. Tax planning is still important and will become more so as the freeze drags on to 2026.

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Get Ready for 2021-2022

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Taking some time to start planning for the 2021/22 tax year might be worth the effort. 

While there is often a focus on planning for the end of the tax year, much less attention is paid to the start of the tax year. The lack of an obvious deadline is probably one reason – deadlines tend to concentrate the mind. Nevertheless, some planning at the beginning of the new tax year can be a rewarding exercise.

  • Estimate your total income for 2021/22 – If you have a rough estimate of what your income will be, it will give you an idea of what to watch out for and what each extra £1 of gross income will be worth. For example, if your estimate is around £50,000, that means you are on the borders of higher rate tax (or well into the 41% band if you are resident in Scotland). £50,000 is also the threshold at which the child benefit tax charge comes into play.
  • Check whether you will cover your allowances – The allowances to which you are entitled often depend upon your income, although the £2,000 dividend allowance applies universally. Couples have the opportunity to cover two sets of allowances, possibly by transferring investments between each other or changing from single ownership to joint ownership.
  • Check your PAYE code – If you have received a 2021/22 PAYE coding, check that it is correct. The wrong code could mean you pay too much tax during the year.
  • Top up your ISA – If it makes tax sense for you to invest in an ISA because of the potential income and capital gains tax savings, then the time to do so is as soon as possible, not just as the tax year end approaches.
  • Consider making pension contributions – The sooner your contribution is invested, the longer it benefits from a tax-favoured environment and the less likely it is to be ‘lost’ in other expenditure.

For more 2021/22 tax planning, get in touch now, and get ahead of the curve.

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