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Businesses prepare for long term tax hike

Written by admin on . Posted in Budget, COVID-19, Tax. No Comments on Businesses prepare for long term tax hike

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

Written by admin on . Posted in Budget, COVID-19, Self-Employed, Tax. No Comments on Covid-19 relief measures extended again

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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What Financial Lessons Have We Learnt From The Pandemic?

Written by admin on . Posted in COVID-19. No Comments on What Financial Lessons Have We Learnt From The Pandemic?

Hard to believe, but we are on the threshold of the second year of the Covid-19 pandemic.

The World Health Organisation declared Covid-19 a pandemic on 11 March 2020, coincidentally the day that Chancellor Rishi Sunak presented his first Budget. At the time, the Chancellor announced a £12bn stimulus to counter the impact of the pandemic. By November, the Office of Budget Responsibility was estimating the cost had reached £280bn.  

The last year has been a traumatic one in which much has changed, perhaps never to revert to the old ‘normal’. It has also provided some useful financial lessons (quick caveat: these are my own personal meandering thoughts, not by any means advice!):

  • Make sure you have an up-to-date will – Early on in Lockdown 1.0 the importance of having an up-to-date will (or, in some cases, any will) was highlighted to many people just as it became difficult to arrange one.

 

  • Relying on a state safety net is dangerous – The pandemic saw the number of Universal Credit (UC) claimants more than double to 5.8 million in the year to November 2020. The lowly level of benefits – even after a £1,000 temporary uplift – was a shock for many of those new claimants, including people who fell between the gaps in the job support schemes.

 

  • Keep an adequate cash reserve – In a world of near zero interest rates, you may be reluctant to leave cash on deposit, earning next to nothing. However, cash gives you valuable flexibility and time to react to changed circumstances.

 

  • Don’t panic – Whether you’re an active investor or simply make pension contributions, watching the performance of world markets has been stressful over the last year. The UK’s FTSE 100 hit its low for 2020 on 23 March, the day that the Prime Minister launched Lockdown 1.0. It was a dark time, but any investor who panicked and sold up at that point, when the FTSE 100 was below 5,000, would have chosen the worst time to pull out. By the end of 2020, the index was 29.4% above its March nadir. That performance was also a reminder of another lesson: trying to predict market timing is almost impossible.

If any of these maxims resonate with you then you may be better prepared for next time.

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Update on Covid-19 support for businesses

Written by admin on . Posted in Business Rates, COVID-19, Self-Employed, Tax. No Comments on Update on Covid-19 support for businesses

More support is available to help businesses in this latest lockdown, expected to last until at least 8 March. Keep up to date with, and claim, any support that your business is entitled to so you can plan cash flow and take remedial action as necessary.

Council grants

The Closed Businesses Lockdown Payment of up to £9,000 supports businesses required to close due to the latest national lockdown. It should be paid automatically if you have previously received a grant, but visit your local council’s website to check. Your business must:

  • be based in England;
  • pay business rates;
  • be required to close because of the national lockdown (closure for any other reason doesn’t count); and
  • be unable to provide the usual in-person customer service (even if a takeaway service is provided).

Fourth SEISS grant postponed

The fourth SEISS grant, promised by the Chancellor in October 2020, will not be paid until after the Budget on 3 March, with no details announced until then. Claims for the third grant opened on 30 November 2020, so the fourth grant will be later than expected. The delay of the payment into March has met with dismay, with some left with no income at all in February. However, it is likely that profits reported for 2019/20 will be taken into account, and this will help anyone who commenced trading after 5 April 2019.

Kickstart Scheme

The Kickstart Scheme, designed to create jobs for 16- to 24-year-olds, commenced last September. The scheme covers the minimum wage for six months, along with the associated employer NICs and pension contributions. The scheme has now been simplified with the removal of the 30-vacancy requirement where an employer applies directly.

Annually paid directors

Many small company directors have not been able to benefit from the furlough scheme if they pay themselves annually. Directors may qualify under the latest version of the scheme, and HMRC has recently published examples outlining how claims should be calculated.

Government support for businesses keeps evolving. Visit business support to find out what support is available.

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Is A Wealth Tax A Viable Option for The Chancellor?

Written by admin on . Posted in Budget, Capital Gains Tax, COVID-19, Property, Tax. No Comments on Is A Wealth Tax A Viable Option for The Chancellor?

The Wealth Tax Commission, an independent body of tax experts, has set out the framework for a one-off wealth tax.  Will the Chancellor be tempted to adopt this?

In his November [2020] statement, in which Chancellor Rishi Sunak highlighted that the government was spending £280 billion this financial year on coping with the Covid-19 pandemic, he is also said:

“[W]e have a responsibility, once the economy recovers, to return to a sustainable fiscal position.”

A wealth tax is one way that has been suggested to repay at least part of the massive debt that has accumulated. The idea was given a boost in December when a 125-page report detailing how a wealth tax could operate was published by the Wealth Tax Commission, which is independent of government. Its main proposals were:

  • The tax should be a one-off, levied at the rate of 5% on individual wealth above £500,000.
  • The definition of wealth would include all So, for example, there would be none of the special reliefs for pensions, farmland or business assets that currently apply under inheritance tax.
  • The valuation date would be on or shortly before the first formal announcement of the tax, to prevent post-announcement forestalling actions. The value of housing and land would in the first instance be calculated by HMRC’s Valuation Office Agency (VOA).
  • In practice the tax payment would normally be at the rate of 1% (plus nominal interest) for five years.
  • Deferred payments could be made by asset-rich, cash-poor individuals. For pensions, payment would be drawn from the tax-free lump sum, when benefits are drawn.

The Commission estimated that such a tax would raise a net £260 billion. It would be payable by 8.25 million people, meaning it would reach many who pay income tax at no more than basic rate.

It should be noted that earlier in the year, (in July 2020 to be exact), Rishi Sunak had said, “I do not believe that now is the time, or ever would be the time, for a wealth tax”. However, as several commentators have noted, the Commission’s report has given the Chancellor cover to increase revenue from two related taxes he currently has under review – capital gains tax and inheritance tax.

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Update on new measures for Covid business support

Written by admin on . Posted in Business Rates, COVID-19. No Comments on Update on new measures for Covid business support

Admittedly, this is coming to you a little later than planned, but hopefully, this blog will provide some useful insight into the measures introduced following the announcement on January 5th of the current national lockdown in which the Treasury announced another round of one-off cash grants for retail, hospitality and leisure businesses to help them through to the spring. There is also further discretionary funding to support other impacted businesses.

The new grants are only for businesses situated in England, with the devolved administrations of Scotland, Wales and Northern Ireland providing their own support.

Grants will be paid on a per-property basis, with the amount dependent on the property’s rateable value:

Rateable value Amount of grant
£15,000 or under £4,000
Between £15,000 and £51,000 £6,000
Over £51,000 £9,000

 

To qualify, a business needs to be legally required to close and not able to operate effectively remotely. The new grants are in addition to any previous business support, such as the recent local restrictions support grant. Grants may well be paid automatically but keep an eye on your local authority’s website in case you need to register or apply.

Discretionary grants

Businesses not eligible for a cash grant can apply to their local authority for financial help if they are affected by the restrictions. Help is aimed at smaller businesses which do not pay business rates but have relatively high ongoing fixed property-related costs. This might include:

  • those in shared offices or other flexible work spaces;
  • market traders;
  • bed and breakfast businesses paying council tax instead of business rates.

 Other recent announcements

Just before Parliament broke for Christmas, the Chancellor extended the employee furlough scheme by another month to the end of April, with the government-backed bounce back loan scheme now available up to 31 March – it was due to end on 31 January. The business interruption loan schemes have been similarly extended.

You can find out what Covid-19 financial support is available for your business by working through the government’s business support finder.

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Lockdown 3.0 – What To Expect

Written by admin on . Posted in COVID-19, Employment Law, Employment Tax, Self-Employed, Tax. No Comments on Lockdown 3.0 – What To Expect

As the third Covid-19 lockdown took effect on 5 January 2021, the Chancellor announced a further £4.6 billion in grants to the retail, hospitality and leisure sectors. This new round of support follows extensions to the job retention and loan schemes revealed on 17 December 2020. There may be more to come with the Budget on Wednesday 3 March 2021.

New lockdown 3.0 grants

An extra £4.6 billion in lockdown grants has been directed at the worst affected sectors.

New one-off grants for closed retail, hospitality and leisure businesses have been announced. The new grants are in addition to all other forms of support, such as the Lockdown Restrictions Support Grant (LRSG (Closed) Addendum) which applied to businesses that were forced to close between 5 November  and 2 December 2020.

The new grants in England will be:

  • £4,000 for businesses with a rateable value of £15,000 or under;
  • £6,000 for businesses with a rateable value between £15,000 and £51,000; and
  • £9,000 for businesses with a rateable value of over £51,000.

In addition, £594 million is being made available for Local Authorities and the Devolved Administrations to support other businesses not eligible for the above grants, that might be affected by the latest restrictions. Businesses should apply to their Local Authorities.

The Devolved Administrations will be receiving additional funding in line with the English measures, with £375 million for Scotland, £227 million for Wales and £127 million for Northern Ireland.

The announcement of the new grants talks of helping business “through to the Spring”, with the Chancellor hinting that additional support measures are to come in the Budget on 3 March 2021.

Coronavirus Job Retention Scheme (CJRS)

The CJRS furlough scheme is now running through to April 2021.

On 17 December 2020, the Chancellor announced a further one-month extension of financial support under the Coronavirus Job Retention Scheme (CJRS) to the end of April 2021. As currently, the government will pay 80% of the salary of employees for hours not worked up to a maximum of £2,500. Employers will only be required to pay wages. National Insurance Contributions (NICs) and pensions for hours worked, and NICs and pensions for hours not worked.

Claims for furloughed employees can only be made for those who were employed and on payroll on 30 October 2020. The employer must have made a PAYE RTI submission to HMRC between 20 March and 30 October 2020, notifying a payment of earnings for that employee. This may differ where an employee has been made redundant, or they stopped working on or after 23 September 2020 and have subsequently been re-employed.

Self-employed Income Support Scheme (SEISS)

No change.

No changes to the SEISS were announced alongside the CJRS extension, as the SEISS already runs through to the end of April 2021. Details of the fourth SEISS grant that will cover the three months from February to April have not yet been released.

Loan schemes

Most schemes extended to 31 March 2021.

On 17 December the Chancellor extended access to the Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS), and the Coronavirus Large Business Interruption Loan Scheme (CLBILS) until the end of March.

Additional support measures

In November 2020 the Financial Conduct Authority (FCA) published fresh guidance across a range of issues including mortgages and consumer credit and loans. The thrust of these was to limit the maximum payment holiday to six months, which had to be agreed three months at a time.

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Tougher criteria for third SEISS grant

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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.

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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.

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Claiming Tax Relief for Working From Home Expenses Just Got Easier….!

Written by admin on . Posted in Benefits, COVID-19, Tax. No Comments on Claiming Tax Relief for Working From Home Expenses Just Got Easier….!

To assist taxpayers, HMRC has launched an online portal for the making of working from home expenses incurred during the pandemic.

From 6 April 2020, employees can claim a tax-free amount of £6 a week to cover the additional costs of working from home. For a basic rate taxpayer, this works out to tax relief of £62.40 over the course of 2020/21, with relief of £124.80 for a higher rate taxpayer.

Taxpayers do not have to provide any evidence, such as increased bills, to support the £6 a week claim.

What to claim

For 2020/21, HMRC, in recognition of the unusual circumstances, are generously permitting a claim for the entire year regardless of how many weeks you are required to work from home. It doesn’t matter if you only work at home one or two days a week. If two or more people work from the same home, then each person is entitled to make a claim.

The amount to claim for 2020/21 is £312 (52 weeks at £6). The online portal can also be used to claim for the final two weeks of 2019/20 after the lockdown commenced.

The online portal

There are two circumstances when the online portal is not applicable:

  • When your employer is reimbursing the £6 a week allowance – you are already benefiting from the tax-free amount.
  • If you complete a self-assessment tax return – the expense claim should instead be made on the return.

Do not expect a tax refund once an online claim is made. Relief is given by adjusting your PAYE coding, so this will reduce PAYE over the remainder of 2020/21.

You can check here if you are entitled to claim work-related expenses, and then, if entitled, proceed with a claim.

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