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HMRC’s April interest rate cut

Written by admin on . Posted in Benefits, Employment Tax, Self-Employed, Tax, VAT. No Comments on HMRC’s April interest rate cut

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.
  • 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.

 Photo by M. B. M. on Unsplash

Freeport tax incentives

Written by admin on . Posted in Budget, Business Rates, Employment Tax, Tax. No Comments on Freeport tax incentives

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.

Photo by Annie Spratt on Unsplash

“Hear it Not, Duncan……..

Written by admin on . Posted in Employment Law, Employment Tax, IR35, Tax. No Comments on “Hear it Not, Duncan……..

….for it is knell that summons thee to heaven or to hell.”

I know: not quite the cheerful entry to a blog, however, those immortal words from my favourite Shakespeare play: uttered by Macbeth on his way to his dastardly deed, the murder of King Duncan, seems an appropriate proclamation to make regarding the introduction in less than a fortnight, of the new Off Payroll rules.

The cause of much debate, the controversial rules will see a marked change in the approach adopted by both business and HM Revenue and Customs, and not wanting to add to the massive body of arguments published and circulated to date, I thought I’d merely summarise the new rules for those who’ve recently arrived from Pluto (is it or isn’t it a planet: I forget!?), so here goes:

From 6 April 2021, any medium or large-sized organisation engaging a worker operating through an intermediary will be responsible for determining the worker’s employment status. This status must then be communicated to the worker and to any party contracted with for the supply of the worker, such as an agency.

Although the client (the medium or large-sized organisation) is responsible for determining employment status, it is the fee-payer who will have to operate PAYE if the determination means the worker falls within the off-payroll working (IR35) rules. The fee-payer, as the name implies, is the organisation paying the intermediary, and will often be different to the client. The intermediary will typically be a personal service company, but could also be a partnership, LLP, a managed service company or even an individual.

Status determination statement

Regardless of the outcome of the status determination, the client must provide a status determination statement (SDS) confirming the conclusion and the reasons behind it.

If there is a labour supply chain involved, the SDS must be passed down each stage of the chain until it reaches the fee-payer. This is extremely important, because if an agency receives the SDS but then doesn’t pass it on down the supply chain, the agency will be treated as the fee-payer, with responsibility for deducting taxes and paying them over to HMRC. The same for the client, who will be treated as the fee-payer until the SDS is carried out and communicated.

There are other situations where the client can end up being treated as the fee-payer:

  • Failure to take reasonable care when making a determination; and
  • Failure to respond within 45 days to a disagreement regarding a determination.

The issue of status will have to be re-checked if the working practices of the engagement change or a new contract is negotiated with a worker.

HMRC’s guidance to off-payroll working for clients changes in April 2021. Details, along with several useful links, can be found here.

So, as we march towards the end of the current tax year and into the change to current IR35 arrangements, it remains to be seen whether or not Macbeth’s knell will apply to the critical and valuable contribution made by Personal Service Companies to the UK economy.

As for me, it’s Friday, so “I go and it is done” – this piece that is!

Photo by Matt Riches on Unsplash

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.

Content supplied by Taxbriefs. Photo by Priscilla Du Preez on Unsplash

Changes to the National Minimum and Living Wages

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

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

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

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

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

 

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

What counts as working time?

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

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

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

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

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

Photo by Annie Spratt on Unsplash