The government has announced that the self-employed will receive taxable grants to cover November 2020 to April 2021 if your business has been affected by coronavirus.

So, are you eligible?

Who can get the grant? The scheme has only been extended for those that are currently eligible for the Self-Employment Income Support Scheme (SEISS) and are actively continuing to trade but are facing reduced demand due to coronavirus.

If you have not claimed a grant under the SEISS so far, but were eligible to, you can still claim the new grant. The key difference between this grant and the previous ones is that you must be actively trading, it does not appear to be available if you would be trading but are not able to due to Coronavirus.

How much will you be paid? The first grant will cover a three-month period from the start of November until the end of January. The government will provide a taxable grant covering 20% of average monthly trading profits, paid out in a single instalment covering three months’ profits.

The maximum amount is £1,875 for three months, so to get the full amount you need to have average profits of £37,500 per annum.

The second grant will cover the start of February until the end of April. The government will review the level of the second grant and set this in due course.

How do we apply? HMRC has not yet released details of how to apply but with the previous grants, individuals were contacted directly by HMRC

CORONAVIRUS

The Chancellor has announced that the Job Support Scheme (JSS), which will replace the Coronavirus Job Retention Scheme from 1st November 2020, will be expanded to help protect jobs and support businesses required to close as a result of coronavirus restrictions.

What’s the extra help if your business is required to close its doors? If your business has to temporarily close because of coronavirus restrictions, from 1st November, HMRC will pay two thirds of your employees’ salaries up to a maximum of £2,100 per month. Under this scheme, you will not be required to contribute towards wages and will only be asked to cover NI and pension contributions.

Eligibility. You will only be eligible to claim the grant while your business is subject to restrictions, i.e. forced to close, and your employees must be off work for a minimum of seven consecutive days. It’s likely that pubs, clubs, restaurants and other hospitality businesses will be the first to claim. It’s our understanding that pubs and restaurants etc. that are forced to close to diners but which provide a takeaway service will be covered by the scheme. This is subject to confirmation once we have all the detail.

How will it operate? This scheme will operate alongside the JSS and will be available for six months, with a review point in January. In line with the rest of the JSS, payments to businesses will be made in arrears, via an HMRC claims service that will be available from early December.

Increased cash grants will also be available. Increased cash grants will also be available if your business is required to close. These grants will be linked to rateable values, with up to £3,000 per month payable every two weeks, compared to up to £1,500 every three weeks which was available previously.

Whilst workplaces were closed for an extended period, more and more people took to creating dedicated workspaces at home. HMRC is now targeting these spaces – how can you avoid a tax bill?

Sanctuary. As offices closed across the UK back in March, working from home became the norm for many people. Even when things began to reopen later on, many have opted to keep doing so. However, combining this with the closure of schools for nearly six months has meant a need to segregate work life from home life. One option to achieve this is by converting an unused space, for example a spare bedroom, into a dedicated office. But could this lead to a tax problem in the future?

The problem. The issue stems from restrictions to private residence relief (PRR). This generally works so that you don’t pay capital gains tax (CGT) when you sell a property that has been your only (or main) home at a gain. However, if any part of the property is used exclusively for business purposes, HMRC argues that it can’t be a “residence”, and so the relief must be apportioned. The following simple example illustrates the potential consequences.

Example. Ricky bought his three bedroom home in 2000 for £250,000. He converted one of the bedrooms (comprising 20% of the property’s floor space) into an office, and banned his partner and children from using it. He sells the house for £550,000 in 2025. 80% of the gain, i.e. £240,000, will qualify for PRR. However, the other £60,000 is charged to CGT.

Avoid the trap. Fortunately, it is easy to sidestep this trap. Simply ensure that the room has multiple uses. Turn it into a reading room that your desk and computer just happen to be in, and it can’t be said that it is being used exclusively for business. Advertise it as a “study” or “reading room” when you come to sell it, rather than an “office”.

Tip. If the part of your home used for business is one of those fancy sheds in your garden the chance of there being a taxable gain when you sell your home is remote. You should value the “shed” separately from your main home; its sale value is likely to be less than what it cost you to install, i.e. you’ll have made a loss not a gain

Following Borris Johnson’s speech on the 22nd September 2020, there are new restrictions and changes within the UK’s Lockdown.

Here are the critical changes which we must observe starting from Monday 24th September.


The main safety precautions are as followed:

  • HANDS – you must wash your hands regularly and for at least 20 seconds.
  • FACE – you must wear a face covering in enclosed spaces.
  • SPACE – you must observe social distancing (2 metres) apart from others outside your bubble.

Face Coverings

– Customers and staff in private hire vehicles and taxis must wear face coverings (from 23 September).

– Customers in hospitality venues must wear face coverings, (except when seated at a table to eat or drink.)

– Staff in hospitality and retail will now also be required to wear face coverings (from 24 September).

– This guidance on face coverings being worn in close contact services will now become LAW .

(If you are already exempt from the existing face covering obligations, you shall remain exempt).

Working from home

– Office workers who can work effectively from home should do so in the winter.

– Public sector employees who work in essential services (including in the educational sector) should continue to go to work where necessary.

– If you cannot work effectively from home, you should return to work. Extra consideration should be given to those people at higher risk.

Businesses

  1. Businesses selling food or drink, social clubs, casinos, bowling alleys, amusement arcades (and other indoor leisure centres or facilities), funfairs, theme parks, adventure parks and activities, and bingo halls, must be closed between 10pm and 5am. This will include takeaways but delivery services can continue after 10pm (from 24 September).
  2. In licensed premises, food and drink must be ordered from, and served at, a table. Customers must eat and drink at a table in any premises selling food and drink to consume indoors, on site (from 24 September).
  3. Businesses will need to display the official NHS QR code posters so that customers can ‘check-in’ at different premises using this option as an alternative to providing their contact details once the app is rolled out nationally (from 24 September).
  4. Businesses and organisations will face stricter rules to make their premises COVID Secure (from 28 September). (A wider range of leisure and entertainment venues, services provided in community centres, and close contact services will be subject to the COVID-19 Secure requirements in law and fines of up to £10,000 for repeated breaches).
  5. Employers must not knowingly require or encourage someone who is being required to self-isolate to come to work.

Meeting people safely

– Support groups must be limited to a maximum of 15 people.

– Indoor organised sport for over 18s will no longer be exempt from the rule of six. ( There is an exemption for indoor organised team sports for disabled people (from 24 September).

– There will be a new exemption in those areas of local intervention where household mixing is not allowed to permit friends and family to provide informal childcare for children under 14 (from 24 September).

– Weddings and civil partnership ceremonies and receptions will be restricted to a maximum of 15 people (down from 30).

– Other significant standalone life events will be subject to the ‘rule of six’ limits, except funerals (from 28 September).

– Government has announced an extra £60 million to support additional enforcement activity by local authorities and the police.

– We cannot reopen business conferences, exhibition halls and large sporting events, so we will not be able to do this from 1 October.

Conclusion:

All of these measures above must remain in place until March next year according to the Government. These are the measures applied to England, but do check your local lockdown rules if you’re in Wales, Scotland or Northern Ireland

HMRC are changing the way builders charge VAT

From 1st March 2021 HMRC is changing how it collects VAT on some construction services, known as The Domestic Reverse Charge.

Under current rules, a builder charges VAT to their customer, collects the VAT on top of their payment and accounts for it in Box 1 on their VAT return.

This is changing for supplies between VAT-registered builders.

Effectively if the customer is a VAT registered builder then, as a VAT registered sub contractor, you will not charge them VAT or receive a payment of VAT from 1st March 2021 onwards.

If your customer is the end client (i.e. Mr & Mrs Smith, domestic customer) then you continue to charge VAT at 20%.

If your work is zero rated then the normal VAT rules will continue to apply.

Reason for change

HMRC has identified that certain builders have been prone to VAT fraud, where the supplier charges VAT to his customer, receives money for this VAT from the customer but never declares it on a VAT return.

The new procedures aim to prevent this from happening because the supplier is never paid VAT in the first place.

 

Example

Mike is an electrician, VAT registered as a sole trader. He is doing some work on an office block, invoicing the main contractor Steve, for his work.

Steve is also VAT registered, and will then invoice the building owner. Steve is not an “end-user” because he is making an onward supply of construction services to his own customer. He is an “intermediary supplier”.

The invoice raised by Mike will be subject to the new procedures, ie no VAT is charged. Let’s say the value of his work including materials will be for £5,000:

Mike’s VAT return will only include the value of the sale in Box 6 (outputs) of his VAT return:

  • Box 6 – outputs – £5,000

 

Steve will do the reverse charge calculation and make the following entries on his return:

  • Box 1 – output tax £1,000 (ie £5,000 x 20%)
  • Box 4 – input tax – £1,000 (same figure as Box 1)
  • Box 7 – inputs – £5,000 (net value of payment made to Steve)

Other issues to consider

Taking the Steve and Mike example a stage further, they each have their own responsibilities with the new rules.

Mike must ensure that Steve is both registered for the CIS (Construction Industry Scheme) and also has a valid VAT number.

Mike must also specify on his sales invoices the amount and rate of VAT that Steve must declare with the reverse charge ie 5% or 20% VAT.

Mike should include wording on the sales invoice along the lines of: “Reverse charge: customer to pay the VAT to HMRC.”

Steve must tell Mike if he is an “end-user” or “intermediary supplier”. If he is an intermediary supplier, then Mike will not charge him VAT because the reverse charge applies.

It is important that Steve does not pay VAT incorrectly to Mike because HMRC could raise an assessment for the VAT that he should have declared, ie as if the reverse charge had been done correctly.

Penalties issued by HMRC for errors

HMRC has confirmed that penalties will not be charged for mistakes with the new procedures, the exception being if “you are deliberately taking advantage of the measure by not accounting for it correctly.”

Support from a4c

We acknowledge that these changes are likely to cause a great deal of confusion and therefore the whole team at a4c will be prepared to answer any invoicing questions you have in relation to these VAT changes.

Don’t hesitate to call us on 01737 652 852.

We also hope that Xero will be able to support with this new process and we look forward to the forthcoming Xero release which will contain solutions to help you.

Winter Economy Plan

On Thursday 24th September the Chancellor, Rishi Sunak, unveiled the government’s plan to protect jobs and support businesses over the coming months.

Full details are yet to be published but here are the headlines:

 

  • The ability to pay furloughed wages and claim these back via the Coronavirus Job Retention Scheme (CJRS) will cease at the end of October, as previously announced.

 

  • There is going to be a new Job Support Scheme (JSS), starting on 1st November, to support viable jobs.

 

  • The Self-Employment Income Support Scheme (SEISS) has been extended until the end of April 2021.

 

  • The ability to apply for loans, Coronavirus Business Interruption Loan (CBIL) or Bounce Back Loan (BBL) has been extended until the end of November 2020.

 

  • A new Pay as You Grow flexible repayment system, means that businesses can extend their Bounce Back Loans from six to ten years.  They will have the option to make interest-only payments and take payment holidays.

 

  • Self-Assessment tax, which is due to be paid on 31st January 2021, can now be paid in 12 instalments.

 

  • Businesses who deferred VAT payments earlier this year, and were due to repay in March 2021, can now pay it back in 12 monthly interest-free instalments.

 

  • The reduced rate of VAT (5%) in the Hospitality and Tourism sectors has been extended until March 2020

 

More information will be published in the coming weeks so watch this space!

JSS

A new scheme will be introduced from 1st November to protect viable jobs in businesses who are facing lower demand over the winter months due to Coronavirus.

The headline details

The JSS will run for six months, with the government making a contributions towards the wages of employee’s, who are working fewer than normal hours due to decreased demand.

In order to support only viable jobs, employees must be working at least 33% of their usual hours. The level of grant will be calculated based on employee’s usual salary, capped at £697.92 per month.

The employer will continue to pay its employee for time worked, but the cost of hours not worked will be split between the employer, the Government (through wage support) and the employee (through a wage reduction), and the employee will keep their job.

Employers using the Job Support Scheme will also be able to claim the Job Retention Bonus if they meet the eligibility criteria.

Example

 

  • Beth normally works 5 days a week and earns £350 a week. The business she works for is suffering reduced sales due to coronavirus. Rather than making Beth redundant, the business puts Beth on the Job Support Scheme, working 2 days a week (40% of her usual hours).
  • Her employer pays Beth £140 for the days she works.
  • And for the time she is not working (3 days or 60%, worth £210), she will also earn 2/3, or £140, bringing her total earnings to £280, 80% of her normal wage.
  • The Government will give a grant worth £70 (1/3 of hours not worked, equivalent to 20% of her normal wages) to Beth’s employer to support them in keeping Beth’s job.

 

Factsheet

The government has published a four-page factsheet here – JSS Factsheet

How will this work for directors and what about businesses that have no income at all?  We will have to wait for further guidance to see the full details of the scheme so watch this space!

During the lockdown, most people have been working from home, often involved in online meetings with customers and staff.  Where food is consumed during the working day can you claim a tax deduction for the cost?

Tax deductible food

Whether tax can be deducted for the cost of food has been the source of many disputes with HMRC over the years. These days the position is clearer although not trouble free.

Wholly and exclusively

As you probably know, the tax rules prohibit a deduction for expenses unless they are “wholly and exclusively” for the purpose of the job/business. As food is required for personal reasons (you need it to live!) it inevitably fails the wholly and exclusively test.

However, practice and case law eventually settled on an imprecise compromise where HMRC would allow tax relief for the cost of food where it was linked to a business journey.

The rules

The rule is that if you incur expenses in the course of business travel, you’re also entitled to a deduction for the “reasonable” cost of food and drink.

In short, if there’s tax-deductible job-related travel the cost of food and drink for subsistence is also tax deductible.

Online meetings

So where does that leave our home workers?

Unfortunately, as there is no business travel there is no entitlement to tax relief on the cost of food and drink.

How we can help

If you need support or further information please contact Esther Guy on 01737 652 852.

Director’s Salaries following lockdown

 

You’ve not drawn salary from your company for the last three months because its income was significantly reduced. It’s now improving and you’re restarting your salary next month.

Is it worth paying yourself the arrears?

Back to normal?

If you’re one of the many company owner managers who reduced or took no salary because of the financial fallout of coronavirus, you might now be thinking about the right time to reinstate it. You might also be worrying about the effect the crisis will have on this year’s financial results and if the company will make an overall loss. If so, would it be tax efficient for you to reinstate your salary?

Tax efficiency

There are two tax regimes to consider when thinking about salary and tax efficiency: corporation tax (CT) for the company and personal tax (and NI) for yourself. While they are independent of each other both must be taken into account.

Corporation tax

Your company is entitled to a tax deduction for the salaries it pays. This applies even when the company makes a loss for a financial year. The salary will increase the loss but that doesn’t mean it’s not tax efficient to take it.

Tip. Even while your company has no CT to pay for a loss-making year it can use the loss to reduce its tax bill for the previous year and claim the resulting refund. Or, where it didn’t pay CT for the previous year it can instead use the loss to reduce its next tax bill. Either way your company gets a tax deduction for your salary.

Personal tax

Unlike CT, the tax efficiency of salary isn’t affected by whether or not the company makes a profit. Instead it depends on your total income for the tax year (not that for the company’s financial year).

Taking account of your other income (as best as you can estimate at this time) aim to take a salary that brings your income to at least equal your tax-free allowances and reliefs.

For 2020/21 that’s a minimum of £12,500 but could be more. The NI-free amount is lower at around £9,000 and it can be more tax and NI-efficient overall to limit your salary to this.

Tip. If you’re unsure whether or not to reinstate your salary and/or pay yourself any arrears, you can leave the decision to as late as 5 April 2021 (the last day of the 2020/21 tax year). If you need to take income sooner but can’t take it as dividends, borrow the money and repay it from your salary, when you do restart it (or dividends).

Tip. On the other hand, if the lack of cash available in your company is deterring you from taking a salary from your company to achieve tax efficiency, this needn’t pose a problem.

Your company can pay you a salary in principle but you don’t have to draw the money for it to count as paid for personal tax and deductible for CT purposes. You can leave it on account indefinitely as a credit to your director’s loan account until the company can afford for you to take it. This means tax efficiency can be achieved for the cost to your company of PAYE tax and NI (if any) payable.

Conclusion

The lack of cash or current year’s profits shouldn’t prevent you from awarding yourself a salary. It will be tax efficient as long as your company has enough profits in the previous financial year or any future one. The total salary should at least equal your tax and NI-free allowances. Leave the salary in the company if it hasn’t got enough cash to pay it.

How we can help

If you need support or further information please contact Esther Guy on  01737 652 852.