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Business As Usual During Covid 19

New IR35 Rules Start This Month

The “off-payroll” IR35 working rules that apply to certain workers supplying their services to clients via their own personal service companies start from 6 April 2021. These rules were already been in place in the public sector but now apply to the private sector as well.

Under this new regime end user businesses will be required to determine whether that individual would have been treated as an employee or not if directly engaged. This will be a significant additional administrative burden on the large and medium-sized businesses to whom the new rules apply. This is a complex area based on different decisions by the courts and HMRC suggest that end user organisations use the CEST (Check Employment Status for Tax) online tool on their website to help with the determination. The end user business is then required to issue the worker with a Status Determination Statement setting out the reasoning for their decision, a copy of which is also given to any agency supplying the worker if relevant.

The determination notifies the agency that PAYE and NIC should be deducted from payments to the worker’s personal service company. That information should be passed down the labour supply chain if other entities are involved, and the ultimate fee payer is liable for making the tax and NIC deductions. If HMRC are unable to collect the tax from the fee payer, the liability will pass up the labour supply chain thus encouraging the end user organisation to carry out due diligence to limit their exposure.

“Small” businesses will be outside of the new obligations and services supplied to such organisations will continue to be dealt with under the current IR35 rules with the worker and his or her personal service company effectively self-assessing whether the rules apply to that particular engagement.

The definition of “small” is based on the existing Companies Act 2006 definition. That is where the business satisfies 2 or more of the following features:

· Annual turnover of £10.2million or less

· Balance Sheet total of £5.1 million or less

· 50 employees or less

Full details are here: https://www.gov.uk/guidance/understanding-off-payroll-working-ir35

Don’t hesitate to contact us if you think you have an issue with the new rules!

Last Minute End Of Year Tax Planning For Individuals

Tax Year End

 

With only a week to go there is still time to save some tax with some end of year tax planning. Here are some ideas:

Use your spouse’s personal allowance

If your spouse is a lower rate or non-taxpayer, it’s possible for them to transfer 20% of their unused personal allowance to their spouse which could save up to £250 in tax.

Also, if you have income-producing assets (for example, buy-to-let property or even saving accounts), you could transfer these to the lower rate or non-taxpaying spouse’s name to lower your overall Income Tax liability. Assets can be passed between spouses without CGT liabilities.

Individual Savings Account (ISA) allowance

The tax-efficient ISA allowance for the current tax year is £20,000 per person. A married couple can therefore invest £40,000 before the end of the tax year on 5 April. There is no Income or Capital Gains Tax (CGT) no need to declare this on your tax return. If you do not make use of your ISA allowance it cannot be carried forward, so make sure to use it!

Tax-free pension allowance

The standard annual pension allowance is 100% of earned income or £40,000, whichever is higher, in the current tax year. You can also carry forward any unused annual allowance from the three previous tax years, so long as you were a member of a registered pension scheme for the years you wish to maximise contributions for. The cash actually needs to be in the pension by the year end. You can’t back date it.

Save into a pension for your children or grandchildren

Consider saving up to £3,600 into a pension for your spouse, civil partner or a child.
This is possible even if they have no earnings of their own, to obtain basic rate tax relief on the contributions.

Capital Gains Tax (CGT)

Individuals have an annual CGT allowance that currently enables them to make gains on investments of up to £12,300 with no tax due. Any gains in excess of the allowance are charged to CGT at either 10% or 20% with disposals of residential property being taxed at 18% or 28%, depending on if the individual is a higher rate taxpayer in the year the gain arises. Married couples may be able to use each other’s allowances by transferring assets before they are sold.

Inheritance Tax (IHT) Annual Gift Allowance

You may wish to consider using your annual gift allowance of £3,000. Although you can carry this forward for one year, it is then lost if it is unused.

Please do not hesitate to get in touch if you would like advice on any of this. You can contact us here: https://www.sutherlandblack.co.uk/contact/

End Of Year Tax Planning For Limited Companies

End Of Year

When your year end is approaching it’s important to take the opportunity to think about any actions you need to take to manage your tax bill. Many of these actions actually need the transactions to be carried out before the end date and can’t be backdated.

Some of these actions have cash flow and balance sheet effects. Make sure you aren’t reducing your tax bill at the price of running out of cash or damaging your credit rating. If you need advice on these trade offs please don’t hesitate to contact us for advice.

Below we list a brief guide to the main areas that you should review:

Expenses

It’s an obvious fact that the more expenses that are included in your Company Accounts the lower your Corporation Tax bill will be. Here are some common expenses that are missed:

Expenses paid for using personal money – make sure any business expenses paid for using personal cash are claimed back from your company. Every bit goes to saving tax so be sure to find any old receipts.

Motoring costs – If you are paying yourself mileage for using your own car for business mileage make sure it is all claimed.

Bring forward routine purchases – If you regularly purchase items such as office supplies bringing them forward can increase your expenses and reduce your tax bill.

Mobile Phone Bills – Consider transferring your mobile into the Company Name and paying for it directly from the Company. In this way all business and personal calls are allowable as an expense.

Asset Purchases

Annual Investment Allowance – Most Plant and Machinery purchases (not including cars) up to £1 million qualify for the Annual Investment Allowance which allows you to claim the full amount in tax relief immediately rather than spreading it over multiple years with Writing Down Allowances. So clearly if you are considering an asset purchase doing it before the end of the year will accelerate the tax relief. See the full rules here: https://www.gov.uk/capital-allowances/annual-investment-allowance

Salaries and Bonuses

Bonuses – If you are considering a bonus though additional salary payments for a Director or an Employee then this may be a good idea before the Company year end so the Corporation Tax Relief is received as soon as possible.

Family Members – If you have a spouse or family member who is doing work for the Company unpaid this might be a good time to consider putting them on the payroll and paying them for the work that they have done. Be careful to consider the effect of any bonus on Child Benefit payments as total salaries over £50,000 start reducing the Child Benefit received.

Pension Contributions

Contribution Date: For a pension contribution to be deductible from the year’s profit the actual payment must be made inside the Company Year. Remember that it is usually more tax efficient to pay pension contributions for Directors as Employer Pension Contributions. These are payments direct from the Company to the Pension Company which means there is no National Insurance involved. The limit for this payment is then £40,000 a year per person.

R&D Tax Claims

R&D Tax Relief: Many Companies don’t realise that they can claim R&D tax relief on work that they have been doing. It is worth getting a specialist Company to do a review to see if you qualify. These credits can be claimed up to 2 years after the Company Year end so it is important to do this review as soon as possible to protect previous years. Contact us to put you in touch with an expert https://www.sutherlandblack.co.uk/r-and-d-service/.

Contact Us

Don’t hesitate to get in contact if you would like advice on how to save tax in your Limited Company. Give us a call or drop us a message here:  https://www.sutherlandblack.co.uk/contact/

Hospitality 5% VAT Extension Until September

VAT Reduction

As we mentioned in our budget blog post the 5% VAT rate that was brought in in 2020 is going to be extended. The broad details are:

  • The temporary reduced rate of VAT of 5% will be extended until 30 September 2021
  • There will be a new rate of 12.5% from 1 October 2021 to 31 March 2022
  • The supplies to which the temporary reduced rates will apply remain the same.

As before the sectors affected included are:

  • Hospitality
  • Hotel and holiday accommodation
  • Admissions to certain attractions

And also as before businesses need to be aware of changes to the Flat Rate VAT Scheme and the Tour Operators Margin Scheme.

Full details are here: https://www.gov.uk/guidance/vat-reduced-rate-for-hospitality-holiday-accommodation-and-attractions

If you have any questions please give us a call or leave us a message on our contacts page: https://www.sutherlandblack.co.uk/contact/

March 21 UK Budget Update

INTRODUCTION

The Chancellor’s second real budget on the 3rd of March made some important business announcements to try and mitigate the effects of the pandemic and also to start rebuilding the nation’s finances for the future. Below we list some of the most important announcements that will affect individuals and small businesses in Scotland.

The full details of the budget are available here: https://www.gov.uk/government/news/budget-2021-what-you-need-to-know

CJRS FURLOUGH SCHEME EXTENDED TO 30 SEPTEMBER

The current version of the furlough scheme that started on 1 November 2020 was scheduled to end on 30 April 2020. In order to avoid a “cliff-edge” with resulting widespread redundancies the chancellor has announced a further extension of the scheme and also a phased reduction in support to employers. The CJRS furlough grant for May and June will remain at 80% of the employees’ usual pay for hours not working but it will then be limited to 70% for July and then 60% for August and September.

This phased reduction will operate in a similar way as in September and October 2020 with the employer being required to contribute the remaining 10% and then 20% of an employee’s regular pay so that they continue to receive 80% pay for furloughed hours.

In addition to the 10% and 20% contributions employers will continue to be responsible for paying employers national insurance and pension contributions on the full amount being paid to employees.

SELF-EMPLOYED INCOME SUPPORT GRANTS ALSO EXTENDED

In line with the further extension of the CJRS furlough scheme for employees the chancellor has also set out further support for the self-employed. We had been waiting for the details of the calculation of the fourth SEISS grant covering the period to 30 April and we now know that the support will continue to be 80% of average profits for the reference period capped at £2,500 a month and can be claimed from late April. There will then be a fifth SEISS grant covering the 5 months to 30 September.
The chancellor has also bowed to pressure to extend the scheme to include certain traders who were previously excluded. Thus, those who commenced self-employment in 2019/20 will now be included provided they had submitted their 2019/20 tax return by 2 March 2021. This is potentially a further 600,000 traders.
Conditions for the fifth grant will be linked to a reduction in business turnover. Self-employed individuals whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, capped at £2,500 a month. Those whose turnover has fallen by less than 30% will receive a 30% grant, capped at £950 a month. We are awaiting further details of this fifth grant.

CORPORATION TAX RATES TO INCREASE TO 25% BUT NOT FOR ALL COMPANIES

The UK corporation tax rate is currently one of the lowest rates of the G20 countries and the government states it is committed to keeping the rate competitive. That should have the effect of encouraging companies to remain in the UK and companies to set up here. With other countries considering raising corporate tax rates the chancellor has announced that the UK will follow suit and consequently the rate will increase to 25% from 1 April 2023 where profits exceed £250,000. However, where a company’s profits do not exceed £50,000 the rate will remain at the current 19% rate and there will be a taper above £50,000. Businesses will however be able to take advantage of new tax breaks to encourage investment in equipment and an enhanced carry back of losses.

SUPER-DEDUCTION FOR INVESTMENT IN NEW EQUIPMENT

In order to encourage companies to invest in new capital equipment the chancellor announced a radical new “super-deduction” of 130% where they invest in new plant. This would mean that when a company buys plant costing £10,000 they would qualify for a £13,000 deduction in arriving at business profits. The new deduction, which will run for two years from 1 April 2021, will not be available for motor cars. Certain assets such as fixtures in buildings will only qualify for 50% relief in the first year instead of the normal 6% writing down allowance.

THREE YEAR CARRY BACK OF TRADING LOSSES

Many businesses will have made a loss in the last year as a result of the Coronavirus pandemic and the difficult trading environment.
Trading losses can normally only be set against profits of the preceding accounting period or previous tax year in the case of unincorporated businesses.

The chancellor has announced that the carry back period will be temporarily increased to three years thereby enabling the business to obtain a tax refund. For companies this will apply to loss making accounting periods ending in the period 1 April 2020 to 31 March 2022. For unincorporated traders, the extended loss relief will apply to losses incurred in 2020/21 and 2021/22.

The amount of trading losses that can be carried back to the preceding year remains unlimited for companies. After carry back to the preceding year, a maximum of £2,000,000 of unused losses will then be available for carry back against profits of the same trade of the previous 2 years. There will be a similar £2,000,000 limit for unincorporated businesses.

5% VAT RATE FOR FOOD, ATTRACTIONS AND ACCOMMODATION EXTENDED

The VAT registration limit normally goes up each year in line with inflation but will remain at £85,000 for a further two years. Arguably this makes it easier for businesses to assess whether or not they are required to register for VAT as it is no longer a moving target.

If you need any advice in any of these matters please do not hesitate to get in contact with us: https://www.sutherlandblack.co.uk/contact/

Scotland Covid Roadmap – Business Impact

The day after Boris Johnson outlined a roadmap out of Covid restrictions for England Scotland’s First Minister, Nicola Sturgeon, has laid out the beginnings of a roadmap to ease Covid-19 restrictions from April. Like Johnson, Sturgeon is focusing on data rather than dates, but is taking a more cautious approach than the PM. She is going for phased and sustainable, with at least 3 weeks between each phase. Although, she did say that ‘if the data allows, we will seek to accelerate the easing of restrictions.’ More details will be laid out in mid-March, but here’s what we know about Scotland’s Covid-19 roadmap so far and it’s impact on businesses.

Phase 3 – April 5

Sturgeon wants to focus on getting children back to school first, opening the economy at a later stage.

There could be some early easing of business restrictions towards the beginning of April.

  • An extension of the classification of ‘essential retail’
  • Click and collect should resume for non-essential retail
  • Stay at home restriction may be lifted

Phase 4 – April 26

From the end of April, Scotland would be moving back to its multi level system.

  • Gyms, non-essential retail, hairdressers, bars and restaurants should reopen
  • Non-essential work should be permitted in people’s homes

Change of local levels

From the end of April, everywhere should  move from level 4 to level 3. The content of the levels system may be revised but, at present, people can’t leave their council area under level 3 which is still restrictive for businesses.

No decisions have been made on international travel, which will be looked at at a later date.

Financial support for businesses

Ongoing financial support is still available for businesses and tapered support will be provided for those that may still be facing restrictions and reduced demand. If you have any questions about the financial support available to your business please do not hesitate to contact us and we will do our best to assist.

 

Pros And Cons Of Buying A Property Through A Limited Company

Buying A Property Through A Limited Company

 

We often get asked whether buying residential letting property through a Limited Company is a good idea. The answer to that is…. It depends! In order to give decent advice we would need to know the circumstances of the person doing the buying and their long term intentions. However what we can do here is give an idea of some of the pros and cons of using a Company to buy one property or build a portfolio:

Pros of using a Company:

  • Profits and Capital Gains taxed at 19% Corporation Tax Rate
  • Companies are not subject to the restrictions on relief for interest and finance costs that apply to individuals
  • Companies can carry usually carry forward expenses and losses to a later period more flexibly than an individual
  • Easy to share ownership through share allocations
  • Potentially no extra higher rate personal tax

Cons of using a Company:

  • Less mortgage choice and higher interest rates
  • Increased compliance costs
  • No Capital Gains allowance
  • Any personal use of properties owned by the company, by the investor or their close relatives, may have severe tax consequences

Other aspects to consider than this including the prevailing Stamp Duty (or LBBT in Scotland) at the time of purchase or transfer for individuals and Companies and the prevailing tax rate of the individual or individuals involved.

Overall the usual advice about buying a property through a Limited Company is that it could be a good idea if the portfolio is going to be held long term with high levels of debt and the profits retained within the Company.

If you would like any help deciding on what is appropriate for yourself please do not hesitate to get in touch. Leave us a message here and we will get back to you.

 

 

Deferred VAT Bills Now Coming Due

 

The Government has just update it’s guidance on paying VAT bills that were deferred due to the pandemic between 20th March and 20th June 2020. Clients have three options:

  • Pay by the 31st of March
  • Opt into the new deferral scheme when it goes live and pay in up to 11 smaller payments
  • Talk to HMRC about time to pay

Clients with cash flow problems from Corona may well opt for the second option in which case they need to get ready. In order to apply for this they will need:

  • A Government Gateway login with access to their VAT account. Agents (ie accountants) can’t apply for this on behalf of clients.
  • All VAT returns up to date
  • The amount they have deferred

So even though the scheme is not open yet now is the time to prepare. If you need any help getting your VAT affairs up to date please get in contact.

Full details of the scheme are here:

https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19

New VAT Rules For Construction Sector Start On 1st March 2021

VAT Reverse charge

New VAT rules are finally due to come into effect this March which will impact on accounting for VAT for transactions in the construction sector. These new rules, the VAT Reverse Charge, have already been delayed twice as there was a lack of awareness of the changes in the industry.

The new “reverse charge” system of VAT accounting will affect sub- contractors supplying their services to main contractors in the construction sector. Full details from HMRC are here.

Under the new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain will not be invoiced in the normal way. Under the new reverse charge system, the sub-contractor will not show VAT on their invoice to the main contractor and will not account for output VAT. This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors, some of whom were allegedly not paying over the VAT charged to HMRC.

The new reverse charge will apply to a wide range of services in the building trade, primarily those activities covered by the construction industry (CIS) payment rules. Note that normal VAT invoices will continue to be issued to domestic customers.

Please contact us if you are likely to be affected by these changes and we can work with you to ensure you are ready for the new system when it starts. If you are a sub-contractor using the VAT flat rate scheme, it may be beneficial to leave that scheme as you may be entitled to a VAT refund on your expenses from 1 March 2021.

Property Income – Airbnb Landlords Beware

property income


Reuters have reported that the Airbnb UK accounts for the year to 31 December 2019 include a statement that the company will share data with HMRC about the property income of hosts (those who let out property) on its UK platform in the years 2017/18 and 2018/19. See the original article here.

The Airbnb data will allow HMRC to launch targeted enquiries into the affairs of individuals who have not declared their lettings income for 2017/18 and 2018/19. The deadline for opening an enquiry into a self assessment return for 2018/19 is 31 January 2021, if the return was issued and submitted on time.

However, the discovery rules allow HMRC to go back much further, up to 20 years in some cases. The data provided by Airbnb will constitute a discovery for HMRC’s purposes, so up to 20 years will be open for enquiry.

Where a person has omitted some or all of their residential property income for earlier tax years, they should consider disclosing information under HMRC’s Let Property Campaign or where property is located overseas, via the Worldwide Disclosure Facility.

Let us know if you would like us to help you bring your letting income reporting up to date.


	

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