To March's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice in your own specific circumstances. We're here to help!
HMRC have been reminding employers to get ready for changes to the Employment Allowance (EA) that take effect from the start of the new tax year on 1 April 2020.
Most employers with a liability to pay employer (secondary) NIC are eligible to claim the EA, including sole traders, partnerships and companies, charities and those with charitable status such as schools, academies and universities, community amateur sports clubs (CASCs), and employers of care or support workers.
The EA is delivered through standard payroll software and HMRC's real time information (RTI) system. It is not, however, given automatically and must be claimed. Claiming is very straight forward – the employer simply signifies his intention to claim by completing the 'yes/no' indicator just once. Although, ideally, the claim should be made at the start of the tax year, it can be made at any time in the year. The employer then offsets the allowance against each monthly Class 1 secondary NICs payment that is due to be made to HMRC until the allowance is fully claimed or the tax year ends.
The allowance applies per employer, regardless of how many PAYE schemes that employer chooses to operate, so each employer can only claim for one allowance. It is up to the employer which PAYE scheme to claim it against.
Two changes apply to the Employment Allowance from 6 April 2020.
Class 1 NIC bill exceeding £100,000
From 6 April 2020, access to the EA is limited to businesses and charities with an employer National Insurance contributions (NICs) bill below £100,000.
In assessing whether the £100,000 limit has been reached, the total liability of all connected employers must be added together. If the total exceeds £100,000 then none of the connected employers will be eligible to claim.
Where employers become connected during the tax year causing the total collective secondary Class 1 liability to exceed £100,000 in that year, they will be eligible to continue claiming for the remainder of the tax year but will cease to be eligible from the start of the following tax year.
Where an employer becomes connected to a group of connected employers whose collective secondary Class 1 liability was in excess of £100,000 in the preceding year, the employer joining the group will no longer be eligible for Employment Allowance in the year in which they join.
From 6 April 2020, the EA is operated as de minimis State aid. This means that employers already in receipt of State aid will need to check that they have sufficient headroom to include the EA within their relevant de minimis limit, which will be dependent upon the particular economic trade sector within which the employer operates.
If there is insufficient headroom to claim the full Allowance (even if the employer may not have used the full amount) they will not be eligible to claim. Employers will be required to make a declaration as part of the annual RTI return, confirming that this condition is met.
One of the key messages regarding claims for structures and buildings capital allowances (SBAs) is that record keeping and cost segregation will be of paramount importance. In order to claim the allowance, evidence of qualifying expenditure must be produced in the form of an allowance statement, submitted to HMRC. Records can include things like formal contracts, emails or board meeting notes.
Broadly, SBAs may be claimed for qualifying capital expenditure on construction works incurred on or after 29 October 2018. SBA expenditure does not, however, qualify for the capital allowances annual investment allowance (AIA).
The main features of the SBA are summarised as follows:
- The allowance is given at a 2% flat rate over a 50-year period, pro-rated for short tax periods;
- Relief is available for new commercial structures and buildings only, but this can include costs for new conversions or renovations. It may be claimed where all the contracts for the physical construction works were entered into after 28 October 2018;
- Relief is not available for land costs or rights over land;
- The building or structure can be located in the UK or overseas, but the business must be within the charge to UK tax;
- Tax relief is limited to the costs of physically constructing the structure or building, including costs of demolition or land alterations necessary for construction, and direct costs required to bring the asset into existence;
- Relief cannot be claimed for costs incurred in applying for and obtaining planning permission;
- The claimant must have an interest ('the relevant interest') in the land on which the structure or building is constructed;
- Relief is not available for dwelling-houses, nor any part of a building used as a dwelling where the remainder of the building is commercial;
- Business expenditure on integral features and fittings of a structure or building that are allowable as expenditure on plant and machinery, continue to qualify for writing-down allowances for plant and machinery including the AIA, up to its annual limit (£1,000,000 until 31 December 2020); and
- Where a structure or building is renovated or converted so that it becomes a qualifying asset, the expenditure qualifies for a separate 2% relief over the next 50 years.
The structure must be used for a qualifying activity, which is taxable in the UK. Qualifying activities are:
- any trades, professions and vocations;
- a UK or overseas property business (except for residential and furnished holiday lettings);
- managing the investments of a company; and
- mining, quarrying, fishing and other land-based trades such as running railways and toll roads.
The sale of the asset does not result in a balancing adjustment (the purchaser takes over the remainder of the allowances written down over the remainder of the 50-year period).
It is only possible to make a claim from when a structure or building first comes into use.
Broadly, the claimant will need an allowance statement for the structure. Where the claimant is the first person to use the structure, a written allowance statement must be created before making the claim. The allowance statement must include:
- information to identify the structure, such as address and description;
- the date of the earliest written contract for construction;
- the total qualifying costs;
- the date the structure was first used for a non-residential activity.
Where a used structure is being purchased, the claimant can only claim SBA if they obtain a copy of the allowance statement from a previous owner.
For any extensions or renovations that were completed after the structure was first used, the claimant can record separate construction costs on the allowance statement or create a new allowance statement.
Claims are generally made via the self-assessment tax return.
Around 31 million taxpayers are expected to benefit from an increase in take home pay from April 2020 when the National Insurance Contributions (NIC) threshold rises from £8,632 to £9,500 per year.
A typical employee will save around £104 in 2020/21, while self-employed people, who pay a lower rate, will have around £78 cut from their bill.
All the other thresholds will rise with inflation, except for the upper NICs thresholds which will remain frozen at £50,000, as announced at Budget 2018.
2020/21 rates and threshold are as follows:
Primary/employee Class 1 NICSs:
Lower earnings limit (LEL):
- £120 weekly
- £520 monthly
- £6,240 yearly
Primary threshold (PT):
- £183 weekly
- £792 monthly
- £9,500 yearly
Upper earnings limit (UEL):
- £962 weekly
- £4,169 monthly
- £50,000 yearly
Rate on earnings up to PT : 0%
Rate above PT: 12% on £183.01 to £962 weekly, 2% on excess over £962 weekly
Reduced rate: 5.85% on £183.01 to £962 weekly, 2% on excess over £962 weekly
Secondary/employer Class 1 NICs:
Secondary earnings threshold (ST)
- £169 weekly
- £792 monthly
- £8,788 yearly
Upper secondary threshold (UST) for under 21s
- £962 weekly
- £4,169 monthly
Apprentice upper secondary threshold (AUST) for under 25s
- £962 weekly
- £4,169 monthly
- £50,000 yearly
Rate: 13.8% on earnings above the ST/UST/AUST
Employment allowance: £3,000 per year, per employer
Class 2 NICs:
Rate: £3.05 per week
Small profits threshold: £6,475
Class 3 NICs:
Rate: £15.30 per week
Class 4 NICs:
- Annual lower profits limit: £9,500
- Annual upper profits limit: £50,000
Rate on profits between lower and upper limits: 9%
Rate on profits exceeding upper profits limit: 2%.
In announcing the rates, the former Chancellor confirmed the government commitment to keeping tax low to ensure people keep more of what they earn. Ministers have pledged that the rates of income tax, National Insurance and VAT will not rise, and the government has set out an ambition to raise the National Insurance thresholds to £12,500, putting almost £500 a year into people's pockets.
HMRC have published Brief 1 (2020): VAT liability of digital publications - Upper Tribunal in News Corp and Ireland Ltd, which confirms that HMRC's VAT treatment of supplies of digital newspapers and other publications has not changed.
Supplies of newspapers are zero rated under UK legislation. HMRC's policy is that the zero rate only applies to the sale of printed matter (that is, supplies of goods). Therefore, the sale of digital newspapers (which are services) has always been treated as standard rated.
In an appeal against the first-tier tribunal (FTT) decision in News Corp UK & Ireland Ltd  TC 06385, the Upper-tier Tribunal (UT) recently ruled in favour of the appellant and reversed the original decision, instead concluding that a digital edition of a newspaper can be zero rated under VATA 1994, Sch. 8, Grp. 3, item 2.
The UT held that:
- group 3 of Schedule 8 is not limited to goods and can include services (such as digital publications);
- the News Corp digital newspapers were essentially the same or at least very similar to the corresponding printed newspapers, fulfilling the same legislative purpose, and falling within the same category of items (or 'genus of facts') that UK legislation has always zero rated;
- the domestic legal principle known as the 'always speaking' doctrine is engaged (essentially, that legislation in certain circumstances should reflect and keep up to date with technological advances); and
- the supply of the digital newspapers in dispute fell to be zero rated within Item 2 (notwithstanding that they did not exist when the zero rates were introduced).
HMRC have been granted permission to appeal the Upper Tribunal decision to the Court of Appeal.
HMRC have confirmed that as their policy has not changed, any claims made in reliance of the decision in News Corp will be rejected.
Where an organisation considers that the decision in News Corp applies to its own supplies of digital publications it should provide HMRC with full details in writing, including:
- a full description of the supplies for which the claim is being made and which item of Group 3 of Schedule 8 the supplies fall;
- clear reasons why it is considered that the claim should be treated in the same way as the supplies in the News Corp UT decision;
- a breakdown of the amounts of overpaid VAT being claimed by prescribed accounting period and the method by which they have been calculated.
Further information can be found in HMRC Brief 1/20.
Q. If I sell a buy-to-let property in July 2020, when will I have to pay the capital gains tax (CGT) arising on the sale?
A. Finance Act 2019 made certain changes regarding payment of CGT, which take effect from April 2020 and broadly align the position of UK residents and non-UK residents.
Subject to certain exceptions, where there has been a disposal of a residential property, payment on account of the CGT will be due on the filing date for the return, which is generally within 30 days of the day after the date the property sale is completed.
The payment on account required is the amount of CGT notionally chargeable at the filing date. This is the tax that would be due if, under the normal rules for calculating chargeable gains for a tax year, the tax year ended at the time the disposal is completed.
In calculating the amount, any unused allowable losses for capital gains purposes incurred by the time the disposal is completed can be used. Available reliefs and the annual exempt amount are applied in the normal way.
The amount of CGT payable on account is the amount after applying the applicable rate of tax to the net gain.
Since the 30-day payment window can make it difficult for some people to provide exact figures, HMRC allow for certain estimates and assumptions to be made. The taxpayer can make a correction once the exact figures are known. If the resulting amount is higher than the amount previously paid, the difference becomes payable to HMRC and interest may be due. If the amount is lower, the difference becomes repayable along with repayment interest from HMRC.
Q. I am thinking of transferring ownership of a rental property to my daughter to help reduce the value of my estate for inheritance tax (IHT) planning purpose. There will be no cash consideration given. What value is used for the gift and what are the CGT implications?
A. For CGT purposes, you are deemed to transfer to your daughter at current market value. So the difference between the market value and the price you originally paid for it will be your capital gain. You will be liable to pay CGT on the gain, even though you have not received any cash for it.
Note that different rules apply for stamp duty land tax (SDLT) - if you gift the property to your daughter for no consideration, there is no SDLT for her to pay.
Q. I work part time and don't earn enough to pay tax, but my husband earns £35,000 a year from his full time job. I have been told that I can transfer some of my personal allowances to my husband so he can save some income tax. Is this true?
A. Claiming the marriage allowance can save married couples or civil partners up to £250 in 2019/20, but it is estimated that more than 2 million couples are missing out.
The allowance was introduced from 6 April 2015, and enables married couples or civil partners to transfer £1,250 of personal allowance (2019/20 rate) from one spouse or partner to the other, provided that the recipient does not pay tax at a rate higher than basic rate.
To process a claim, HMRC will need the national insurance numbers for each spouse/civil partner. In addition, if the claim is made online or by phone, HMRC will have to check the identity of the person making the claim and will ask for information from the claimant such as the last four digits from bank accounts that any state benefits (such as pension or child benefit) are paid into or from bank accounts that pay interest. Alternatively HMRC may ask for information from employment such as information contained on a P60 (the form given to all employees at the end of a tax year).
A claim may be backdated, which means a couple claiming before 5 April 2020 could receive up to £1,150.
Further information can be found at https://www.gov.uk/government/news/spoil-your-loved-one-with-hmrcs-valentines-day-cash-boost.
11 - 2020 Budget
19/22 - PAYE/NIC, student loan and CIS deductions due for month to 5/3/2020